<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-26742
GT BICYCLES, INC.
- --------------------------------------------------------------------------------
(Exact name of the registrant as specified in its charter)
Delaware 04-3210830
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 West Segerstrom Avenue, Santa Ana, California 92704
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(714) 513-7100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $0.001 per share
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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding at August 13, 1996
- ------------------------------ ------------------------------
Common Stock, $0.001 par value 9,775,356
Page 1 of 30 Pages
Exhibit Index Begins on Page 14
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GT BICYCLES, INC.
INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
-----------
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three
and six months ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
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GT BICYCLES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- -----------
ASSETS (in thousands)
<S> <C>
Current assets:
Trade accounts receivable, net $ 36,829 $34,722
Inventories (note 2) 45,433 44,336
Income taxes receivable - 1,065
Deferred income taxes 1,558 1,558
Prepaid expenses and other assets 1,495 832
-------- -------
Total current assets 85,315 82,513
Property, plant and equipment, net 3,696 2,841
Goodwill, net 9,221 9,427
Covenants not to compete, net 520 585
Other assets 1,611 1,327
-------- -------
$100,363 $96,693
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 183 $ 172
Accounts payable 8,239 5,647
Accrued liabilities 3,719 3,905
Income taxes payable 392 -
-------- -------
Total current liabilities 12,533 9,724
Long-term debt 36,122 39,610
Capital lease obligations, net of current portion 566 647
-------- -------
Total liabilities 49,221 49,981
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, none issued - -
Common stock, $0.001 par value, 20,000,000 shares
authorized, 9,772,836 and 9,764,586 shares issued
and outstanding at June 30, 1996 and
December 31, 1995, respectively 10 10
Additional paid-in-capital 46,835 46,820
Retained earnings (accumulated deficit) 4,297 (118)
-------- -------
Total stockholders' equity 51,142 46,712
Subsequent event (note 4)
-------- -------
$100,363 $96,693
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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GT BICYCLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
------- -------- -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $44,114 $37,777 $92,964 $81,716
Cost of sales 30,921 27,580 67,231 61,187
------- ------- ------- -------
Gross profit 13,193 10,197 25,733 20,529
Selling, general and administrative
expenses 8,644 6,438 16,636 13,102
Amortization of intangibles and
deferred financing costs 136 1,003 271 2,066
------- ------- ------- -------
Operating income 4,413 2,756 8,826 5,361
Interest expense 737 1,780 1,467 3,523
------- ------- ------- -------
Income before taxes 3,676 976 7,359 1,838
Income tax expense (1,471) (433) (2,944) (815)
------- ------- ------- -------
Net income $ 2,205 $ 543 $ 4,415 $ 1,023
======= ======= ======= =======
Net income per common and
common equivalent share $ 0.22 $ 0.08 $ 0.45 $ 0.14
======= ======= ======= =======
Weighted average common and
common equivalent shares 9,929 7,086 9,910 7,086
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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GT BICYCLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,415 $ 1,023
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 693 2,458
Provisions for discounts and losses on
accounts receivable 201 152
Changes in assets and liabilities:
Trade accounts receivable (2,308) (63)
Inventories (1,097) 6,967
Income taxes 1,457 467
Prepaid expenses and other assets (947) 110
Accounts payable 2,592 (4,109)
Accrued liabilities (186) (697)
------- -------
Net cash provided by operating activities 4,820 6,308
Cash flows from investing activities:
Purchases of property, plant and equipment (1,277) (389)
------- -------
Cash flows from financing activities:
Net repayments under line of credit (3,488) (4,950)
Principal payments on capital lease obligations (70) (76)
Proceeds from exercise of stock options 15 -
------- -------
Net cash used in financing activities (3,543) (5,026)
Change in cash and cash equivalents - 893
Cash and cash equivalents at beginning of period - 73
------- -------
Cash and cash equivalents at end of period $ - $ 966
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,458 $ 3,581
======= =======
Income taxes $ 1,555 $ 305
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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GT BICYCLES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The condensed consolidated financial statements of GT Bicycles, Inc. (the
"Company") include the wholly-owned subsidiaries, GT Bicycles California, Inc.,
GT BMX Products, Inc., Riteway Distributors, Inc., Riteway Distributors
Central, Inc., Riteway Products East, Inc., Riteway Products North Central,
Inc., Riteway Products Japan K.K. and Riteway Products France S.A.R.L. Riteway
Products North Central, Inc. and Riteway Products France S.A.R.L. were acquired
in July 1995 and April 1996, respectively, and have been accounted for under
the purchase method of accounting and, accordingly, have been included in the
Company's consolidated results of operations since the date of acquisition.
Riteway Products Japan K.K. was formed in March 1996 as a wholly-owned
subsidiary of the Company. All significant intercompany balances and
transactions have been eliminated in consolidation.
Foreign Currency Translation
- ----------------------------
The Company uses the local currency as the functional currency for its overseas
operations. Accordingly, assets and liabilities outside the United States were
translated into dollars at the rate of exchange in effect at the balance sheet
date. Income and expense items were translated at the weighted average
exchange rates prevailing during the period. The cumulative translation gain
or loss is included as an adjustment to stockholders' equity. There were no
significant foreign currency transaction gains or losses in the periods
presented.
Unaudited Condensed Consolidated Financial Statements
- -----------------------------------------------------
The unaudited condensed consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three and six month periods ended June 30, 1996 are not
necessarily indicative of the operating results to be expected for the full
year.
(2) INVENTORIES
A summary of the components of inventories follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Raw materials $ 142 $ 328
Work in process 3,001 1,437
Finished goods and component parts 42,290 42,571
------- -------
$45,433 $44,336
======= =======
</TABLE>
(3) NET INCOME PER SHARE
The calculation of net income per share was determined by dividing net income
by the weighted average common and common equivalent shares outstanding when
dilutive. In accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 83, shares issued and share options granted within one
year of the Company's initial public offering ("IPO") have been included in the
calculation of common share equivalents, using the treasury stock method to
determine the dilutive effect of the issuances, as if they were outstanding for
all periods presented even if they were antidilutive. The calculation of
common share equivalents assumes that the proceeds of common shares and share
options within one year of the IPO were used to repurchase common shares at the
IPO price of $14.00 per share. Primary earnings per share approximates fully
diluted earnings per share for all periods presented.
6
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GT BICYCLES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(4) SUBSEQUENT EVENT
On July 3, 1996, the Company purchased the stock of Caratti Sport Limited
("Caratti") for approximately $13,000,000. As part of the purchase, the
Company agreed to pay a contingent amount of up to an additional aggregate
amount of approximately $1,000,000 based on Caratti's future operating results.
Caratti is involved in the business of distributing wholesale and retail
bicycles, parts and accessories. The purchase of Caratti by the Company was
funded through a $14,000,000 overadvance credit added to the Company's existing
line of credit. The overadvance credit will expire on August 15, 1996 at which
time the Company expects to roll the borrowings over into a term loan with the
Company's primary lender.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
GT Bicycles, Inc. (the "Company") is a leading designer, manufacturer and
marketer of mid-to premium-priced mountain and juvenile BMX bicycles sold under
the Company's brand names. The Company's Riteway Products distribution network
is a leading distributor of the Company's bicycles, parts and accessories, as
well as parts and accessories of other manufacturers, to independent bicycle
dealers.
RESULTS OF OPERATIONS
Net sales were $44.1 million and $93.0 million, respectively, for the three and
six months ended June 30, 1996, compared to $37.8 million and $81.7 million,
respectively, for the corresponding periods in 1995, representing increases of
16.8% and 13.8% over the prior year comparable periods. The increases in net
sales were primarily attributable to higher sales of juvenile bicycles and
parts and accessories. Juvenile bicycle sales were $10.5 million and $15.4
million, respectively, for the three and six months ended June 30, 1996
compared to $8.2 million and $14.2 million for the corresponding periods in
1995. Parts and accessory sales were $16.6 million and $28.7 million,
respectively, for the three and six months ended June 30, 1996 compared to
$11.7 million and $21.2 million, respectively, for the corresponding periods in
1995. International sales for the three and six months ended June 30, 1996
represented 18.3% and 26.7% of net sales, respectively, compared to 18.8% and
24.5% for the same periods in the prior year. The increase in international
sales is primarily attributable to increased parts and accessory sales.
Gross profit margins in the three and six months ended June 30, 1996 were 29.9%
and 27.7%, respectively, compared to 27.0% and 25.1%, respectively, for the
comparable periods in 1995. The increases were attributable to higher gross
profit margins in all bicycle product categories from improved manufacturing
efficiencies and sourcing.
Selling, general and administrative expenses for the three months ended June
30, 1996 increased to $8.6 million, or 19.6% of net sales, from $6.4 million,
or 17.0% of net sales, in the corresponding period of 1995. For the six months
ended June 30, 1996, such expenses increased to $16.6 million, or 17.9% of net
sales, from $13.1 million, or 16.0% of net sales, in the comparable period of
1995. The increases in expenses were primarily due to increased research and
development and marketing and promotional expenses and additional personnel
costs and associated overhead to support the increased revenues of the Company.
Amortization of intangibles and deferred financing costs decreased by $0.9
million to $0.1 million for the three months ended June 30, 1996 compared to
the corresponding period of 1995 and decreased as a percentage of net sales
from 2.7% to 0.3%. For the six months ended June 30, 1996, the amortization
charges decreased by $1.8 million to $0.3 million compared to the corresponding
period of 1995 and decreased as a percentage of net sales from 2.5% to 0.3%.
Effective upon the closing of the Company's initial public offering in October
1995, the Company and the individuals subject to certain covenants not to
compete terminated the covenants not to compete. In addition, the Company
prepaid a senior term loan and senior subordinated debenture from the net
proceeds of the initial public offering. As a result, the Company's
amortization expense related to these covenants not to compete and the deferred
financing costs associated with the senior term loan was terminated as of
October 1995.
Operating income for the three months ended June 30, 1996 increased to $4.4
million, or 10.0% of net sales, from $2.8 million, or 7.3% of net sales, in the
corresponding period of 1995. For the six months ended June 30, 1996,
operating income increased to $8.8 million, or 9.5% of net sales, from $5.4
million, or 6.6% of net sales, in the comparable period of 1995. The increases
were largely the result of
8
<PAGE> 9
the reduction of amortization of intangibles and deferred financing costs
referenced above, but are also attributable to improved gross profit margins as
discussed above.
Interest expense was $0.7 million and $1.5 million, respectively, for the three
and six months ended June 30, 1996 compared to $1.8 million and $3.5 million,
respectively, for the corresponding periods in 1995, representing decreases of
58.6% and 58.4% over the prior year comparable periods. The decreases were due
to the reduction in debt as well as decreased short-term interest rates under
the Company's new revolving credit facility which was obtained in November
1995.
The effective tax rate for income tax expense was 40.0% for the three and six
months ended June 30, 1996 as compared to 44.4% and 44.3%, respectively, for
the three and six months ended June 30, 1995. The Company's effective tax rate
has been affected by the non-deductibility of the amortization of goodwill.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operating cash needs primarily from bank and vendor
credit and cash generated from operations. The Company has a revolving credit
facility which is limited to the lesser of $60.0 million or the Company's
borrowing base based on accounts receivable and inventories, as defined by the
agreement, plus an additional $5.0 million available from January 1 through
April 30 of each year. The revolving credit facility matures on June 30, 1998.
At June 30, 1996, the Company had $36.1 million outstanding under the revolving
credit facility which incurs interest at the bank's Reference Rate (as defined
by the agreement) or other miscellaneous rates. Subsequent to June 30, 1996,
the Company purchased Caratti which was funded on July 3, 1996 through a $14.0
million overadvance credit added to the Company's existing line of credit (See
Note 4 of Notes to Condensed Consolidated Financial Statements).
For the first six months of 1996, the Company had positive cash flow of $4.8
million compared to $6.3 million in the same period of 1995. The decrease was
primarily attributable to increased inventories and accounts receivable. The
Company invested $1.3 million for additional property and equipment in the
first six months of 1996.
The Company anticipates that it will continue to rely on bank and vendor credit
and cash generated from operations in order to finance anticipated higher
inventory and accounts receivable levels. The Company believes that cash from
operations, its bank and vendor credit and its existing working capital will be
sufficient to satisfy the Company's anticipated working capital and capital
expenditure requirements at least through the next 12 months. Nonetheless, the
Company may seek additional sources of capital as necessary or appropriate to
finance acquisitions or otherwise finance the Company's operations. There can
be no assurance, however, that such funds, if needed, will be available.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS AND FUTURE RESULTS
ECONOMIC CONDITIONS; SUSTAINABILITY OF GROWTH. The Company's business is
subject to economic cycles and changing consumer trends. Purchases of
discretionary sporting goods tend to decline in periods of economic
uncertainty. Any significant decline in general economic conditions or
continued uncertainties regarding future economic prospects that affect
consumer spending could have a material adverse effect on the Company's
business, results of operations and financial condition. In the past ten
years, there has been a renewed public interest in bicycling and fitness
activities. There can be no assurance that the public interest in bicycling
and fitness activities will continue, or that the Company will continue to grow
or be able to sustain the level of bicycle sales that historically has been
achieved. Any general decline in the size of the bicycle market or in a
segment of the bicycle market in which the Company competes, whether from
general economic conditions, a decrease in the popularity of bicycling or
otherwise, could have a material adverse effect on the Company's business,
results of operations and financial condition.
9
<PAGE> 10
TECHNOLOGICAL ADVANCEMENTS AND NEW PRODUCT INTRODUCTIONS. The bicycle
industry, in recent years, has been characterized by significant technological
advances and frequent new product introductions. The Company believes that the
frequent introduction of new, innovative bicycles, parts and accessories that
respond timely to changing consumer demands and trends will be critical to its
future success. In the past, the Company generally has been successful in the
introduction of its bicycles, parts and accessories. No assurance can be
given, however, that the Company will be able to continue to design and
manufacture products that will achieve commercial success.
QUARTERLY FLUCTUATIONS AND SEASONALITY. Operating results fluctuate on a
quarterly basis due to a variety of factors, including the cycles of dealer
orders, shipment of products from foreign suppliers, the number and timing of
new product introductions, the timing of operating and advertising expenditures
and changes in the mix of products ordered by dealers. Typically, the
Company's operating expenses are higher in the third quarter primarily due to
annual introductions of new bicycle models and participation in annual industry
tradeshows. In addition, the Company's business has seasonal elements based on
bicycle model years, weather, the year-end shopping season and other factors.
The Company believes that factors such as fluctuations in the quarterly
operating results could cause the price of the common stock to fluctuate
substantially.
COMPETITION. The market for bicycles, parts and accessories, both in the
United States and internationally, is highly competitive. In all of its
product categories, the Company competes with other manufacturers and
distributors, some of which have well-recognized brand names and substantial
financial, technological, distribution, advertising and marketing resources.
In addition, there are several bicycle manufacturers and component suppliers
with substantial resources that do not currently compete directly with the
Company, but which could pose significant competition to the Company in the
future. There can be no assurance that the Company will be able to compete
successfully in the future.
DEPENDENCE ON CERTAIN SUPPLIERS. As is common in the industry, a substantial
majority of the Company's multi-speed bicycles contain componentry supplied on
a purchase order basis by one Japanese manufacturer. Although such supplier
has not indicated any intention to limit or reduce sales of parts to the
Company, if it were to do so, the Company's business, results of operations and
financial condition could be adversely affected. In addition, the Company
purchases substantially all of its bicycles that are manufactured overseas from
a limited group of manufacturers, which varies from year to year. The Company
has no long-term contracts with these suppliers and competes with other
companies for their production capacities. Although the Company has
established relationships with its principal suppliers and manufacturing
sources, the Company's future success will depend on its ability to maintain
such relationships and to develop relationships with new suppliers and
manufacturing sources for the production and sale of bicycles, parts and
accessories. In the event of a delay or disruption in the supply of bicycles,
parts and accessories, the Company believes that suitable alternative suppliers
could be obtained, although the transition to other suppliers could result in
significant production delays. Any significant delay or disruption in the
supply of bicycles, parts and accessories could have a material adverse effect
on the Company's business, results of operations and financial condition.
PRODUCT LIABILITY. Because of the nature of the Company's business, the
Company at any particular time is a defendant in a number of product liability
lawsuits and expects that this will continue to be the case in the future.
These lawsuits generally seek damages, sometimes in substantial amounts, for
personal injuries allegedly sustained as a result of defects in the Company's
products. Although the Company maintains product liability insurance, due to
the uncertainty as to the nature and extent of manufacturers' and distributors'
liability for personal injuries, there is no assurance that the product
liability insurance maintained by the Company is or will be adequate to cover
product liability claims or that the applicable insurer will be solvent at the
time of any covered loss. In addition, due to deductibles, self-retention
levels and aggregate coverage amounts applicable under the Company's insurance
policies, the Company will bear responsibility for a significant portion, if
not all, of the defense costs (which include attorneys' fees and expenses
incurred in the defense of any claim), and the related payments to satisfy any
judgments associated with any claim asserted against the Company in excess of
any applicable coverage.
10
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The successful assertion or settlement of an uninsured claim, the settlement of
a significant number of insured claims, or a claim exceeding the Company's
insurance coverage could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, there
can be no assurance that insurance will remain available, or if available, will
not be prohibitively expensive.
FORWARD LOOKING STATEMENTS. This quarterly report contains certain forward
looking statements that involve risks and uncertainties. Certain risks and
uncertainties that may impact the accuracy of the forward looking statements
with respect to revenues, expenses and operating results include, without
limitation, cycles of dealer orders, general economic conditions and changing
consumer trends, technological advances and the number and timing of new
product introductions, shipments of products and componentry from foreign
suppliers, the timing of operating and advertising expenditures and changes in
the mix of products ordered by independent bicycle dealers. Certain other
risks and uncertainties are described above.
Because of these and other factors that may affect the Company's operating
results, past financial performance should not be considered an indicator of
future performance, and investors should not use historical trends to
anticipate results or trends in future periods.
11
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 4, 1996, the Company held its annual meeting of stockholders and at
such meeting Robert C. Gay was elected as a director of the Company for a three
year term by the common stockholders. The other matter considered at the
annual meeting of stockholders was the ratification of the appointment of KPMG
Peat Marwick LLP as the Company's independent auditors for the fiscal year
ending December 31, 1996.
With respect to the election of Robert C. Gay as a director of the Company, of
the 8,185,518 shares of common stock available for voting at the meeting,
8,176,518 shares of common stock voted for the election and 9,000 shares of
common stock withheld authority for the nominee.
The ratification of the appointment of KPMG Peat Marwick LLP was approved by a
majority of shareholders present and entitled to vote at the meeting.
Specifically, the total outstanding shares of common stock available for voting
at the meeting were 9,764,586 of which 8,185,518 were present or represented at
the meeting. 8,164,533 shares of common stock voted in favor of the
ratification of KPMG Peat Marwick LLP, 13,915 shares of common stock voted
against and 7,070 shares of common stock abstained from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Numbered Page
-------------- -------------
<S> <C> <C>
10.41 Lease Agreement by and between Stone
Mountain Industrial Park, Inc. and GT
Bicycles, Inc. for property located at 8291
Forshee Drive, Westside Industrial Park,
Jacksonville, Florida, dated May 2, 1996. 15
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
-------------------
None.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 13, 1996 GT BICYCLES, INC.
By: /s/ MICHAEL C. HAYNES
-----------------------------
Michael C. Haynes
President and Chief
Executive Officer
(Principal Executive and
Duly Authorized Officer)
13
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Numbered Page
-------------- -------------
<S> <C> <C>
10.41 Lease Agreement by and between Stone
Mountain Industrial Park, Inc. and GT
Bicycles, Inc. for property located at 8291
Forshee Drive, Westside Industrial Park,
Jacksonville, Florida, dated May 2, 1996. 15
27 Financial Data Schedule
</TABLE>
14
<PAGE> 1
<TABLE>
<S> <C>
LEASE AGREEMENT
THIS LEASE, made this _____ day of May, 1996, by and between Stone Mountain Industrial Park, Inc.,
a Georgia Corporation, hereinafter referred to as "Lessor"; and GT Bicycles, Inc., a California
Corporation, hereinafter referred to as "Lessee";
W I T N E S S E T H:
PREMISES 1. The Lessor, for and in consideration of the rents, covenants, agreements, and stipulations
hereinafter mentioned, reserved, and contained, to be paid, kept and performed by the Lessee, has leased
and rented, hereby does lease and rent, to the Lessee, and said Lessee hereby agrees to lease and take upon
the terms and conditions which hereinafter appear, the following described property (hereinafter called
"Premises"):
A 40,000 square foot portion of Building No. 31 (a 156,206 square foot building) known as 8291 Forshee
Drive, Westside Industrial Park, Jacksonville, Florida, said building being a part of Section 27, Township
1 South, Range 25 east, Duval County, Florida, consisting of a portion of Pickett Land Company's Farms
Subdivision as recorded in Plat Book 5, page 93 of the current Public Records of Duval County, Florida, and
being more particularly described on Exhibit "A" Legal Description and Exhibit "B" Building 31 Site Plan
attached hereto by this reference and incorporated herein.
This Lease is subject to all encumbrances, easements, covenants and restrictions of record and to the
Declaration of Covenants, Restrictions, and Easements for Westside Industrial Park.
TERM 2. To have and to hold for a term of 37 months, said term to begin on the 1st day of July, 1996, and
to end at midnight on the 31st day of July, 1999.
RENTAL 3. Lessee shall pay to Lessor monthly "Base Rent" of $12,000.00 due on the first day of each month,
in advance, without offset or demand, commencing on July 1, 1996. Upon execution of this Lease, Lessee has
paid to Lessor $12,000.00, representing the first month's rent due hereunder. In the event Lessee fails to
pay the rent or any other payment called for under this Lease within ten (10) days of the time period
specified, Lessee shall pay a late charge equal to five percent (5%) of the unpaid amount, which late
charge shall be paid with the required payment.
</TABLE>
1
(Fla-G)
<PAGE> 2
<TABLE>
<S> <C>
UTILITY BILLS 4. Lessee shall place utility bills of all types in its name and shall pay same, along with all
assessments pertaining to the Premises, including, but not limited to, water and sewer, natural gas,
electricity, fire protection and sanitary pick up bills for the Premises, or used by Lessee in connection
therewith. If Lessee does not pay same, Lessor may pay the same and such payment shall be added to and
treated as additional rental of the Premises. If this Lease is for a multi-tenant building, water and sewer
charges shall be accounted for as provided in Paragraph 33 herein below.
MORTGAGEE'S RIGHTS 5. Lessee's rights shall be subject to any bona fide mortgage or deed to secure debt which is now, or
may hereafter be, placed upon the Premises by Lessor, and Lessee agrees to execute and deliver such
documentation as may be required by any such mortgagee to effect any subordination within ten (10) days of
receipt of a request for such execution.
MAINTENANCE AND 6. Lessee shall not allow the Premises to fall out of repair or deteriorate, and, at Lessee's own
REPAIRS BY LESSEE expense, including paving, lawn and landscaping, in good order and repair, except portions of the Premises
to be repaired by Lessor under terms of Paragraph 7 below. Lessee also agrees to keep all systems
pertaining to water, fire protection, drainage, sewer, electrical, heating, ventilation, air conditioning
and lighting in good order and repair, and agrees to return same to Lessor at the expiration of this Lease
or renewal hereof in good operating condition. The Lessee covenants and agrees that during the term of this
Lease and for such further time as the Lessee, or any person claiming under it, shall hold the Premises or
any part thereof, it shall not cause the estate of the Lessor in said Premises to become subject to any
lien, charge or encumbrance whatsoever, it being agreed that the Lessee shall have no authority, express or
implied, to create any lien, charge or encumbrance upon the estate of the Lessor in the Premises.
REPAIRS BY LESSOR 7. Lessor agrees to keep in good repair the roof and exterior walls, exclusive of painting, exclusive
of all glass and exclusive of all exterior doors. Lessor gives to Lessee exclusive control of Premises and
shall be under no obligation to inspect said Premises. Lessee shall promptly notify Lessor of any damage
covered under this paragraph, and Lessor shall be under no duty to repair unless it receives notice of such
damage.
MODIFICATIONS AND 8. No modification or alterations to the building on the Premises or openings cut through the roof
ALTERATIONS TO THE are allowed without prior written consent of Lessor. In the event any such modifications or alterations are
PREMISES performed, same shall be completed in accordance with all applicable codes and regulations.
RETURN OF PREMISES 9. Lessee agrees to return the Premises to Lessor, at the expiration or prior termination of this
Lease, broom clean and in as good condition and repair as when first received, natural wear and tear,
damage by storm, fire, lightning, earthquake or other casualty alone excepted. Lessee agrees to remove its
personal property from the Premises at the expiration or prior termination of this Lease.
DESTRUCTION OF OR 10. If Premises are totally destroyed by storm, fire, lightning, earthquake or other casualty, this
DAMAGE TO PREMISES Lease shall terminate as of the date of such destruction, and rental shall be accounted for as between
Lessor and Lessee as of that date. If Premises are damaged, but not wholly destroyed by any of such
casualties, rental shall abate in such proportion as use of Premises has been destroyed, and Lessor shall
restore Premises to substantially the same conditions as before damage as speedily as practicable,
whereupon full rental shall recommence; provided further, however, that if the damage shall be so extensive
that the same cannot be reasonably repaired and restored within six (6) months from date of the casualty,
then either Lessor or Lessee may cancel this Lease by giving written notice to the other party within
thirty (30) days from the date of such casualty. In the event of such cancellation, rental shall be
apportioned and paid up to the date of such casualty.
INDEMNITY 11. Lessee agrees to indemnify and save harmless the Lessor against all claims for injuries to
persons or damages to property by reason of the use or occupancy of the Premises, the improvements on the
Premises or the failure or cessation of services to the Premises, and all expenses incurred by Lessor
because of such injuries or occupancy, including attorneys' fees and court costs.
GOVERNMENTAL 12. Lessee agrees, at its own expense, to promptly comply with all requirements of any legally
ORDERS constituted public authority made necessary by reason of Lessee's use or occupancy of Premises or operation
of its business. Lessor agrees to promptly comply with any such requirements if not made necessary by
reason of Lessee's occupancy or operation of the Premises. It is mutually agreed, however, between Lessor
and Lessee, that if in order to comply with such requirements, the cost to Lessor or Lessee, as the case
may be, shall exceed a sum equal to one year's rent (as measured by the year in which the requirements
arise), then Lessor or Lessee who is obligated to comply with such requirements is privileged to terminate
this Lease by giving written notice of termination to the other party, which termination shall become
effective sixty (60) days after receipt of such notice, and which notice shall eliminate necessity of
compliance with such requirement by party giving notice unless party receiving such notice of termination
shall, before termination becomes effective, pay to party giving notice all cost of compliance in excess of
one year's rent, or secure payment of such sum in manner satisfactory to party giving notice.
Notwithstanding any provisions or limitations in this paragraph to the contrary, Lessee shall be
responsible for any and all costs and expenses arising from any violations of environmental laws or
regulations caused by Lessee's activities or occupancy of the Premises. Further, Lessee's option to
terminate this Lease due to the cost of compliance with environmental laws or regulations shall only be
available to Lessee if the law or regulation in question was enacted after the date of this Lease.
CONDEMNATION 13. If the whole of the Premises, or such portion thereof as will make Premises unusable for the
purpose herein leased, shall be condemned by any legally constituted authority for any public use or
purpose, or sold under threat of condemnation, then in any of said events the term hereby granted shall
cease from the time when possession or ownership thereof is taken by public authorities and rental shall be
accounted for as between Lessor and Lessee as of that date. Such termination, however, shall be without
prejudice to the rights of either Lessor or Lessee to recover compensation and damage caused by
condemnation from the condemnor. It is further understood and agreed that neither the Lessee, nor Lessor,
shall have any rights in any award made to the other by any condemnation.
ASSIGNMENT 14. Lessee may not assign this Lease, or any interest thereunder, or sublet the Premises in whole or
in part without the prior express written consent of Lessor and without giving prior written notice to
Lessor of intent to assign or sublease. Subtenants or assignees shall become liable directly to Lessor for
all obligations of Lessee hereunder, without relieving Lessee's liability. Lessee agrees not to assign or
sublease Premises to any one who will create a nuisance or trespass, nor use the Premises for any illegal
purpose; nor in violation of any valid regulations of any governmental body; nor in any manner to vitiate
the insurance. Lessee further agrees that if such subtenant or assignee is required to pay a rental amount
greater than the rental amount required to be paid by Lessee hereunder, then Lessor shall be entitled to
receive and shall be paid such increased amount. Upon any such sublease or assignment, Lessee shall
provide Lessor with copies of any and all documents pertaining to such sublease or assignment. Lessor shall
not unreasonably withhold its consent to a sublease or assignment.
HAZARDOUS 15. Lessee will not use or suffer the use (by Lessee or other person or entity), of the premises as a
SUBSTANCES landfill or as a dump for garbage or refuse, or as a site for storage, treatment, or disposal of hazardous
wastes, hazardous substances, or toxic substances (defined as "hazardous waste" or hazardous substance"
under Section 1004 of the Federal Conservation and Recovery Act, 42 U.S.C. sec. 6801 et seq., or Section
101 of the Comprehensive Environmental Responses, Compensation, and Liability Act, 42 U.S.C. sec. 9601 et
seq. or under any other applicable laws); Lessee shall not permit hazardous or toxic waste, contaminants,
asbestos, oil, radioactive or other material, the removal of which is required or the maintenance or
storage of which is prohibited, regulated, or penalized by any local, state, or federal agency, authority,
or governmental unit, to be brought onto the Premises or if so brought or found located thereon, shall
cause the same to be immediately removed, unless same complies with all applicable laws, and Lessee's
obligation to so remove shall survive the termination of this Lease; Lessee will not use or suffer the use
of the Premises in any manner other than in full compliance with all applicable federal, state and local
environmental laws and regulations; Lessee warrants and represents that it has not received any notice from
a governmental agency for violation of any environmental laws and regulations and, if such notice is
received, Lessee immediately shall notify Lessor orally and in writing; Lessee shall indemnify, defend, and
hold a Lessor harmless from and against any and all costs, damages, and expenses (including, without
limitation, environmental compliance or response costs, costs for all remedial action and/or damage to
third parties, attorney's fees and court costs at both trial and appellate levels,
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and damages for business interruption and any lost profits) resulting, directly or indirectly, from any
environmental contamination of the Premises or any misstatement or misrepresentation of facts concerning
the matters recited in this paragraph. In addition, at the end of the term of this Lease or earlier
termination hereof, Lessee, upon request by the Lessor, shall cause, at Lessee's expense, an environmental
study to be conducted of the Premises by a person or firm approved by Lessor to ensure that no hazardous
wastes, hazardous substances or other such materials have been stored, handled, treated or disposed of on
the Premises during the term of this Lease in violation of any applicable law.
REMOVAL OF FIXTURES 16. Lessee may (if not in default hereunder) prior to the expiration of this Lease, or any extension
hereof, remove all fixtures and equipment which Lessee has placed in Premises, provided Lessee repairs all
damages to Premises caused by such removal. Provided, however, Lessee shall not remove, under any
circumstances, the following: heating, ventilating, air conditioning, plumbing, electrical and lighting
systems and fixtures or dock levelers. In the event this Lease is terminated for any reason, any property
remaining in or upon the Premises may be deemed to become property of the Lessor and Lessor may dispose of
same as it deems proper with no liability to Lessor and no obligation to Lessee.
DEFAULT: REMEDIES 17. It is mutually agreed that in the event: (A) the rent herein reserved is not paid at the time and
place when and where due and Lessee fails to pay said rent within ten (10) days after written demand from
Lessor; (B) the Premises shall be deserted or vacated; (C) the Lessee shall fail to comply with any term,
provision, condition, or covenant of this Lease, other than the payment of rent, and shall not cure such
failure within twenty (20) days after notice to the Lessee of such failure to comply; (D) Lessee causes any
lien to be placed against the Premises and does not cure same within twenty (20) days after notice from
Lessor to Lessee demanding cure, in any of such events, Lessor shall have the option at once, or during
continuance of such default or condition to do any of the following, in addition to, and not in limitation
of any other remedy permitted by law or by this Lease:
(1) Terminate this Lease, in which event Lessee shall immediately surrender the Premises to Lessor. Lessee
agrees to indemnify Lessor for all loss, damage and expense which Lessor may suffer by reason of such
termination, whether through inability to relet the Premises, through decrease in rent, through incurring
court costs, actual attorney's fees or other costs in enforcing this provision or otherwise;
(2) Lessor, as Lessee's agent, without terminating this Lease, may terminate Lessee's right of possession,
and, at Lessor's option, enter upon and rent Premises at the best price obtainable by reasonable effort,
without advertisement and by private negotiations and for any term Lessor deems proper. Lessee shall be
liable to Lessor for the deficiency, if any, between Lessee's rent hereunder and the price obtained by
Lessor on reletting and for any damage, actual attorneys' fees or expenses incurred by Lessor in enforcing
its rights under this provision.
(3) Lessor also retains the right to apply for and obtain a dispossessory action against Lessee and to
hold Lessee liable for all costs incident to seeking such dispossessory action, including actual attorney's
fees and court costs.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any other remedies herein provided
or any other remedies provided by law. Lessor shall have the duty to mitigate any possible damages which
may be incurred pursuant to any such default by Lessee except in the event Lessee deserts or vacates the
Premises without prior notification to Lessor. Any notice in this provision may be given by Lessor or its
attorney.
ENTRY FOR CARDING, 18. Lessor may card Premises "For Lease" or "For Sale" ninety (90) days before the termination of
ETC. this Lease. Lessor may with 48 hours prior notice to Lessee enter the Premises at reasonable hours during
the term of this Lease to exhibit same to prospective purchasers or tenants and to make repairs required of
Lessor under the terms hereof, or to make repairs to Lessor's adjoining property, if any.
EFFECTS OF 19. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise,
TERMINATION OF shall affect Lessor's right to collect rent for the period prior to termination thereof.
LEASE
NO ESTATE IN LAND 20. This contract shall create the relationship of landlord and tenant between Lessor and Lessee; no
estate shall pass out of Lessor; Lessee has only a possessory interest, not subject to levy and sale, and
not assignable by Lessee except as provided in Paragraph 14 above.
HOLDING OVER 21. If Lessee remains in possession of Premises after expiration of the term hereof, with Lessor's
acquiescence and without any express agreement of parties, Lessee shall be a month-to-month tenant upon all
the same terms and conditions as contained in this Lease, except that the rental rate shall become one and
one-half times the amount in effect at the end of said term of this Lease; and there shall be no renewal of
this Lease by operation of law. Such month-to-month tenancy shall only require thirty (30) days notice by
either party to the other to terminate such tenancy and Lessee's right of possession.
RIGHTS CUMULATIVE 22. All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative but
not restrictive to those given by law.
NOTICES 23. Any notice given pursuant to this Lease shall be in writing and sent by certified mail, return
receipt requested, or by reputable overnight courier to:
(a) Lessor in care of Stone Mountain Industrial Park, Inc., 5830 E. Ponce DeLeon Avenue, Stone Mountain,
Georgia 30083, or such other address as Lessor may hereafter designate in writing to Lessee.
(b) Lessee in care of Attn.: Mike Haynes, CFO, GT Bicycles, 3100 West Segerstrom Avenue, Santa Ana,
California 92704, or such other address as Lessee may hereafter designate in writing to Lessor.
Any notice sent in the manner set forth above shall be deemed sufficiently given for all purposes hereunder
on the day said notice is deposited in the mail or with the courier.
WAIVER OF RIGHTS 24. No failure of Lessor to exercise any power given Lessor hereunder, or to insist upon strict
compliance by Lessee with its obligations hereunder, and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of Lessor's right to demand exact compliance with the terms
hereof.
TIME OF ESSENCE 25. Time is of the essence in this Lease.
DEFINITIONS 26. "Lessor" as used in this Lease shall include Lessor, its heirs, representatives, assigns, and
successors in title to the Premises. "Lessee" shall include Lessee, its heirs and representatives,
successors, and if this Lease shall be validly assigned or sublet, shall include also Lessee's assignees or
sub-lessees, as to Premises covered by such assignment or sublease. "Lessor" and "Lessee" include male and
female, singular and plural, corporation, partnership or individual, as may fit the particular parties.
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EXTERIOR SIGNS 27. Lessee is given permission to erect its customary sign used to identify itself on the front
entrance glass of the Premises provided any such sign by Lessee shall be subject to and in conformity with
all applicable laws, zoning ordinances and building restrictions or covenants of record and must be
approved by Lessor, based on the scaled drawing provided by Lessee, before installation. In the event a
sign is erected by Lessee without Lessor's consent, Lessor shall have the right to remove said sign and
charge the cost of such removal to Lessee as additional rent hereunder. Except upon prior written consent
from Lessor, in no event shall Lessee utilize any portable or vehicular signs at the Premises. On or
before termination of this Lease, Lessee shall remove any sign thus erected, and shall repair any damage or
disfigurement, and close any holes, caused by such removal.
AD VALOREM TAXES 28. Lessee herein is leasing 40,000 square feet of a 156,206 square foot building. Lessor will pay all
ad valorem taxes levied against the full 156,206 square foot building each year of the Lease term or any
renewal hereof. Commencing in the year 1997 and during each remaining year of the Lease term herein
granted, or any renewal hereof, Lessee, as additional rent, shall reimburse Lessor for all sums paid by
Lessor for the above ad valorem taxes, pro rata, based on the square footage occupied by the Lessee, in the
156,206 square foot building in excess of the total amount of ad valorem taxes payable for the year 1996.
Upon being notified by Lessor of said pro rata amount of ad valorem taxes, Lessee will remit same to Lessor
within thirty (30) days in the same manner as rent.
USE OF PREMISES AND 29. (A) Premises shall be used for warehouse and distribution of bicycles and related bicycle products,
INSURANCE and office purposes. Premises shall not be used for any illegal purposes, nor in any manner to create any
nuisance or trespass, nor in any manner to vitiate the insurance, based on the above purposes for which the
Premises are leased.
(B) Lessee herein is leasing 40,000 square feet of a 156,206 square foot building. Lessor will
carry, at Lessor's expense, "All Risk" Insurance Coverage on the full 156,206 square foot building in an
amount not less than $3,515,000 or the full insurable value, whichever is greater. The term "full
insurable value" shall mean the actual replacement cost, excluding foundation and excavation costs, as
determined by Lessor. Lessor shall carry said insurance coverage at its expense. However, if the cost for
insurance increases as a result of the occupancy or use of Lessee or of the occupancy or use by any
sub-tenant or assignee of Lessee, Lessee shall be responsible for the increase on the entire building. Upon
being notified by Lessor of said increased sums, Lessee will remit to Lessor said amount within thirty (30)
days.
(C) Lessee will carry, at Lessee's own expense, insurance coverage on all equipment, inventory,
fixtures, furniture, appliances and other personal property on the Premises.
(D) Lessee shall procure, maintain and keep in full force and effect at all times during the term
of this Lease and any renewal hereof, comprehensive public liability insurance indemnifying Lessor and
Lessee against all claims and demands for injury to, or death of, persons, or damage to property which may
be claimed to have occurred upon the Premises in an amount not less than $2,000,000.00, per occurrence of
coverage for injury (including death) to one or more persons attributable to a single occurrence and for
property damage.
To the full extent permitted by law, Lessor and Lessee each waives all right of recovery
against the other for, and agrees to release the other from liability for, loss or damage to the extent
such loss or damage is covered by valid and collectible insurance in effect at the time of such loss or
damage; provided however, that the foregoing release by each party is conditioned upon the other party's
carrying insurance with the above described waiver of subrogation, and if such coverage is not obtained or
maintained by either party, then the other party's foregoing release shall be deemed to be rescinded until
such waiver is either obtained or reinstated.
All insurance provided for in this Lease shall be effected under enforceable policies issued
by insurers of recognized responsibility licensed to do business in the state where the Premises are
located. At least 15 days prior to the expiration date of any policy procured by Lessee, the original
renewal policy for such insurance shall be delivered by the Lessee to the Lessor. Within 15 days after the
premium on any such policy shall become due and payable, the Lessor shall be furnished with satisfactory
evidence of its payment. The original policy or policies shall be delivered to Lessor at the commencement
of this Lease.
If the Lessee provides any insurance required by this Lease in the form of a blanket policy,
the Lessee shall furnish satisfactory proof that such blanket policy complies in all respects with the
provisions of this Lease, and that the coverage thereunder is at lease equal to the coverage which would be
provided under a separate policy covering only the Premises.
If the Lessor so requires, the policies of insurance provided for shall be payable to the
holder of any mortgage, as the interest of such holder may appear, pursuant to a standard mortgage clause.
All such policies shall, to the extent obtainable provide that any loss shall be payable to the Lessor or
to the holder of any mortgage notwithstanding any act or negligence of the Lessee which might otherwise
result in forfeiture of such insurance. All such policies shall, to the extent obtainable, contain an
agreement by the insurers that such policies shall not be cancelled without at least thirty days prior
written notice to the Lessor and to the holder of any mortgage to whom loss hereunder may be payable.
ADDITIONAL CHARGES 30. In addition to rent, Lessee shall pay monthly in advance concurrent with rental payments, all
applicable State and Local Sales Tax on all sums due under this Lease.
RADON GAS 31. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in
sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of
radon that exceed federal and state guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from your county public heath unit.
GROUNDS AND 32. Notwithstanding the provisions of Paragraph 6 herein above, Lessor shall provide all material,
COMMON AREA equipment and labor for exterior landscape and grounds maintenance for the Premises including mowing,
MAINTENANCE mulching, weeding, fertilizing, insecticiding, pruning, routine replacement of trees and shrubbery, and
other landscaping, drainage, and irrigation system maintenance. Lessor will also provide landscaping and
maintenance for right-of-way areas, and the common irrigation and storm water management systems which
serve the Premises and Westside Industrial Park ("common area maintenance").
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WATER AND 33. The building of which the Premises are a part is served by one water meter. Lessor shall be
SEWER BILLS billed by the utility for all water consumed in building along with related sewer charges, and Lessor shall
promptly pay said bills. Lessor shall however, invoice Lessee monthly for Lessee's share of such water and
sewer charges based on Lessee's portion of the leased space in building, and Lessee shall promptly pay said
bills. If Lessee's consumption of water is increased by "non-domestic" manufacturing, processing, or other
uses, exclusive of "domestic" uses such as office, restroom, drinking fountain, or is increased by
"domestic" uses arising from occupancy by more than one person per 2000 sq. ft. of leased floor area,
Lessee's share of water billed shall take such extra uses into account. Conversely, if water use by any
other occupant of the building is increased by such "non-domestic" use or "domestic" uses arising from
occupancy exceeding one person per 2000 sq. ft. of leased floor area, such other occupant's billing shall
take such extra use into account.
Attached hereto and incorporated herein by reference are the following:
Addendum to Lease
Exhibit A- Legal Description
Exhibit B - Site Plan
Exhibit C - Building Specifications
THIS LEASE contains the entire agreement of the parties hereto, and no representations, inducements,
promises or agreements, oral or otherwise, between the parties, not embodied herein, shall be of any force
of effect.
If any term, covenant or condition of this Lease or the application thereof to any person, entity or
circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons, entities or circumstances other than those
which or to which used may be held invalid or unenforceable, shall not be affected thereby, and each term,
covenant or condition of this Lease shall be valid and enforceable to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, the day and year first above
written.
Signed, sealed and delivered STONE MOUNTAIN INDUSTRIAL PARK, INC.
in the presence of: A GEORGIA CORPORATION
/s/ LINDA G. LAUSON By: /s/ MICHAEL G. KERN
----------------------------------------- -------------------------------
Witness Title: Vice President
LESSOR (Corp. Seal)
Signed, sealed and delivered GT BICYCLES, INC.
in the presence of: A CALIFORNIA CORPORATION
/s/ By: /s/ MICHAEL HAYNES
----------------------------------------- ------------------------------
Witness 5/2/96 Title: CFO
LESSEE (Corp. Seal)
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ADDENDUM TO LEASE DATED MAY ______, 1996
BETWEEN STONE MOUNTAIN INDUSTRIAL PARK, INC.
AND
GT BICYCLES, INC.
34. SCHEDULE OF RENTS: Lessee shall pay to Lessor promptly on the first day
of each month during the term of this Lease, in advance and without
demand or offset:
$12,000.00 per month July 1, 1996 through July 31, 1999
35. The 40,000 square foot Premises is part of a larger 54,062 square foot
unit within 8291 Forshee Drive. The eastern boundary of the Premises
shall be defined by a "chalk line". The 14,062 square foot area outside
of the Premises but within the 54,062 square foot unit shall be known as
the "Expansion Area" and shall be a defined term under this lease.
Lessee shall not use the Expansion Area to store any goods or regularly
use the Expansion Area as an aisle. The utilities serving the Expansion
Area shall be controlled by Lessee and Lessee will be responsible for
any associated costs. (Except Lessee shall not be responsible for a
prorata share of the water and sewer expense for the Expansion Area).
Should Lessor lease any portion of the Expansion Area to an entity other
than Lessee, then Lessor shall properly demise the leased area from
Lessee's Premises and separate the utilities prior to such other entity
taking occupancy.
36. Provided that the Expansion Area is available and that Lessee is not in
default hereunder, Lessee shall have the option to expand into the
Expansion Area on a month to month lease basis by increments of 2,000
square feet of space; or Lessee may choose to lease either approximately
6,000 square feet or approximately 12,000 square feet of space for a
term to run coterminous with this lease.
37. Lessor shall have a one time option to require that Lessee move its
operation to the eastern portion of the 54,062 square foot unit to allow
for the expansion of the adjacent tenant, provided that Lessee shall
have the same amount of leasable area as it has under lease (not to
include month to month leases) at the time notice is given. Lessor
shall provide Lessee with a minimum of sixty (60) days within which to
make its move, and shall pay to Lessee $2,500 to help defray Lessee's
moving expenses.
38. Provided that Lessee is not in default hereunder and that Lessee has not
sublet the Premises or assigned this Lease or its rights hereunder,
Lessee shall have the option to expand into a larger available facility
owned by Stone Mountain Industrial Park, Inc. at any time during this
Lease Term, and this Lease shall terminate upon the commencement date of
the lease for such larger facility.
39. Provided that Lessee is not in default hereunder and that Lessee has not
sublet the Premises or assigned this Lease or its rights hereunder,
Lessee shall have the one time option to renew this Lease for an
additional three (3) year Lease Term under the same terms and conditions
as herein set forth except that the monthly rental rate shall be
$13,200.00 per month. Lessee shall provide Lessor with not less than
180 days advance written notice of its intent to renew the Lease.
40. Lessee shall be permitted to access the Premises as of June 1, 1996 for
the purpose of setting up its racking and other systems.
41. Provided that Lessee is not in default hereunder and provided that
Lessee has not sublet the entire Premises or assigned this Lease or its
rights hereunder, during the first twelve (12) months of the term,
Lessee shall have a "right of first offer" for the Expansion Area
adjacent to the Premises, consisting of approximately 14,000 square
feet, as more particularly shown on Exhibit B, on the terms and
conditions of this paragraph. If Lessor desires to offer the Expansion
Space for lease, Lessor will deliver to Lessee a written notice
specifying the terms of the offer. Lessee will then have five (5)
business days from
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the delivery of such notice to accept the offer in writing to lease the
identical space as contained in the offer in accordance with terms of
the offer. Lessor and Lessee shall promptly enter into an amendment to
this Lease on all the same terms as this Lease, incorporating the rental
terms contained in Lessor's notice with respect to the Additional Space,
and adjusting other matters dependent upon the size of the new premises,
such as Lessee's share of the common area expenses, ad valorem taxes and
insurance premium payments. If Lessee fails to accept or rejects the
offer within the 5-day period, Lessor will be entitled to lease the
space on the same terms stated in the notice to Lessee; provided,
however, that if Lessor proposes to lease the Additional Space on more
favorable terms to a third-party, Lessor will again re-offer the
Additional Space to Lessee on such terms and Lessee shall respond to
such offer in this paragraph will automatically terminate. However, if
Lessor does not lease the space, the space will not subsequently be
leased without Lessor's compliance with this paragraph. Time is of the
essence of this Lease. Lessee's right hereunder shall be subject to
Graham Field Health Products, Inc. "right of first offer" which shall
have priority over Lessee's right.
2
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Book 8105 Pg 1155
LEGAL DESCRIPTION
BLDG. 31
WESTSIDE INDUSTRIAL PARK
A part of Section 27, Township I South, Range 25 East, Duval County
Florida, together with a portion of Pickett Land Company's Farms Subdivision as
recorded in Plat Book 5, page 93 of the current Public Records of Duval County,
Florida, together with a portion of Unit 1, Westside Industrial Park
Subdivision as recorded in Plat Book 46, page 84A-E of the current Public
Records of Duval County, Florida, and being more particularly described as
follows:
Begin at the point of intersection of the northern right of way of
Forshee Drive (80 ft. r/w) and the eastern right of way of Bulls Bay Hwy. (var.
r/w); running thence along the eastern right of way of Bulls Bay Hwy. (var.
r/w) N 0 degrees 00'00" E a distance of 56.40 feet to a point; running thence
along said right of way N 08 degrees 05'34" W a distance of 437.96 feet to a
point; running thence and leaving said right of way S 90 degrees 00'00" E a
distance of 970.35 feet to a point; running thence S 0 degrees 00'00" E a
distance of 473.62 feet to a point lying on the northern right of way of
Forshee Drive (80 ft/ r/w); running thence along said right of way and a curve
to the right (said curve having a chord bearing of S 84 degrees 42'02" W, a
chord distance of 177.33 feet, and a radius of 960.00 feet) an arc distance of
286.01 feet to a point; running thence along said right of way N 90 degrees
00'00" W a distance of 732.12 feet to a point and the TRUE POINT OF BEGINNING.
Said tract or parcel contains 10.5 acres and is more fully shown on that
Site Plan of Building 31 for Pattillo Construction Co., prepared by Jason R.
Houston, dated 12/01/94, last revised 12/27/94.
EXHIBIT A
<PAGE> 9
[FUTURE TRAILER STORAGE/PARKING AREA DRAWING]
EXHIBIT B
<PAGE> 10
GT Bicycles
May 1, 1996
WESTSIDE INDUSTRIAL PARK
BUILDING SPECIFICATIONS - BUILDING NO. 31
GT BICYCLES
GENERAL FACILITY DESCRIPTION
- ----------------------------
<TABLE>
<S> <C>
(a) LOCATION: Building No. 31, 8291 Forshee Drive, Westside Industrial Park, Jacksonville, Florida.
(b) SIZE & OVERALL
DIMENSIONS: Approximately 40,000 sq. ft. including 900 to 1000 sq. ft. of finished office with 24' minimum
ceiling clearance. The property dimensions will be approximately 241.5' x 172' with 40' x 50'
interior column spacing.
(c) OFFICE: Approximately 900 to 1,000 sq. ft. of heated and air conditioned office/restrooms area at the
shipping doors. Offices will be built according to a Floor Plan to be prepared by Pattillo and
mutually approved by GT Bicycles and Pattillo. (See Office Area Design & Finishes section for
additional detail)
(d) GENERAL CONDITIONS: Cost of design, supervision, permits (including permit for installation of satellite), fees, meters,
temporary utilities, and other expenses related to construction are included. All work shall be
being performed in a professional manner by Pattillo Construction Corporation in accordance with the
applicable laws and regulations in effect in Duval County and the State of Florida. Special water,
sewer, environmental or other permits related to Lessee's particular processes, operations, or
emissions are not included.
SITE WORK
- ---------
(a) LANDSCAPE, DRAINAGE,
& IRRIGATION: All surface water will drains away from the building. Services of a landscape architect have been
provided to design landscaping for the premises, which will be installed in accordance with overall
standards for Westside Industrial Park.
(b) AUTOMOBILE PARKING: Fifteen (15) parking spaces paved with asphalt along with required curb and gutter will be provided.
Lessor shall stripe seven (7) spaces in the truck area.
(c) TRUCK AREAS &
ACCESS DRIVES: The 120' deep truck court area and all drives are to be paved with 6" of concrete rated at 3,000.
(d) CURB & GUTTER: Poured with 3,000 PSI concrete 18" x 6".
(e) SIGNS & STRIPING: Parking areas will receive single line painted striping and handicap signs.
CONCRETE
- --------
(a) FOUNDATIONS: All footings have been designed for 3,000 PSF soil bearing pressure and will poured with 3,000 PSI
concrete.
</TABLE>
EXHIBIT C
<PAGE> 11
GT Bicycles
Westside Industrial Park - Building No. 31
May 1, 1996
Page Two
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(b) SLAB ON GRADE:
(1) Five (5") inch thick 3,000 PSI concrete reinforced with synthetic fibers. The surface will be steel trowel finished
and floors will be chemically cured and hardened with "Lapidolith". Subgrade will be chemically treated for termite
protection. Caulking of floor joints is excluded.
(2) Column isolation joint will be non-keyed, diamond or round formed with asphalt impregnated felt.
(3) Expansion joints at slab perimeter with asphalt impregnated fiberboard, 5/8" thick.
(4) Control joints saw cut, 1/4 of slab depth, 1/8" wide, bisect bays.
(5) Construction joints will have smooth dowels every 18" on center.
(c) DOCK CANOPIES: Concrete canopies, one over each truck door opening.
(d) EXTERIOR STAIRWAYS: Concrete stairways lead from warehouse area to truck court.
(e) EXCLUDED: Striping, caulking, granular fill.
MASONRY
- -------
(a) EXTERIOR WALLS: Exterior walls will be four inch brick backed with eight inch (8") concrete masonry units.
(b) DEMISING WALL: The wall demising GT Bicycles from other tenants will be constructed of 12" x 8" x 16". Control
joints will be filled with one layer 5/8" thick asphalt impregnated felt.
STRUCTURAL SYSTEM/METALS
- ------------------------
(a) STRUCTURAL STEEL: Structural steel beams, columns and joists (column spacing 40' x 50') including perimeter beams at
the eave line and wind columns as required. The structural steel frame will be designed dead load
of 25 lbs. per square foot and a live load of 20 lbs. per square foot.
(b) STEEL JOISTS: Designed for dead load of 25 lbs. per square foot and live load of 20 lbs. per square foot and
Seismic Zone 1. Bridging will be 1" x 1" x 7/67".
MOISTURE PROTECTION
- -------------------
(a) The roof deck is slotted, galvanized steel deck (0.5" deep) covered with a flood coat of lightweight insulating aggregate
concrete with 1" polystyrene board embedded in the flood coat along with two inches of additional insulating concrete above
the polystyrene board. The insulating concrete will be covered with a 4 ply, smooth surface, fiberglass built-up roof
membrane topped with light tan pea gravel. The roof system is designed to provide an "R" Factor of approximately 10 as
calculated in accordance with the Energy Efficiency Code. Gutters and downspouts are shop cooled galvanized steel, 24 gauge.
</TABLE>
<PAGE> 12
GT Bicycles
Westside Industrial Park - Building No. 31
May 1, 1996
Page Three
<TABLE>
<S> <C>
DOORS AND WINDOWS
- -----------------
(a) OVERHEAD DOCK HEIGHT TRUCK DOORS:
Each 10' (w) x 10' (h) opening will be provided with a 24 gauge steel, high lift truck door with 13 gauge angle mounted
track.
(b) WOOD DOORS: Flush, solid core, 36" x 84", 1-3/4" thickness, birch veneer face, stain grade doors shall be provided for
all interior office spaces.
(c) ALUMINUM ENTRANCE DOOR FRAMES AND FIXED GLASS FRAMES:
(1) Entrance door frames shall be narrow style, extruded aluminum, with electrostatically applied enamel finish in color
selected by Architect/Engineer.
(2) Fixed glass storefront framing system shall be extruded aluminum sections with electrostatically applied enamel finish
in color selected by Architect/Engineer. Members shall be installed with concealed fasteners.
(d) GLASS AND GLAZING:
(1) All exterior glass shall be reflective, 1/4 inch minimum thickness, double glazed, solar bronze, insulated.
Installation shall be in accordance with the recommendations of the manufacturers of the glass and glazing materials.
(e) FINISH HARDWARE:
(1) Locks and latch sets shall be heavy duty cylindrical case, brushed aluminum finish as manufactured by Ruswin or equal.
Lever handle sets shall be installed as required by code.
(2) Door closures shall be surface mounted.
(3) Push, kick, and mop plates shall be stainless or brushed aluminum.
(4) Hinges shall be heavy duty, ball bearing at doors with closures, oil bearing elsewhere. On exterior hardware provide
non-removable hinge pins.
(5) Office area to be keyed separate from warehouse.
FINISHES
- --------
(a) GENERAL:
900 to 1,000 sq. ft. of restroom and office area.
(b) FURRING: The office/warehouse demising wall will be furred and finished with 5/8" gypsum board.
(c) DRYWALL: Interior office walls and the temporary expansion wall shall be constructed as follows:
(1) Sheetrock shall be 5/8" thickness, tapered edges, fire rated, where required. Corner beads to be metal and edge
molding J type. Finished height 9' - 0" and shall be screw applied and finished with a ready mixed, all purpose joint
compound. Fixture walls of toilet rooms shall receive moisture resistant gypsum board.
</TABLE>
<PAGE> 13
GT Bicycles
Westside Industrial Park - Building No. 31
May 1, 1996
Page Four
<TABLE>
<S> <C>
(2) Standard metal studs shall be 3-5/8", 26 gauge electro-galvanized steel, cold rolled C shaped, screw type, gauge as
recommended by the manufacturer for partition framing. Studs to be 24" on center.
(3) Restrooms to have 4" x 4" ceramic tile floor to 9' - 0" ceiling height.
(d) FLOORS:
(1) Offices: Carpeting with a $12.50/sq. yd. allowance or 12" x 12" x 1/8" vinyl composition tile as required.
(2) Restrooms: 4" x 4" ceramic tile.
(e) CEILINGS: Spaces scheduled to receive acoustical tile ceiling system shall have exposed grid system, 24 inches
by 48 inches, non-directional fissured mineral board, 5/8 inch thickness, square edges, exposed
steel "T" runners, white painted finish. Ceiling shall be insulated with 3-1/2" inch fiberglass
batts.
(f) WAREHOUSE FINISHES:
(1) The personnel doors and frames will be painted - two coats.
(2) Warehouse walls and structural steel columns and beams will be painted white.
(3) Rodent Stripe - painted white rodent stripe, 12' around interior warehouse perimeter.
(g) MILLWORK: Breakroom area shall be provided with base cabinets per office design.
SPECIALTIES
- -----------
(a) TOILET PARTITIONS: Plastic laminate (wood particle board core) with standard polish non-corrosive metal hardware.
(b) TOILET ROOM ACCESSORIES:
(1) Brushed stainless steel toilet room accessories manufactured by Bobrick or equal shall be provided as follows:
(2) Semi-recessed paper towel dispenser: one each toilet room.
(3) Framed mirrors: one each lavatory except where unframed mirrors are provided, sloped, handicapped type where required
by Southern Building Code.
(4) Handicapped grab bars: one pair each toilet.
(5) Soap dispenser: one (1) each toilet room.
(6) Two (2) napkin disposal units.
(7) Toilet tissue dispenser at each toilet.
</TABLE>
<PAGE> 14
GT Bicycles
Westside Industrial Park - Building No. 31
May 1, 1996
Page Five
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(c) FIRE EXTINGUISHERS:
(1) Fire extinguishers shall be provided as required by Southern Building Code in both the warehouse and office.
(2) All fire extinguishers in finished office areas are to be located in semi-recessed enameled steel cabinets with
signage.
EQUIPMENT
- ---------
(a) DOCK LEVELERS: Five (5) each 6' x 8' manually operated mechanical dock levelers (20,000 lb. capacity).
PLUMBING
- --------
(a) SERVICE LINES: A 2" water line with standard 2" meter connection and 6" Schedule 40 PVC sewer line serve the
building. All systems and fixtures will be designed in accordance with applicable Florida codes.
Domestic water piping above grade will be copper. Restrooms will be provided as described under
Office Area Design and Finishes and will be designed for handicapped accessibility as required by
code. Surcharges or tap on fees based on water or sewage effluent quality or quantity are excluded.
(b) RESTROOMS: Flush valve wall hung urinals and flush valve floor mounted toilets will be provided.
(c) WATER COOLERS: One (1) wall mounted electric stainless steel, top barrier free electric water cooler is included in
the office area.
(d) SINKS:
(1) Bathroom lavatories to be provided per code for 25 total employees per shift.
(2) Breakroom - single compartment, stainless steel sink shall be provided in breakroom vending area.
(3) Janitor's sink - single compartment, deep well sink shall be provided in janitor's room.
(e) WATER CLOSETS: Standard floor mounted, low consumption, flush valve, open front, elongated bowl, 17" rim height,
white, vitreous china (handicap per code).
(f) URINALS: Wall mounted, low consumption, flush valve, white, vitreous china.
(g) WATER HEATER: Electric, 50 gallon (typical) hot water will be provided to restrooms and sinks.
(h) HOSE BIB: Bronze or brass, integral mounting flange.
</TABLE>
<PAGE> 15
GT Bicycles
Westside Industrial Park - Building No. 31
May 1, 1996
Page Six
<TABLE>
<S> <C>
FIRE PROTECTION
- ---------------
(a) SPRINKLER SYSTEM: A complete wet sprinkler system designed and constructed to provide 0.32 gallons per minute to the
most remote 3,000 square feet in accordance with N.F.P.A. Standards for a system. System shall
include yard mains, hose hydrants, interior hose stations, sprinkler heads, and chrome pendant heads
will be used in the finished office area. Office area to have 0.10 gpm per sq. ft. over most remote
3,000 sq. ft. to Code. Four thousand sq. ft. of "coating area" to have drop heads.
(b) FIRE HYDRANTS: Fire hydrants - will be provided per building code.
(c) EXCLUSION: In-rack sprinkler, foam, etc. have not been provided for. Sprinkler system within the freezers and
coolers.
HVAC/MECHANICAL
- ---------------
(a) NATURAL GAS: Natural gas supply will be provided to the building with 2" - 2 psi entrance piping by the gas
utility company.
(b) OFFICE AREA HEAT AND COOLING:
(1) A complete independent HVAC system shall be provided for the office areas.
(2) The HVAC system shall be packaged units and mounted on the roof or split systems with the condensers ground mounted.
The units shall be York, Trane, Carrier or equal.
(3) Air distribution will be by ceiling diffusers and controls with be electric thermostats.
(4) An exhaust fan will be provided for each restroom.
(c) WAREHOUSE AREA HEAT: Suspended gas fired unit heaters will be provided. Design will maintain 70 degrees fahrenheit at
outside temperature of 29 degrees fahrenheit.
(d) WAREHOUSE VENTILATION: Two (2) ceiling mounted warehouse fans will be provided.
ELECTRICAL
- ----------
(a) MAIN SERVICE: 600 amp, 277/480 volt, three phase 4 wire main service with dry type transformers serving 120/208
volt loads. A low voltage panel for office outlets, and circuitry equipment is included. Circuitry
for and connection of Purchaser supplied equipment is not included except as provided below.
(b) EMERGENCY LIGHTING: Facility exits will be clearly marked and the warehouse and office will have emergency light
fixtures, all according to State and local codes. Approximately 10% of all fixtures will be quartz
restrike for emergency lighting.
(c) WAREHOUSE LIGHTING: All warehouse lighting to be metal halide fixtures with covers suspended between the bar joists.
Lighting levels will be to 25' candles.
</TABLE>
<PAGE> 16
GT Bicycles
Westside Industrial Park - Building No. 31
May 1, 1996
Page Seven
<TABLE>
<S> <C>
(d) FORKLIFT DISCONNECT: Two (2) 480 volt, 30 amp disconnects for forklifts chargers.
(e) EXTERIOR LIGHTING: Building mounted exterior flood lights will be installed at the corners of the building and above
truck loading doors. Soffit lighting will highlight the front entrance. Lighting to provide
1/2 - 1 f.c. and to be high pressure sodium.
(f) OFFICES:
(1) Lighting will be 2' x 4' lay in four tube 277 volt fixtures T8 lamps with electronic ballast. Lighting to be
controlled by motion detector.
(2) Telephone wire ways include empty outlet boxes and conduit to above finished ceiling. Telephone and data systems
wiring and equipment are excluded.
(3) 110 Volt convenience outlets per standard.
(g) WAREHOUSE OUTLETS: Each quadraplex 110 volt outlets will be provided in the warehouse.
(h) EXCLUDED: Tenant supplied security and monitoring system.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF GT BICYCLES, INC. AND SUBSIDIARIES AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q FOR JUNE 30, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 38,207
<ALLOWANCES> 1,378
<INVENTORY> 45,433
<CURRENT-ASSETS> 85,315
<PP&E> 6,079
<DEPRECIATION> 2,383
<TOTAL-ASSETS> 100,363
<CURRENT-LIABILITIES> 12,533
<BONDS> 36,871
0
0
<COMMON> 10
<OTHER-SE> 51,132
<TOTAL-LIABILITY-AND-EQUITY> 100,363
<SALES> 92,964
<TOTAL-REVENUES> 92,964
<CGS> 67,231
<TOTAL-COSTS> 67,231
<OTHER-EXPENSES> 16,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,467
<INCOME-PRETAX> 7,359
<INCOME-TAX> 2,944
<INCOME-CONTINUING> 4,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,415
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
