<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 SEPTEMBER 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.
<TABLE>
<CAPTION>
Class Outstanding at November 11, 1996
----- --------------------------------
<S> <C>
Common Stock, $0.001 par value 9,778,597
</TABLE>
<PAGE> 2
GT BICYCLES, INC.
INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
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GT BICYCLES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
ASSETS (note 4) (in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,071 $ --
Trade accounts receivable, net 40,042 34,722
Inventories (note 2) 66,257 44,336
Income taxes receivable -- 1,065
Deferred income taxes 1,558 1,558
Prepaid expenses and other assets 1,621 832
-------- -------
Total current assets 110,549 82,513
Property, plant and equipment, net 4,801 2,841
Goodwill and covenants not to compete, net 20,169 10,012
Other assets 1,782 1,327
-------- -------
$137,301 $96,693
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 4) $ 4,250 $ --
Current portion of capital lease obligations 342 172
Accounts payable 9,965 5,647
Accrued liabilities 6,868 3,905
Income taxes payable 156 --
-------- -------
Total current liabilities 21,581 9,724
Long-term debt, net of current portion (note 4) 60,239 39,610
Capital lease obligations, net of current portion 693 647
-------- -------
Total liabilities 82,513 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,
9,775,356 and 9,764,586 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 10 10
Additional paid-in-capital 46,855 46,820
Retained earnings (accumulated deficit) 7,937 (118)
Cumulative translation loss (14) --
-------- -------
Total stockholders' equity 54,788 46,712
-------- -------
$137,301 $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 Nine Months Ended
September 30, September 30,
--------------------- ------------------------
1996 1995 1996 1995
------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $52,435 $38,295 $145,399 $120,011
Cost of sales 37,041 27,604 104,272 88,791
------- ------- -------- --------
Gross profit 15,394 10,691 41,127 31,220
Selling, general and administrative expenses 10,645 7,701 27,281 20,802
Amortization of intangibles and deferred
financing costs 243 942 514 3,008
------- ------- -------- --------
Operating income 4,506 2,048 13,332 7,410
Life insurance proceeds, net of guaranteed
severance payments (note 5) 1,276 -- 1,276 --
Interest expense (1,047) (1,628) (2,514) (5,151)
------- ------- -------- --------
Income before taxes 4,735 420 12,094 2,259
Income tax expense (1,095) (186) (4,039) (1,001)
------- ------- -------- --------
Net income $ 3,640 $ 234 $ 8,055 $ 1,258
======= ======= ======== ========
Net income per common and common
equivalent share $ 0.37 $ 0.03 $ 0.81 $ 0.18
======= ======= ======== ========
Weighted average common and
common equivalent shares 9,934 7,086 9,924 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>
Nine Months Ended
September 30,
------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,055 $ 1,258
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,190 3,721
Provisions for discounts and losses on accounts receivable 187 184
Accumulated foreign currency translation adjustments (14) --
Changes in assets and liabilities:
Trade accounts receivable 797 (476)
Inventories (12,127) 2,133
Income taxes 871 32
Prepaid expenses and other assets (1,010) (190)
Accounts payable (2,068) (1,415)
Accrued liabilities 2,560 (820)
-------- --------
Net cash (used in) provided by operating activities (1,559) 4,427
Cash flows from investing activities:
Purchases of property, plant and equipment (2,205) (605)
Purchase of Riteway Products North Central, Inc. -- (3,267)
Purchase of Caratti Sport Limited (14,225) --
-------- --------
Net cash used in investing activities (16,430) (3,872)
Cash flows from financing activities:
Net borrowings under line of credit 1,991 (500)
Borrowings from term loan 17,000 --
Principal payments on capital lease obligations (110) (128)
Borrowings for capital lease obligations 144 --
Proceeds from shares issued for employee stock purchase plan 20 --
Proceeds from exercise of stock options 15 --
-------- --------
Net cash provided by (used in) financing activities 19,060 (628)
Change in cash and cash equivalents 1,071 (73)
Cash and cash equivalents at beginning of period -- 73
-------- --------
Cash and cash equivalents at end of period $ 1,071 $ --
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,460 $ 4,798
======== ========
Income taxes $ 2,604 $ 969
======== ========
(Continued)
</TABLE>
5
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GT BICYCLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
------- ------
(in thousands)
<S> <C> <C>
Supplemental disclosures:
Purchase of Riteway Products North Central, Inc.
Inventory -- 2,217
Property, plant and equipment -- 50
Goodwill -- 350
Covenant not to compete -- 650
------- ------
Net cash used to acquire business $ -- $3,267
======= ======
Purchase of Caratti Sport Limited
Working capital, other than cash 9,194 --
Property, plant and equipment 433 --
Goodwill 10,669
Long-term debt (5,888) --
Noncurrent liabilities (183) --
------- ------
Net cash used to acquire business $14,225 $ --
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
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. ("Riteway Japan"), Riteway Products France S.A.R.L.
("Riteway France") and Caratti Sport Limited ("Caratti"). Riteway Products North
Central, Inc., Riteway France and Caratti were acquired in July 1995, April 1996
and July 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 Japan
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 nine month periods ended September 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>
September 30, December 31,
1996 1995
------------ -----------
(in thousands)
<S> <C> <C>
Raw materials $ 123 $ 328
Work in process 4,798 1,437
Finished goods and component parts 61,336 42,571
------- -------
$66,257 $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
7
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GT BICYCLES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
(4) DEBT
Debt is comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(in thousands)
<S> <C> <C>
Domestic revolving credit facility,
secured by the assets of the
Company, due June 30, 1998.
Interest is payable monthly at
various interest rates described
below (weighted average rate of
6.62% at September 30, 1996). $39,415 $39,610
Domestic term loan, secured by the
assets of the Company, due
September 30, 2000. Interest is
payable monthly at various interest
rates described below (weighted
average rate of 7.54% at September
30, 1996). 17,000 --
Riteway Japan revolving credit
facility, secured by the assets of
the Company, due June 30, 1998.
Interest is payable monthly at rate
described below (weighted average
rate of 2.01% at September 30,
1996). 1,395 --
Riteway France revolving credit
facility, secured by the assets of
the Company, due June 30, 1998.
Interest is payable monthly at rate
described below (weighted average
rate of 4.44% at September 30,
1996). 2,179 --
Caratti multicurrency revolving
credit facility, secured by the
assets of Caratti, due June 30,
1998. Interest is payable monthly
at rate described below (weighted
average rate of 7.38% at September
30, 1996). 4,500 --
------- -------
64,489 39,610
Less current portion of domestic
term loan (4,250) --
------- -------
$60,239 $39,610
======= =======
</TABLE>
In November 1995, the Company entered into a domestic credit facility, as
amended in August 1996, with a bank that provides for a domestic revolving
credit facility and a domestic term loan. The Company also entered into separate
credit agreements with the same bank to provide separate credit facilities to
Riteway Japan, Riteway France and Caratti.
The domestic credit facility requires the Company to maintain certain financial
ratios and other covenants, which, among other things, restrict other
indebtedness, capital expenditures and certain investments. The Company was in
compliance with all such requirements and covenants at September 30, 1996.
8
<PAGE> 9
GT BICYCLES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Domestic Revolving Credit Facility
The total amount of the credit available under the domestic revolving credit
facility component of the domestic credit facility for advances and letters of
credit is limited to the lesser of $60,000,000 or the Company's borrowing base
associated with accounts receivable and inventories, as defined by the
agreement, plus an additional $5,000,000 available from January 1 through April
30, $6,000,000 available from August 1 through October 31, and $3,000,000
available from November 1 through November 30 of each year. Subsequent to
September 30, 1996, the $3,000,000 additional borrowing base available from
November 1 through November 30 was increased to $8,000,000 and expanded for the
period from November 1 through December 31 of each year. The borrowing base or
credit limit is reduced each month by $2,000,000 each for Riteway Japan and
Riteway France which represents the credit extended by the bank to these
locations. Subsequent to September 30, 1996, the credit extended to Riteway
Japan and Riteway France was increased to $2,500,000 and $3,500,000,
respectively. The amount individually available under the commercial and standby
letters of credit is $15,000,000. The Company has the option to pay interest on
borrowings under the domestic revolving credit facility at the bank's Reference
Rate (as defined by the agreement), the LIBOR Rate plus the applicable margin
(as defined by the agreement), the Offshore Rate plus the applicable margin (as
defined by the agreement), or, until March 31, 1997 only, the CD Rate plus the
applicable margin (as defined by the agreement), or a combination thereof. The
Company must pay a commitment fee on a quarterly basis equal to .25% (per annum)
of the unused amount of the credit up to $50,000,000. At September 30, 1996, the
Company had no commercial or standby letters of credit outstanding.
Domestic Term Loan
The domestic term loan component of the domestic credit facility of $17,000,000
is payable in equal quarterly installments commencing December 31, 1996 and
matures on September 30, 2000. The domestic term loan is made up of two
disbursements: 1) $14,000,000 for the purchase of Caratti, and 2) $3,000,000 for
the repayment of Caratti's prior bank debt. The Company has the option to pay
interest on borrowings under the domestic term loan at the bank's Reference Rate
(as defined by the agreement), the LIBOR Rate plus 1.85% (as defined by the
agreement), the Offshore Rate plus 1.85% (as defined by the agreement), or a
combination thereof.
Riteway Japan Credit Facility
The Riteway Japan credit facility consists of a $2,000,000 revolving credit
facility which was increased to $2,500,000 subsequent to September 30, 1996.
Interest on borrowings under the revolving credit facility is payable monthly at
the bank's base rate plus 1.25%.
Riteway France Credit Facility
The Riteway France credit facility consists of a $2,000,000 revolving credit
facility which was increased to $3,500,000 subsequent to September 30, 1996.
Interest on borrowings under the revolving credit facility is payable monthly at
the bank's base rate plus 1.00%.
Caratti Credit Facility
The Caratti credit facility consists of a multicurrency revolving credit
facility, a multicurrency overdraft facility and a multicurrency facility for
the issuance of irrevocable commercial letters of credit in an aggregate amount
equal to the lesser of $5,000,000 (or its equivalent from time to time in
optional currencies, as defined by the agreement) or Caratti's borrowing base
associated with accounts receivable and inventories, as defined by the
agreement. The amount individually available under the irrevocable commercial
letters of credit is $1,500,000 (or its equivalent from time to time in optional
currencies, as defined by the agreement). The overdraft facility is repayable on
demand by the bank. Interest on borrowings under the multicurrency revolving
credit facility is payable monthly at the sum of the MLA Cost (as defined by the
agreement), a margin of 1.25% and LIBOR (as
9
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GT BICYCLES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
defined by the agreement). Interest on the multicurrency overdraft facility is
payable monthly at the bank's prevailing base rate plus 1.25%. Caratti must pay
a commitment fee on a quarterly basis equal to .25% (per annum) of the unused
amount of the credit up to $5,000,000. At September 30, 1996, the Company had no
commercial letters of credit outstanding.
(5) LIFE INSURANCE PROCEEDS, NET OF GUARANTEED SEVERANCE PAYMENTS
Included in net income for the three and nine months ended September 30, 1996,
were net life insurance proceeds of $1,276,000 that the Company received
following the death of former President and Chief Executive Officer, Richard
Long, in July 1996. The net proceeds consisted of a $2,000,000 insurance
settlement less guaranteed payments owed to Richard Long's family of $724,000
(6) ACQUISITION OF CARATTI
On July 3, 1996, the Company purchased the stock of United Kingdom-based Caratti
for approximately $13,125,000. As part of the purchase, the Company agreed to
pay a contingent amount of up to an additional aggregate amount of approximately
$1,100,000 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 primarily funded through
a $14,000,000 overadvance credit added to the Company's domestic revolving
credit facility. On August 14, 1996, the $14,000,000 overadvance credit was
rolled over into the domestic term loan (see note 4). The Company intends to
continue substantially the same use of the assets acquired from Caratti. The
cost of the acquisition has been preliminarily allocated on the basis of the
estimated fair value of the assets acquired and liabilities assumed.
10
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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 and Caratti
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 $52.4 million and $145.4 million, respectively, for the three and
nine months ended September 30, 1996, compared to $38.3 million and $120.0
million, respectively, for the corresponding periods in 1995, representing
increases of 36.9% and 21.2% over the prior year comparable periods. The
increases in net sales were attributable to higher sales in all product line
categories. Bicycle sales were $35.9 million and $100.1 million, respectively,
for the three and nine months ended September 30, 1996 compared to $26.0 million
and $86.5 million for the corresponding periods in 1995. Parts and accessory
sales were $16.5 million and $45.3 million, respectively, for the three and nine
months ended September 30, 1996 compared to $12.3 million and $33.5 million,
respectively, for the corresponding periods in 1995. International sales for the
three and nine months ended September 30, 1996 represented 32.2% and 28.7% of
net sales, respectively, compared to 18.0% and 22.4% for the same periods in the
prior year. The increase in international sales which consists of increased
sales of adult bikes and parts and accessory sales is primarily attributable to
the addition of the new foreign subsidiaries in fiscal 1996.
Gross profit margins in the three and nine months ended September 30, 1996 were
29.4% and 28.3%, respectively, compared to 27.9% and 26.0%, 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
September 30, 1996 increased to $10.6 million from $7.7 million in the
corresponding period of 1995, but remained relatively flat as a percentage of
sales. For the nine months ended September 30, 1996, such expenses increased to
$27.3 million, or 18.8% of net sales, from $20.8 million, or 17.3% of net sales,
in the comparable period of 1995. The increases in expenses were primarily due
to increased administrative costs for the new foreign subsidiaries as well as
additional personnel costs and associated overhead to support the increased
revenues of the Company.
Amortization of intangibles and deferred financing costs decreased by $0.7
million to $0.2 million for the three months ended September 30, 1996 compared
to the corresponding period of 1995 and decreased as a percentage of net sales
from 2.5% to 0.5%. For the nine months ended September 30, 1996, the
amortization charges decreased by $2.5 million to $0.5 million compared to the
corresponding period of 1995 and decreased as a percentage of net sales from
2.5% to 0.4%. 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.
11
<PAGE> 12
Life insurance proceeds, net of guaranteed severance payments increased to $1.3
million in both the three and nine months ended September 30, 1996. Following
the death of former President and Chief Executive Officer, Richard Long, in July
1996, the Company received a $2.0 million life insurance settlement. This
settlement is shown net of guaranteed payments owed to Richard Long's family of
$0.7 million.
Operating income for the three months ended September 30, 1996 increased to $4.5
million, or 8.6% of net sales, from $2.0 million, or 5.3% of net sales, in the
corresponding period of 1995. For the nine months ended September 30, 1996,
operating income increased to $13.3 million, or 9.2% of net sales, from $7.4
million, or 6.2% of net sales, in the comparable period of 1995. The increases
were largely the result of the reduction of amortization of intangibles and
deferred financing costs referenced above, but to a lesser extent are
attributable to improved gross profit margins as discussed above.
Interest expense was $1.0 million and $2.5 million, respectively, for the three
and nine months ended September 30, 1996 compared to $1.6 million and $5.2
million, respectively, for the corresponding periods in 1995, representing
decreases of 35.7% and 51.2% 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, obtained in
November 1995, which has been partially offset by increased interest expense on
additional borrowings for acquisitions and foreign operations.
The effective tax rate for income tax expense was 23.1% and 33.4% for the three
and nine months ended September 30, 1996, respectively, as compared to 44.3% for
both the three and nine months ended September 30, 1995. The Company's effective
tax rate has been affected by the nontaxable life insurance proceeds of $2.0
million received in the third quarter of 1996 and 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. In November 1995, the Company entered
into a domestic credit facility, as amended in August 1996, with a bank that
provides for a domestic revolving credit facility and a domestic term loan. The
Company also entered into separate credit agreements with the same bank to
provide separate revolving credit facilities to Riteway Products Japan K.K.
("Riteway Japan"), Riteway Products France S.A.R.L. ("Riteway France") and
Caratti Sport Limited ("Caratti").
The total amount of the credit available under the domestic revolving credit
facility component of the domestic credit facility for advances and letters of
credit is limited to the lesser of $60.0 million or the Company's borrowing base
associated with accounts receivable and inventories, as defined by the
agreement, plus an additional $5.0 million available from January 1 through
April 30, $6.0 million available from August 1 through October 31, and $3.0
million available from November 1 through November 30 of each year. Subsequent
to September 30, 1996, the $3,000,000 additional borrowing base available from
November 1 through November 30 was increased to $8,000,000 and expanded for the
period from November 1 through December 31 of each year. The borrowing base or
credit limit is reduced each month by $2.0 million each for Riteway Japan and
Riteway France which represents the credit extended by the bank to these
locations. Subsequent to September 30, 1996, the credit extended to Riteway
Japan and Riteway France was increased to $2.5 million and $3.5 million,
respectively. At September 30, 1996, the Company had $39.4 million outstanding
under the domestic revolving credit facility which incurs interest at the bank's
Reference Rate (as defined by the agreement) or other miscellaneous rates. The
domestic revolving credit facility matures on June 30, 1998.
The domestic term loan component of the domestic credit facility obtained in
August 1996 for $17.0 million is payable in equal quarterly installments
commencing December 31, 1996 and matures on September 30, 2000. The domestic
term loan is made up of two disbursements: 1) $14.0 million for the purchase of
Caratti, and 2) $3.0 million for the repayment of Caratti's prior bank debt. At
September 30,
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<PAGE> 13
1996, the Company had $17.0 million outstanding under the domestic term loan
which incurs interest at the bank's Reference Rate (as defined by the agreement)
or other miscellaneous rates.
The Riteway Japan credit facility consists of a $2,000,000 revolving credit
facility which was increased to $2,500,000 subsequent to September 30, 1996 with
interest on borrowings payable monthly at the bank's base rate plus 1.25%. The
Riteway France credit facility consists of a $2,000,000 revolving credit
facility which was increased to $3,500,000 subsequent to September 30, 1996 with
interest on borrowings payable monthly at the bank's base rate plus 1.00%. The
Caratti credit facility consists of a multicurrency revolving credit facility, a
multicurrency overdraft facility and a multicurrency facility for the issuance
of irrevocable commercial letters of credit in an aggregate amount equal to the
lesser of $5,000,000 (or its equivalent from time to time in optional
currencies, as defined by the agreement) or Caratti's borrowing base associated
with accounts receivable and inventories, as defined by the agreement. The
amount individually available under the irrevocable commercial letters of credit
is $1,500,000 (or its equivalent from time to time in optional currencies, as
defined by the agreement). The overdraft facility is repayable on demand by the
bank. Interest on borrowings under the multicurrency revolving credit facility
is payable monthly at the sum of the MLA Cost (as defined by the agreement), a
margin of 1.25% and LIBOR (as defined by the agreement). Interest on the
multicurrency overdraft facility is payable monthly at the bank's prevailing
base rate plus 1.25%. The Riteway Japan, Riteway France and Caratti credit
facilities mature on June 30, 1998.
For the first nine months of 1996, the Company had negative cash flow from
operations of $1.6 million compared to a positive cash flow from operations of
$4.4 million in the same period of 1995. The decrease was primarily attributable
to increased inventories, excluding the inventory acquired in connection with
the acquisition of Caratti. In July 1996, the Company obtained an overadvance
credit of approximately $14.0 million on its domestic revolving credit facility
that was used to purchase Caratti. In August 1996, the $14.0 million overadvance
credit was rolled over into the domestic term loan. The Company invested $2.2
million for additional property and equipment in the first nine months of 1996,
excluding the property and equipment acquired in connection with the acquisition
of Caratti.
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.
13
<PAGE> 14
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.
14
<PAGE> 15
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.
CURRENCY FLUCTUATIONS. A portion of the Company's sales outside of North America
are denominated in local currencies. In addition, certain components purchased
by the Company are purchased in local currencies. Accordingly, the Company is
subject to the risks associated with fluctuations in currency rates. The Company
has not in the past experienced significant losses associated with currency
exchange fluctuations, but there can be no assurance that it will not experience
such losses in the future, particularly in light of the increasing portion of
net revenues resulting from sales outside North America and through its foreign
operating subsidiaries. Should the exposure relating to losses for currency
fluctuations increase substantially, the Company may consider the advisability
of implementing a hedging strategy under which it would enter into forward
contracts against certain foreign currencies in an effort to minimize its
exposure on certain significant foreign currency receivables and component
purchases. Such hedging activities, if commenced, would only partially address
the Company's risks in currency exchange transactions, and there can be no
assurance that this strategy would be successful, if at all. Further there can
be no assurance that the Company's results of operations will not be affected by
currency fluctuations.
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.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Numbered Page
-------------- -------------
<S> <C> <C>
10.42 Second Amended and Restated Credit Agreement
(Receivables and Inventory) among the Company,
GT Bicycles California, Inc., Riteway Products
East, Inc., Riteway Products North Central,
Inc., Riteway Distributors Central, Inc.,
Riteway Distributors, Inc. and Bank of
America, N.T. and S.A., dated August 12, 1996.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
During the third quarter of 1996, the Company filed a Form 8-K, dated
July 3, 1996, and a Form 8-K/A, dated September 16, 1996, regarding
the acquisition of Caratti Sport Limited.
16
<PAGE> 17
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.
GT BICYCLES, INC.
Date: November 14, 1996 By: /s/ Michael C. Haynes
------------------------
Michael C. Haynes
President and Chief
Executive Officer
(Principal Executive and
Duly Authorized Officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Numbered Page
- -------------- -------------
<S> <C> <C>
10.42 Second Amended and Restated Credit Agreement
(Receivables and Inventory) among the Company,
GT Bicycles California, Inc., Riteway Products
East, Inc., Riteway Products North Central,
Inc., Riteway Distributors Central, Inc.,
Riteway Distributors, Inc. and Bank of
America, N.T. and S.A., dated August 12, 1996.
27 Financial Data Schedule.
</TABLE>
18
<PAGE> 1
EXHIBIT 10.42
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
(RECEIVABLES AND INVENTORY)
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT (RECEIVABLES AND
INVENTORY) (this "Agreement") is entered into as of August 12, 1996 among Bank
of America National Trust and Savings Association ("Bank") and GT Bicycles
California, Inc. ("GTBC"), Riteway Products East, Inc. ("East"), Riteway
Products North Central, Inc. ("North Central"), Rite-Way Distributors Central,
Inc. ("Central"), Rite-Way Distributors, Inc. ("Distributors"), GT Bicycles,
Inc. ("GT"). GTBC, East, North Central, Central, and Distributors are sometimes
hereinafter referred to collectively as "Borrowers" and individually as a
"Borrower."
RECITALS
A. By this Agreement, the parties hereto desire to amend and restate
the First Amended and Restated Credit Agreement (Receivables and inventory)
dated as of November 29, 1995, as amended, between the Borrowers and Bank (the
"Existing Agreement") on the terms and conditions set forth herein by, among
other things, providing for a new Term Loan not exceeding $17,000,000 for GTBC
to finance its acquisition of Caratti Sport, Ltd ("Caratti"), of which
$3,000,000 will be used to refinance the Barclays Bank Facilities upon
termination of such facilities.
B. Bank has extended credit to two of its subsidiaries, Riteway
Products Japan K.K. and Riteway Products France S.A.R.L., under separate loan
documents through Bank's lending offices in Japan and France, respectively (the
"Significant Subsidiary Lines"). The parties hereto have agreed that the
Borrowing Base and the Revolving Credit Limit shall be reduced by the total
amount of any credit commitments extended by Bank under Significant Subsidiary
Lines.
C. GT has also requested that Bank extend credit to Caratti under
separate loan documents through Bank's lending offices in London.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions and Financial Requirements.
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated for the purposes
hereof:
"Acceptable Inventory" means Inventory which:
(a) is owned by any Borrower free and clear of all
security interests, liens, encumbrances, and rights of others,
except the security interest in favor of Bank;
(b) is (1) either In-Transit Inventory or (2)
permanently located at the locations specified on Schedule
1.1(b) hereto or other locations acceptable to Bank and is not
covered by a negotiable document of title unless such document
has been delivered to Bank;
(c) in Bank's opinion, is not obsolete, unsalable,
damaged, subject to a product recall unless the problem giving
rise to the recall has been corrected, or unfit for further
processing. For purposes of this Agreement, the value of
slow-moving or obsolete Inventory shall equal the total amount
of Borrower's inventory reserve as determined either by
Borrowers' independent certified public accountant or by
Borrowers, whichever is greater, and in either case subject to
periodic adjustment in Bank's reasonable discretion based upon
Bank's periodic audits of Borrowers' books and records;
(d) does not consist of display items, stickers and
decals, promotional catalogues and other, similar advertising
materials, "miscellaneous product lines" designated by
Borrowers as bearing, product code "ZZ," packing and shipping
materials, discontinued or slow-moving items, work-in-process,
or finished goods of substandard quality. Without limiting the
foregoing, Prior Model Year Bicycles will be deemed to be
slow-moving if not sold on or before November 30 of the year
following the year in which bicycles qualified as Prior
Model Year
<PAGE> 3
Bicycles under this Agreement;
(e) is not placed by any Borrower on consignment;
(f) is of a type held for sale, use or lease in the
ordinary course of any Borrower's business;
(g) is otherwise reasonably acceptable to Bank.
"Acceptable Receivable" means an Account:
(a) arising from the sale of goods or the performance of
services by any Borrower in the ordinary course of such
Borrower's business as presently conducted;
(b) upon which any Borrower's right to receive payment
is absolute and not contingent upon the fulfillment of any
condition whatever;
(c) against which is asserted no defense, counterclaim
or setoff, whether well-founded or otherwise;
(d) that is a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account for
merchandise sold and accepted by, or for services performed
for and accepted by, the Receivable Debtor obligated upon such
Account;
(e) that, by its terms, must be paid no later than the
210 day period starting on its invoice date;
(f) that is owned by any Borrower and not subject to any
right, claim, or interest of another other than the security
interest in favor of Bank;
(g) that does not arise from a sale to or performance of
services for an employee, affiliate, parent, or subsidiary of
any Borrower, or an entity which has common officers or
directors with any Borrower;
(h) that is not the obligation of a Receivable Debtor
that is the federal government
<PAGE> 4
or a political subdivision thereof unless Bank has agreed to
the contrary in writing and the Borrower which owns the
Receivable has complied with the Federal Assignment of Claims
Act of 1940, and any amendments thereto, with respect to such
obligation;
(i) that is not the obligation of a Receivable Debtor
that is any state of the United States or any city, town,
municipality or division thereof;
(j) that is not the obligation of a Receivable Debtor
located in a foreign country, unless (a) the Receivable Debtor
is located in Canada, outside of the Province of Quebec, or
(b) the obligation is supported by a letter of credit issued
by a financial institution acceptable to Bank;
(k) that is not the obligation of a Receivable Debtor to
whom any Borrower is or may become liable for goods sold or
services rendered by the Receivable Debtor to such Borrower;
(l) that does not arise with respect to goods which are
delivered on a cash-on-delivery basis or placed on
consignment, guaranteed sale or other terms by reason of which
the payment by the Receivable Debtor may be conditional;
(m) that is not in default. An Account shall be deemed
in default upon the occurrence of any of the following:
(1) The Account is not paid within the 60 day
period starting on its due date in the case of Accounts
without dating terms, or in the case of Accounts with
dating terms, the 30 day period starting on its due
date;
(2) Any Receivable Debtor obligated upon such
Account suspends business, makes a general assignment
for the benefit of creditors, or fails to pay its debts
generally as they come due; or
(3) Any petition is filed by or against any
Receivable Debtor obligated upon such
<PAGE> 5
Account under any bankruptcy law or any other law or
laws for the relief of debtors;
(n) that is not the obligation of a Receivable Debtor
who is in default (as defined in subparagraph (m) above) on
25% or more of the Accounts upon which such Receivable Debtor
is obligated;
(o) that does not arise from the sale or lease of goods
which remain in any Borrower's possession or under any
Borrower's control;
(p) that does not arise from the sale of minerals or the
like (including oil and gas) at the wellhead or minehead;
(p) that is otherwise reasonably acceptable to Bank.
In addition to the foregoing limitations, the dollar amount of
Acceptable Receivables included in the Borrowing Base which are
obligations of a single Receivable Debtor shall not exceed the
concentration limit established for that Receivable Debtor. To the
extent the total of such Acceptable Receivables exceeds a Receivable
Debtor's concentration limit, the amount of any such excess shall be
excluded. The concentration limit for each debtor shall be equal to
10% of the total amount of all Borrowers' Acceptable Receivables as
of the time in question.
"Account" means any right to the payment of money owned by any
Borrower and arising out of the sale of goods or the rendering of
services by such Borrower which is not evidenced by an instrument or
chattel paper.
"Applicable Margin" means a variable rate of interest that can
move up or down each quarter depending on the most recent compliance
certificate delivered to Bank pursuant to Paragraph 8.2(c), as
follows: if the last compliance certificate received by Bank
indicates that the ratio of Borrower's total liabilities to Tangible
Net Worth is less than 1.50 to 1.00, the Applicable Margin shall be
1.00% per annum from the Start Date following receipt of such
compliance certificate to, but excluding, the next Start Date; if
the last compliance certificate received
<PAGE> 6
by Bank indicates that the ratio of Borrower's total liabilities to
Tangible Net Worth is 1.50 to 1.00 or more, the Applicable Margin
shall again be 1.25% per annum from the Start Date following receipt
of such compliance certificate to, but excluding, the next Start
Date. Until December 1, 1996, the Applicable Margin shall be 1.25%
per annum. Thereafter, the Applicable Margin shall be determined
from the most recent compliance certificate received by Bank. "Start
Date" means, with respect to each date the compliance certificate is
due to be delivered pursuant to Paragraph 8.2, the date indicated
below:
Compliance certificate as Related
of fiscal period ending Start Date
June 30 September 1
September 30 December 1
December 31 March 1
March 31 June 1
"Availability Period" means the period commencing on the date
of this Agreement and ending on June 30, 1998.
"Banking Day" means, unless otherwise defined in this
Agreement, a day other than a Saturday or a Sunday on which Bank is
open for business in California.
"Barclays Bank Facilities" means (a) the Novation Agreement
dated as of December 14, 1988, as amended, among Caratti, Mr. P V A
Edwards, Mr. M B A Edwards, Barclays Invoice Discounting Limited and
Barclays Commercial Services Limited, and (b) the letter loan
agreement dated May 9, 1996 between Caratti and Barclays Bank.
"Bicycling Accessories" means apparel and accessories.
"Borrowing Base" means the difference between:
(a) the sum of:
(i) 80% of the balance due on Acceptable
Receivables; and
(ii) The sum of:
<PAGE> 7
(A) (1) 65% of the value of Acceptable
Inventory consisting of Current Model Year
Bicycles, bicycle parts, and In-Transit Inventory
as shown on the borrowing certificates as of the
last day of the months of November through April,
inclusive, of each year, or (2) 50% of the value
of such Acceptable Inventory as shown on the
borrowing certificates as of the last day of the
months of May through October, inclusive, of each
year, commencing with May 1996; provided, however,
that for purposes of calculating the Borrowing
Base the total value of any In-Transit Inventory
shall not exceed 15% of the Borrowing Base as it
would be calculated without reference to this
limitation and without the amount added under
Subparagraph (c) of this definition of Borrowing
Base; and
(B) 30% of the value of Acceptable Inventory
consisting of Bicycling Accessories; provided,
however, that for purposes of calculating the
Borrowing Base the total value of any such
Acceptable Inventory shall not exceed 10% of the
Borrowing Base as it would be calculated without
reference to this limitation and without the
amount added under Subparagraph (c) of this
definition of Borrowing Base; and
(C) 55% of the value of Acceptable Inventory
consisting of Prior Model Year Bicycles as shown
on the borrowing certificates as of the last day
of the months of November through April,
inclusive, of each year and 40% of the value of
such Acceptable Inventory as shown on the
borrowing certificates as of the last day of the
months of May through October, inclusive, of each
year; provided, however, that with respect to the
borrowing certificates as of the last day of the
months of June through October, inclusive, of each
year, for purposes of calculating the
<PAGE> 8
Borrowing Base, the total value of Acceptable
Inventory consisting of Prior Model Year Bicycles
shall not exceed $5,000,000;
(iii) During the period from and including August
1, 1996 to and including November 30, 1996 only,
$3,000,000; and
(iv) During the period from and
including January 1 to and including April 30
of each year, $5,000,000; and
(b) The U.S. Dollar equivalent, determined by Bank, of
the maximum total amount of credit commitments issued by Bank
to Significant Subsidiaries under Significant Subsidiary
Lines.
The value of Acceptable Inventory shall be the lesser of any
Borrower's cost or Bank's independent determination of the
resale value of such Inventory in such quantities and on such
terms as Bank may reasonably deem appropriate.
"Caratti Facility" means a credit facility between Bank and
Caratti in a maximum principal amount of U.K.#5,000,000 having terms
and conditions, and in form and substance, satisfactory to Bank.
"CD Rate" means for each Interest Period for a CD Rate Portion
the rate of interest (rounded upward, if necessary, to the nearest
1/100th of one percent) determined pursuant to the following
formula:
CD Rate = Certificate of Deposit Rate + Assessment
1.00 - Reserve Percentage Rate
Where,
(i) "Assessment Rate" means the annual assessment
rate that is payable to the Federal Deposit Insurance
Corporation (or any successor) ("FDIC") by a member of
the Bank Insurance Fund that is classified as well
capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification
within the meaning of 12 C.F.R. Section 327.3(d)) for
insuring time deposits at offices of such member in the
United
<PAGE> 9
States. If the FDIC ceases to assess time deposits based
upon such classifications, then Bank shall, in its
discretion, select an appropriate successor Assessment
Rate from among the range of annual assessment rates
that are payable to the FDIC by commercial banks for
insuring time deposits at offices of such banks in the
United States. In the event of a retroactive reduction
in the Assessment Rate or the Reserve Percentage after
the first day of the applicable interest period, the
Bank will not retroactively adjust the CD Rate.
(ii) "Certificate of Deposit Rate" means for such
Interest Period the rate of interest determined by Bank
to be the arithmetic average (rounded upward, if
necessary, to the nearest 1/100th of one percent) of the
rates of interest bid by two or more certificate of
deposit dealers of recognized standing selected by Bank
for the purchase at face value of U.S. dollar
certificates of deposit issued by major United States
banks for such Interest Period and in the amount of the
CD Rate Portion to be outstanding during such period at
the time selected by Bank on the first day of such
Interest Period.
(iii) "Reserve Percentage" means for such Interest
Period the total (expressed as a decimal) of the maximum
reserve percentages (including, but not limited to,
marginal, emergency, supplemental, special, and other
reserve percentages) in effect on the first day of such
Interest Period as prescribed by the Board of Governors
of the Federal Reserve System for determining the
reserves to be maintained by member banks of the Federal
Reserve System for non-personal time deposits in the
amount of $100,000 or more with a maturity equal to such
Interest Period.
"CD Rate Portion" means all or such part of the principal
balance of credit provided under this Agreement for which interest
is payable at the rate related to the CD Rate.
<PAGE> 10
"Collateral" means the real or personal property described in
the Collateral Agreements.
"Collateral Agreements" means the security agreement(s)
required under Article 6 of this Agreement.
"Current Model Year Bicycles" means Acceptable Inventory
consisting of bicycles that are designated by any Borrower on its
inventory records as being current models in a manner consistent
with past record keeping procedures and practices.
"ERISA" means the Employee Retirement Income Act of 1974, as
amended from time to time.
"ERISA Plan" means any employee pension benefit plan
maintained or contributed to by any Borrower and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
"Event of Default" means any event listed in Article 9 of
this Agreement.
"Fixed Charge Coverage Ratio" means, for any period of
calculation, the ratio of net income (or net loss) from operations
(determined without giving effect to extraordinary or non-recurring
gains) plus, to the extent deducted in calculating such net income
(or loss), the sum of (i) interest expense, plus (ii) depreciation
expense, plus (iii) amortization expense, plus (iv) contribution of
equity or loans that are subordinated, in a manner satisfactory to
Bank, to indebtedness owing to Bank, minus (v) dividends paid to the
sum of (x) current portion of long term debt and capital leases,
plus (y) capital expenditures made in cash, and plus (z) interest
expense.
"Guarantors" means GT, each of its U.S. Subsidiaries and any
U.S. Subsidiary which guaranties the obligations under the Agreement
pursuant to Paragraph 8.12 below; individually a "Guarantor."
"Interest Period" means:
(a) for each Offshore Rate Portion the period commencing
on the date such portion shall begin to bear interest at a
rate related to the Offshore Rate and ending no less than 14
days (for
<PAGE> 11
Offshore Rate Portions of $1,000,000 or more) or 30 days and
no more than six months (for all Offshore Rate Portions)
thereafter, as agreed by Bank and any Borrower at the time
such Borrower requests the portion; provided, however, that
the last day of each Offshore Rate Interest Period shall be
determined in accordance with the practices of the offshore
Dollar inter-bank markets as from time to time in effect.
(b) for each LIBOR Rate Portion the period commencing on
the date such portion shall begin to bear interest at a rate
related to the LIBOR Rate and ending no less than 14 days (for
LIBOR Rate Portions of $1,000,000 or more) or 30 days and no
more than six months (for all LIBOR Rate Portions) thereafter,
as agreed by Bank and any Borrower at the time such Borrower
requests the portion; provided, however, that the last day of
each LIBOR Rate Interest Period shall be determined in
accordance with the practices of the London inter-bank market
as from time to time in effect; and
(c) for each CD Rate Portion the period commencing on
the date such portion shall begin to bear interest at the CD
Rate and ending 14-29 days (for CD Rate Portions of $1,000,000
or more) or 30, 60, 90, or 180 days (for all CD Rate Portions)
thereafter, as requested by any Borrower or, at Bank's option,
such other periods requested by such Borrower at the time such
Borrower requests the portion.
"In-Transit Inventory" means Inventory consisting of bicycles,
bicycle parts, and Bicycling Accessories that is in-transit, as to
which title has been transferred to any Borrower, and which is fully
covered by marine cargo insurance issued by an insurer and with
terms reasonably acceptable to Bank, with Bank named as loss payee.
"Inventory" means all goods owned by any Borrower and held for
sale or lease in such Borrower's business, or to be furnished under
a contract of service, or consisting of materials and supplies to be
used or consumed in such Borrower's business.
"LIBOR Rate" means for each Interest Period for
<PAGE> 12
each LIBOR Rate Portion the rate of interest (rounded upward, if
necessary, to the nearest 1/100th of one percent) determined
pursuant to the following formula:
LIBOR Rate = London Rate
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means for such Interest Period the
rate of interest (rounded upward, if necessary, to the nearest
1/16th of one percent) at which Dollar deposits for such
Interest Period would be offered by Bank's London Branch,
London, Great Britain, to other major banks in the London
inter-bank market as approximately 11:00 a.m. London time two
Banking Days before the commencement of such Interest Period.
(ii) "Reserve Percentage" means for such Interest Period
the total (expressed as a decimal) of the maximum reserve
percentages (including, but not limited to, marginal,
emergency, supplemental, special, and other reserve
percentages) in effect on the first day of such Interest
Period as prescribed by the Board of Governors of the Federal
Reserve System for determining the reserves to be maintained
by member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward, if necessary, to the nearest 1/100th of one
percent.
"LIBOR Rate Portion" means all or such part of the principal
balance of credit provided under this Agreement for which interest
is payable at the rate related to the LIBOR Rate.
"Material Adverse Impact" means a material adverse impact on
GT's or any of its Subsidiary's financial condition, operations, or
ability to perform obligations under this Agreement or any
instrument or agreement required under this Agreement.
"Offshore Rate" means for each Interest Period for each
Offshore Rate Portion the rate of interest (rounded upward, if
necessary, to the nearest 1/100th of one percent) determined
pursuant to the following formula:
<PAGE> 13
Offshore Rate = Grand Cayman Rate
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means for such Interest Period
the rate of interest (rounded upward, if necessary, to the
nearest 1/16th of one percent) at which Dollar deposits for
such Interest Period would be offered by Bank's Grand Cayman
Branch, Grand Cayman, British West Indies, to other major
banks in the offshore Dollar inter-bank markets upon the
request of such banks.
(ii) "Reserve Percentage" means for such Interest Period
the total (expressed as a decimal) of the maximum reserve
percentages (including, but not limited to, marginal,
emergency, supplemental, special, and other reserve
percentages) in effect on the first day of such Interest
Period as prescribed by the Board of Governors of the Federal
Reserve System for determining the reserves to be maintained
by member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward, if necessary, to the nearest 1/100th of one
percent.
"Offshore Rate Portion" means all or such part of the
principal balance of credit provided under this Agreement for which
interest is payable at the rate related to the Offshore Rate.
"Permitted Subordinated Debt" means unsecured indebtedness
subordinated to amounts owing by GT or any of its Subsidiaries to
Bank hereunder or under any other agreement or facility on terms and
conditions and in an amount acceptable to Bank in its sole
discretion.
"Prior Model Year Bicycles" means Acceptable Inventory
consisting of bicycles that were designated by any Borrower on its
inventory records as having been a current model in the immediately
preceding model year in a manner consistent with past record keeping
practices and procedures.
"Receivables" means all rights to the payment of
<PAGE> 14
money owned by any Borrower, whether due or to become due and
whether or not earned by performance including, but not limited to,
Accounts, contract rights, chattel paper, instruments and documents.
"Receivable Debtor" means the person or entity obligated upon
a Receivable.
"Reference Rate" means the rate of interest publicly announced
from time to time by Bank in San Francisco, California, as its
reference rate. Any change in the Reference Rate shall take effect
on the day specified in the public announcement of such change. The
Reference Rate is set by Bank based on various factors, including
Bank's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some
loans. Bank may price loans at, above or below the Reference Rate.
"Revolving Credit Limit" means the difference between (a)
$60,000,000 and (b) the U.S. Dollar equivalent, determined by Bank,
of the maximum total amount of credit commitments issued by Bank to
Significant Subsidiaries under Significant Subsidiary
Lines.
"Revolving Facility" means the line of credit described in
Paragraphs 2.1, 2.2, 2.3 and 2.4 of this Agreement.
"Significant Subsidiaries" means Riteway Products France
S.A.R.L., a corporation organized under the laws of France, Riteway
Products Japan K.K., a corporation organized under the law of Japan;
individually, a "Significant Subsidiary."
"Subsidiary" means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in
which) GT directly or indirectly owns more than 50% of (a) the
issued and outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in
the capital or profits of such limited liability company,
partnership or joint venture or (c) the beneficial interest in such
<PAGE> 15
trust or estate is at the time directly or indirectly owned or
controlled by GT or any of its Subsidiaries; collectively,
"Subsidiaries."
"Tangible Net Worth" means the consolidated gross book
value of the assets of GT and its Subsidiaries (exclusive of
goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred
charges and other like intangibles) less (a) reserves applicable
thereto, and (b) all liabilities (including accrued and deferred
income taxes).
"Term Loan" means the term loan described in Paragraph
2.5.
1.2 Financial Requirements. Unless otherwise specified
in this Agreement, all accounting terms used in this Agreement shall
be interpreted, all financial computations required under this
Agreement shall be made, and all financial information required
under this Agreement shall be prepared in accordance with generally
accepted accounting principles consistently applied.
2. The Credit Facilities
2.1 The Revolving Facility (All Borrowers). From time to time during
the Availability Period, Bank, on a revolving basis, will make advances to
Borrowers and create and issue commercial and standby letters of credit for
Borrowers' account as provided herein. The total of all advances and the undrawn
and the drawn and unreimbursed amount of all letters of credit may not exceed at
any one time the lesser of the Borrowing Base or the Revolving Credit Limit.
2.2 Advances Under the Revolving Facility.
(a) Borrowers shall use the proceeds of advances under the
Revolving Facility to finance Borrowers' working capital.
(b) Borrowers shall repay the entire principal balance of
advances under the Revolving Facility on the last day of the
Availability Period.
(c) Advances under the Revolving Facility shall bear interest
at a rate per annum equal to the
<PAGE> 16
Reference Rate or, subject to the requirements set forth in Section
2.6, the Offshore Rate plus the Applicable Margin, the LIBOR Rate
plus the Applicable Margin, or, until March 31, 1997 only, the CD
Rate plus the Applicable Margin, or a combination thereof; provided,
however, that no more than seven designations of optional interest
rates under the Revolving Facility and Term Loan may be in effect at
any one time. No CD Rate Portion may be outstanding after March 31,
1997.
(d) Borrowers shall pay interest monthly on the first day of
each month and, with respect to each Offshore Rate Portion, LIBOR
Rate Portion and CD Rate Portion, on the last day of the each
Interest Period applicable thereto, in each case until the last day
of the Availability Period, on which date all accrued and unpaid
interest shall be due and payable.
(e) The minimum amount of any advance requested to bear
interest at the Reference Rate shall be $100,000. Each Offshore Rate
Portion, LIBOR Rate Portion and CD Rate portion shall be for an
amount not less than $500,000 or not less than $1,000,000 for
Interest Periods less than 30 days.
2.3 Letters of Credit under the Revolving Facility.
(a) The total of the undrawn and the drawn and unreimbursed
amount of all commercial and standby letters of credit outstanding
at any one time under the Revolving Facility may not exceed
$15,000,000.
(b) Each commercial letter of credit shall be issued pursuant
to the terms and conditions hereof and of a Bank standard form
Application and Agreement for Commercial Letter of Credit executed
by any Borrower.
(c) Each commercial letter of credit shall:
(1) expire on or before 90 days after the last day of
the Availability Period;
(2) require drafts payable at sight; and
(3) be otherwise in form and substance and in favor of
beneficiaries reasonably satisfactory to Bank.
<PAGE> 17
(d) Borrowers shall pay Bank issuance fees, negotiation fees
and other fees at the times and in the amounts Bank advises
Borrowers from time to time as being applicable to any Borrower's
commercial letters of credit.
(e) Any sum owed to Bank with respect to a commercial letter
of credit issued for any Borrower's account which is not paid when
due shall, at the option of Bank in each instance, be added to
advances outstanding under the Revolving Facility and shall
thereafter bear interest at the rate applicable to advances.
(f) In addition to any other rights or remedies which Bank may
have under this Agreement or otherwise, upon the occurrence of an
Event of Default Bank may require Borrowers to prepay in full or
pledge cash collateral in the amount of any commercial letters of
credit outstanding under this Agreement.
2.4 Standby Letters of Credit Under the Revolving Facility.
(a) The total of the undrawn and the drawn and unreimbursed
amount of all standby and commercial letters of credit outstanding
at any one time under the Revolving Facility may not exceed
$15,000,000.
(b) Each standby letter of credit shall be issued pursuant to
the terms and conditions hereof and of a Bank standard form
Application and Agreement for Standby Letter of Credit executed by
any Borrower.
(c) Each standby letter of credit shall:
(1) expire on or before 365 days after the date such
letter of credit is issued, but in no event later than 90 days
after the last day of the Availability Period;
(2) be otherwise in form and substance and in favor of
beneficiaries reasonably satisfactory to Bank. Without
limiting the foregoing, no standby letter of credit shall
contain automatic renewal or "evergreen" classes.
(d) Borrowers shall pay Bank a non-refundable fee equal to
1.25% per annum of the outstanding undrawn
<PAGE> 18
amount of each standby letter of credit, payable annually in
advance, and calculated on the basis of the face amount outstanding
on the day the fee is calculated. It is provided, however, that if
an Event of Default occurs under this Agreement, at the option of
Bank, the amount of the fee shall be increased to 3% per annum,
commencing on the day Bank provides notice of the increase to
Borrowers. Borrowers shall also pay such other reasonable and
customary fees and commissions at the times and in the amounts Bank
advises Borrowers from time to time as being applicable to any
Borrower's standby letters of credit.
(e) Any sum owed to Bank with respect to a standby letter of
credit issued for any Borrower's account which is not paid when due
shall, at the option of Bank in each instance, be added to advances
outstanding under the Revolving Facility and shall thereafter bear
interest at the rate applicable to advances.
(f) In addition to any other rights or remedies which Bank may
have under this Agreement or otherwise, upon the occurrence of an
Event of Default Bank may require Borrowers to prepay in full or
pledge cash collateral in the amount of any standby letters of
credit outstanding under this Agreement.
2.5 The Term Loan (GTBC Only).
(a) Borrowers shall use $14,000,000 of the proceeds of the
Term Loan to prepay Loans under the Revolving Facility and
$3,000,000 of the proceeds of the Term Loan to prepay a portion of
the Barclays Bank Facilities concurrently upon termination of such
facility (collectively, the "Term Loan").
(b) Bank shall lend the principal amount of the Term Loan to
GTBC in two disbursements: $14,000,000 on the Closing Date and
$3,000,000 on the date all conditions precedent to the effectiveness
of the Caratti Facility are being satisfied.
(c) GTBC shall repay the principal of the Term Loan in
approximately equal quarterly installments, commencing December 31,
1996, and continuing on the last Banking day of each March, June,
September and December thereafter until September 30, 2000 (the
"Term Loan Maturity Date"), on which date all remaining
<PAGE> 19
principal and interest then owing with respect to the Term Loan
shall be due and payable, together with all accrued and unpaid
interest thereon.
(d) Notwithstanding the repayment schedule set forth in the
immediately preceding Paragraph, if the Revolving Facility, as now
in effect or as hereafter renewed, amended or restated, terminates
for any reason, the entire principal balance of the Term Loan,
together with all accrued interest thereon, shall be due and payable
on the effective date of such termination. Such termination could be
the result of:
(1) Borrowers' request to cancel the Revolving Facility;
(2) cancellation of the Revolving Facility by Bank
because of Borrowers' default;
(3) Bank's decision not to renew the Revolving Facility
beyond any Availability Period applicable thereto; or
(4) Borrowers' decision not to accept Bank's offer to
renew the Revolving Facility upon such terms and conditions as
may be offered by Bank.
(e) Borrower may at any time prepay the Term Loan in full or
in part provided such prepayment is accompanied by the fee set forth
in Paragraph 3.3. Partial prepayments shall be applied to the most
remote installments of the Term Loan.
(f) The Term Loan shall, at GTBC's election, bear interest at
a rate per annum equal to the Reference Rate or, subject to the
requirements set forth in Section 2.6, the Offshore Rate plus 1.85
percent, the LIBOR Rate plus 1.85 percent, or a combination thereof;
provided, however, that no more than seven designations of optional
interest rates under the Revolving Credit and the Term Loan may be
in effect at any one time. No CD Rate Portion shall be available for
the Term Loan.
(g) GTBC shall pay interest monthly on the first day of each
month and, with respect to each Offshore Rate Portion and LIBOR Rate
Portion, on the last day of the each Interest Period applicable
thereto, in each case until the last day of the Term Loan Maturity
Date, on which date all accrued and unpaid interest shall be
<PAGE> 20
due and payable.
(h) Each Reference Rate Portion shall be in a principal amount
not less than $100,000. Each Offshore Rate Portion and LIBOR Rate
Portion shall be in a principal amount not less than $500,000 or not
less than $1,000,000 for Interest Periods less than 30 days.
2.6 Special Provisions Relating to Offshore Rate Portions, LIBOR
Rate Portions and CD Rate Portions. Offshore Rate Portions, LIBOR Rate Portions
and CD Rate Portions are subject to the following:
(a) No Interest Period for an Offshore Rate Portion, LIBOR
Rate Portion or a CD Rate Portion under the Revolving Facility shall
end later than the last day of the Availability Period, and no
Interest Period for an Offshore Rate Portion, a LIBOR Rate Portion
or a CD Rate Portion relating to the Term Loan shall end later than
the Term Loan Maturity Date.
(b) Borrower may not elect an Offshore Rate or a LIBOR Rate
with respect to any portion of the principal balance of the Term
Loan which is scheduled to be repaid before the last day of the
applicable Interest Period.
(c) An Offshore Rate Portion, a LIBOR Rate Portion and a CD
Rate Portion shall not be converted to a different interest rate
during its Interest Period. Upon the expiration of an Interest
Period, an Offshore Rate Portion, a LIBOR Rate Portion and a CD Rate
Portion shall thereafter bear interest at the rate related to the
Reference Rate unless Borrowers elects a new interest rate as
provided hereunder.
(d) Any payment of an Offshore Rate Portion, a LIBOR Rate
Portion or a CD Rate Portion prior to the last day of the Interest
Period for such portion, whether voluntary, by reason of
acceleration or otherwise, including mandatory payments required
under this Agreement and applied by Bank to an Offshore Rate
Portion, a LIBOR Portion or a CD Rate Portion shall be accompanied
by the amount of accrued interest on the amount repaid and by the
amount (if any) by which (i) the additional interest which would
have been payable on the amount repaid had it not been paid until
the last day of its Interest Period exceeds (ii) the interest which
would have been recoverable by Bank by
<PAGE> 21
placing the amount repaid on deposit in the offshore Dollar
inter-bank markets, the London inter-bank markets or the certificate
of deposit markets, as applicable, for a period starting on the date
it was repaid and ending on the last day of the Interest Period for
such portion.
(e) Bank shall have no obligation to accept an election for an
Offshore Rate Portion, a LIBOR Portion or a CD Rate Portion if any
of the following described events has occurred and is continuing:
(i) Dollar deposits in the principal amount, and
for periods equal to the interest period, of an Offshore
Rate Portion, a LIBOR Portion or a CD Rate Portion are
not available in the offshore Dollar inter-bank markets,
the London inter-bank markets or the certificate of
deposit markets, as applicable; or
(ii) the Offshore Rate, LIBOR Rate or CD Rate does
not accurately reflect the cost of an Offshore Rate
Portion, a LIBOR Portion or a CD Rate Portion.
(f) Upon the occurrence of an Event of Default, Bank may
terminate the availability of the Offshore Rate, LIBOR Rate and CD
Rate for Interest Periods commencing after the occurrence of the
Event of Default.
2.7 Mandatory Payment. If at any time and for any reason the total
amount of credit outstanding under this Agreement exceeds the limitations set
forth herein, Borrowers shall pay to Bank, upon Bank's election and demand, the
amount of the excess. Payments under this Paragraph may be applied to the
obligations of Borrowers to Bank in the order and manner as Bank in its
discretion may determine. Payments to be applied to outstanding letters of
credit and drafts accepted under letters of credit may, at Bank's option, be
used to prepay, or held as cash collateral to secure, Borrowers' obligations to
Bank with respect thereto.
3. Fees and Expenses.
3.1 Unused commitment fee. Borrowers shall pay Bank a fee on any
difference between (a) the Revolving Credit Limit and
<PAGE> 22
(b) the amount of credit (including outstanding advances and issued but undrawn
letters of credit) Borrowers actually use hereunder under the Revolving
Facility, determined by the weighted average of the unused portion of the
Revolving Credit provided under this Agreement during the specified period. The
fee will be calculated at the rate of 0.25% per annum. This fee is due on
September 30, 1996 and quarterly thereafter until the last day of the
Availability Period.
3.2 Waiver Fee. If Bank, at its discretion, agrees to waive or amend
any terms of this Agreement, Borrowers shall pay Bank a waiver fee in the amount
of $1,000 for each waiver or amendment. Nothing in this Paragraph shall imply
that Bank is obligated to agree to any waiver or amendment requested by
Borrowers. Bank may impose additional requirements as a condition to any waiver
or amendment.
3.3 Prepayment Fee. If any portion of the Term Loan is prepaid,
directly or indirectly, other than with the proceeds of Permitted Subordinated
Debt or a private or public secondary stock offering, then Borrower shall pay to
Bank, concurrently with any such prepayment, a fee equal to the percentage
indicated below of the prepaid principal portion of the Term Loan:
<TABLE>
<CAPTION>
Period Percentage Fee
<S> <C>
From and including the Closing 1.00%
Date to but excluding the first
anniversary thereof
From and including the first 0.75%
anniversary of the Closing Date
to but excluding the second
anniversary thereof
From and including the second 0.50%
anniversary of the Closing Date to
but excluding the third anniversary
thereof
From and including the third None
anniversary of the Closing Date
and thereafter
</TABLE>
3.4 Expenses.
(a) Borrowers agree to pay to Bank, on demand, all reasonable
out-of-pocket costs and expenses
<PAGE> 23
incurred by Bank in connection with this Agreement, including, but
not limited to, filing and search fees.
(b) Borrowers agree to pay to Bank, on demand, all costs and
expenses incurred by Bank in connection with the preparation of this
Agreement and any agreement or instrument required by this Agreement
Expenses include, but are not limited to, reasonable attorneys'
fees, including any allocated costs of Bank's in-house counsel.
(c) Borrowers agree to reimburse Bank for the cost of periodic
audits and appraisals (excluding Bank's audit conducted in October
1995, which shall be for the account of Bank) of the Collateral at
such intervals as Bank may reasonably require; provided, however,
that Borrowers' obligations under this Paragraph 3.3(c) shall not
exceed $35,000 in any calendar year so long as no Event of Default
has occurred and is continuing. The audits and appraisals may be
performed by employees of Bank or by independent auditors or
appraisers.
4. Collateral.
4.1 Personal Property (Borrowers). All obligations of Borrowers
under this Agreement and under any interest rate protection agreements from time
to time entered into with Bank shall be secured by one or more security
agreements executed by Borrowers as debtor in favor of Bank as secured party,
granting Bank a security interest in the following personal property of
Borrowers:
(a) Receivables.
(b) Inventory.
(c) Machinery, equipment, and fixtures.
(d) Patents, trademarks and other general intangibles.
The personal property shall be more particularly described in the security
agreement(s) executed by Borrowers. All personal property securing this
Agreement and any interest rate protection agreements shall also secure all
other present and future obligations of Borrowers to Bank and all personal
property securing any other present or future obligations of Borrowers to Bank
shall also secure Borrowers' obligations under this
<PAGE> 24
Agreement.
In addition, all obligations of GTBC under the Term Loan shall be secured by one
or more security agreements executed by GTBC as debtor in favor of Bank as
secured party, granting Bank a security interest in 65% of any stock and other
securities of Caratti owned by GTBC (provided that Bank shall hold, but not have
a security interest in, all stock and other securities of Caratti and Bank will
have "come-along" rights with respect to such other stock). Regulation U of the
Board of Governors of the Federal Reserve System places certain restrictions on
loans secured by margin stock (as defined in the Regulation). If any of such
stock collateral is margin stock, GTBC shall provide Bank with a Form U-1
Purpose Statement, confirming that none of the proceeds of credit provided under
this Agreement will be used to buy or carry any margin stock. If GTBC has
obtained any other credit from Bank for the purpose of buying or carrying margin
stock (purpose loan), then such stock collateral shall not secure such purpose
loan, and any collateral securing the purpose loan shall not secure GTBC's
obligations under its Guaranty.
4.2 Personal Property (Guarantors). All obligations of Guarantors
shall be secured by one or more security agreements executed by such guarantor
in favor of Bank, granting Bank a security interest in the following personal
property of such guarantor:
(a) Receivables.
(b) Inventory.
(c) Machinery, equipment, and fixtures.
(d) Patents, trademarks and other general intangibles.
The personal property shall be more particularly described in the security
agreement(s) executed by such guarantors.
5. Extensions of Credit, Payments and Interest Calculations
5.1 Requests for Credit. Each request for an extension of credit
shall be made in writing on a form acceptable to Bank or in any other manner
acceptable to Bank.
5.2 Oral Requests. At Bank's sole discretion in each instance, Bank
may honor telephone instructions for advances or repayments or for the
designation of optional interest rates.
<PAGE> 25
Advances will be deposited into and repayments will be withdrawn from GTBC's
commercial account number 14586-26007 at Bank's South Orange County Regional
Commercial Banking Office, or such other account(s) as may be specified in
writing by Borrowers. Telephone requests may be made by any one of the
individuals authorized to sign loan agreements on behalf of any Borrower, or any
other individual designated by any one of such authorized signers. Bank shall be
entitled to rely upon telephone instructions from persons it reasonably believes
to be authorized by any Borrower to make such requests without making
independent inquiry. Borrowers and each of them hereby indemnify Bank for, and
holds Bank harmless from, any and all losses, damages, claims and expenses
(including reasonable attorneys' fees and allocated costs of Bank's in-house
counsel), however arising, which Bank suffers or incurs based on or arising out
of extensions of credit or payments made on any telephone request except that
Bank shall not be indemnified against its own gross negligence or wilful
misconduct. The provisions of this Paragraph shall survive termination of this
Agreement.
5.3 Disbursements and Payments. Each disbursement by Bank and each
payment by Borrowers under this Agreement shall be made in immediately available
funds and at Bank's South Orange County Regional Commercial Banking Office or
such other branch of Bank as Bank and Borrowers may from time to time select by
mutual agreement.
5.4 Branch Accounts. Each extension of credit under this Agreement
shall be made for the account of such branch of Bank as Bank may from time to
time select.
5.5 Evidence of Indebtedness. Principal, interest and all other sums
due Bank under this Agreement shall be evidenced by entries in records
maintained by Bank, and, if required by Bank, by a promissory note or notes.
Each payment on and any other credits with respect to principal, interest and
all other sums due under this Agreement shall be evidenced by entries to records
maintained by Bank.
5.6 Direct Debit (Pre-Billing)
(a) Borrowers hereby authorizes Bank to debit GTBC's account
number 14586-26007 at Bank's South Orange County Regional Commercial
Banking Office (the "Designated Account") in the amount of
principal, interest, fees or any other amount due under this
Agreement or under any instrument or agreement required under this
Agreement. Bank shall debit the account on the date such amounts
become due, or, if such due date
<PAGE> 26
is not a Banking Day, on the next Banking Day after such due date.
If there are insufficient funds in the account to cover the amount
debited to the account in accordance with this Paragraph, such debit
will be reversed and such amount will remain unpaid.
(b) Approximately 10 days prior to each due date, Bank will
mail to Borrowers a statement of the amounts that will be due on
that due date (the "Billed Amount"). The calculation will be made on
the assumption that no new extensions of credit or payments will be
made between the date of the billing statement and the due date, and
that there will be no changes in the applicable interest rate.
(c) Bank will debit the Designated Account for the Billed
Amount, regardless of the actual amount due on that date (the
"Accrued Amount"). If the Billed Amount debited to the Designated
Account differs from the Accrued Amount, the discrepancy will be
treated as follows:
(1) If the Billed Amount is less than the Accrued
Amount, the Billed Amount for the following due date will be
increased by the amount of the discrepancy. Borrowers will not
be in default by reason of any such discrepancy.
(2) If the Billed Amount is more than the Accrued
Amount, the Billed Amount for the following due date will be
decreased by the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without
compounding. Bank will not pay Borrowers interest on any
overpayment.
5.7 Banking Day. Any sum payable by Borrowers hereunder which
becomes due on a day which is not a Banking Day shall be due on the next Banking
Day after such due date. Any payments received by Bank on a day which is not a
Banking Day shall be deemed to be received on the next Banking Day after such
date of receipt.
5.8 Taxes and Other Charges. Borrowers agree to make all payments or
reimbursements under this Agreement free and clear of and without deduction for
any present or future taxes, levies, imposts, fees or other charges of any kind
which may be
<PAGE> 27
imposed by any governmental authority with respect to such payments or
reimbursements. If any such taxes are imposed by any governmental authority,
Borrowers will pay such taxes and will also pay to Bank, at the time interest is
paid, any additional amount which Bank specifies as necessary to preserve the
after-tax yield Bank would have received if such taxes had not been imposed.
Upon request by Bank, Borrowers will confirm payment of all such taxes by
delivery of official tax receipts or notarized copies thereof to Bank within 30
days after the due date for each tax payment. This Paragraph shall not apply
with respect to any taxes which are imposed on or measured by Bank's net income
by any jurisdiction.
5.9 Increased Costs. Borrowers shall reimburse or compensate Bank,
upon demand by Bank, for all costs incurred, losses suffered or payments made by
Bank which are applied or allocated by Bank to this Agreement (all as determined
by Bank using any reasonable method of calculation) by reason of any statute,
regulation, or any request or requirement of any regulatory agency, whether or
not having the force of law, which is applicable to all or a class of all
national banks, including:
(a) any and all present or future reserve, deposit or similar
requirements applied against (or against any class of or change in
or in the amount of) assets or liabilities of, or commitments or
extensions of credit by, Bank; and
(b) any and all present or future capital or similar
requirements against (or against any class of or change in or in the
amount of) assets or liabilities of, or commitments or extensions of
credit by, Bank.
5.10 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, payable under this Agreement shall be
computed on the basis of a 360 day year and actual days elapsed, which results
in more interest or a larger fee than if a 365 day year were used.
5.11 Late Payments; Compounding. Any sum payable by Borrowers
hereunder (including unpaid interest) if not paid when due shall bear interest
(payable on demand) from its due date until payment in full at a rate per annum
equal to the Reference Rate plus three percentage points. At the option of Bank,
in each instance, any sum payable hereunder which is not paid when due
(including unpaid interest) may be added to principal of the Revolving Facility
and shall thereafter bear interest at the rate applicable to principal.
<PAGE> 28
5.12 Default Rate. Upon the occurrence and during the continuation
of any Event of Default, and without constituting a waiver of any such Event of
Default, advances under the Revolving Facility shall at the option of Bank bear
interest at a rate per annum which is one percentage point higher than the rate
of interest otherwise provided under this Agreement.
5.13 Overdrafts. At Bank's sole option in each instance, Bank may do
one of the following if any Borrower overdraws any of its accounts with Bank:
(a) Bank may make advances under the Revolving Facility to
prevent or cover an overdraft on any account of any Borrower with
Bank. Each such advance will accrue interest from the date of the
advance or the date on which the account is overdrawn, whichever
occurs first, at the interest rate applicable to advances under the
Revolving Facility.
(b) Bank may reduce the amount of credit otherwise available
under this Agreement by the amount of any overdraft on any account
of any Borrower with Bank.
This Paragraph shall not be deemed to authorize any Borrower to create
overdrafts on any of such Borrower's accounts with Bank.
5.14 Payments in Kind. The proceeds of collections of Receivables,
when received by Bank in kind, shall be credited to interest, principal, and
other sums due Bank under this Agreement in the order and proportion determined
by Bank in its sole discretion. All such credits shall be conditioned upon
collection and any returned items may, at Bank's option, be charged to
Borrowers.
6. Conditions to Availability of Credit.
Bank's obligation to extend credit under this Agreement is subject
to Bank's receipt of the following, each of which must be in form and substance
satisfactory to Bank:
6.1 Conditions to Revolving Facility and Term Loan. Before the
continuation of the Revolving Facility under this Agreement and the making of
the Term Loan:
(a) The Collateral Agreements;
(b) All Collateral, if any, in which Bank wishes
<PAGE> 29
to have a possessory security interest, except for the Caratti
stock, which shall be delivered as soon as issued, but in no event
later than 45 days after the date hereof;
(c) Financing statements, fixture filings with respect to the
real properties commonly known as 3100 West Segerstrom Avenue, Santa
Ana, California, and 2330 South Yale Street, Santa Ana, California
(collectively, the "Santa Ana Property"), assignments, notices and
such other documentation as Bank may reasonably request to perfect
Bank's security interest in the Collateral;
(d) Evidence that the security interests and liens in favor of
Bank are valid, enforceable and prior to the rights and interests of
others except those consented to in writing by Bank;
(e) Continuing Cross-Guaranty of GT and all U.S. Subsidiaries
of GT in favor of Bank, guarantying all amounts owing hereunder and
any extensions of credit by Bank or any of its affiliates to any
Borrower and Caratti;
(f) Evidence that the execution, delivery, and performance by
each Borrower of this Agreement and the execution, delivery, and
performance by each Borrower and any guarantor of any instrument or
agreement
<PAGE> 30
required under this Agreement, as appropriate, have been duly
authorized;
(g) Evidence that Borrowers have obtained the insurance
coverage required under Article 8 of this Agreement;
(h) Evidence that GTBC has acquired all the issued and
outstanding capital stock of Caratti;
(i) All representations and warranties, including without
limitation, all financial and business information previously
delivered or conveyed to Bank shall have been true and correct in
all material respects.
6.2 Conditions to Each Extension of Credit. Before each extension of
credit, including the first:
(a) If required by Bank (1) a borrowing certificate, in form
and detail satisfactory to Bank, setting forth the Acceptable
Receivables and the Acceptable Inventory on which the requested
extension of credit is to be based, (2) copies of the invoices or
the record of invoices from any Borrower's sales journal for such
Acceptable Receivables and a listing of the names and addresses of
the Receivable Debtors, and (3) as soon as reasonably practicable
but in no event later than 30 days after Bank's request, copies of
the delivery receipts, purchase orders, shipping instructions, bills
of lading and other documentation pertaining to such Acceptable
Receivables; and
(b) Any original executed instruments or agreements required
under Article 2.
6.3 Conditions to Second Disbursement of Term Loan. Before making
the second $3,000,000 disbursement of the Term Loan, evidence that concurrently
therewith all conditions precedent to the effectiveness of the Caratti Facility
are being satisfied, including without limitation that all amounts owing under
the Barclays Bank Facilities are then being paid in full with the proceeds of
the second disbursement of the Term Loan and the proceeds of the Caratti
Facility, and any liens of Barclays Bank in connection therewith are being
terminated.
7. Representations and Warranties
<PAGE> 31
Each Borrower and each Guarantor jointly and severally represents
and warrants (and each request for an extension of credit under this Agreement
shall be deemed a representation and warranty made on the date of such request)
that:
7.1 Organization. GT and each of its Subsidiaries are corporations
duly organized and existing under the laws of the state of their respective
organization, and the execution, delivery, and performance of this Agreement by
each Borrower and each Guarantor and of any instrument or agreement required by
this Agreement are within each Borrower's and each Guarantor's corporate powers,
have been duly authorized, and are not in conflict with the terms of any
charter, bylaw, or other organizational papers of each Borrower and each
Guarantor;
7.2 No Conflicts. Except as disclosed in Schedule 7.2 hereto, the
execution, delivery, and performance of this Agreement and of any instrument or
agreement required by this Agreement are not in conflict with any law or any
indenture, agreement, or undertaking to which GT or any of its Subsidiaries is a
party or by which GT or any of its Subsidiaries is bound or affected;
7.3 Enforceability. This Agreement is a legal, valid and binding
agreement of each Borrower and each Guarantor, enforceable against each Borrower
and each Guarantor in accordance with its terms, and any instrument or agreement
required under this Agreement, when executed and delivered, will be similarly
legal, valid, binding and enforceable, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other, similar laws affecting the enforcement of creditor's rights generally or
by general principles of equity;
7.4 Good Standing. GT and each of its Subsidiaries are properly
licensed and in good standing in each state in which GT and its Subsidiaries are
doing business, and GT and its Subsidiaries have qualified under, and complied
with, where required, the fictitious name statute of each state in which GT and
its Subsidiaries are doing business, except where the failure to be so licensed,
in good standing,or qualified would not have a Material Adverse Impact;
7.5 Compliance with Laws. GT and each of its Subsidiaries have
complied with all federal, state, and local laws, rules, and regulations
affecting the business of GT and each of its Subsidiaries including, but not
limited to, laws regulating GT's or its Subsidiaries' sales or the furnishing of
services to Receivable Debtors and disclosures in connection
<PAGE> 32
therewith, except where the failure to so comply would not have a Material
Adverse Impact;
7.6 Ownership of Collateral. Except as has been disclosed in writing
to Bank, all Collateral described in Article 4 of this Agreement is owned by
Borrowers or Guarantors free and clear of all security interests, liens,
encumbrances and rights of others except the rights of Bank under any security
agreements required under this Agreement and those consented to in writing by
Bank;
7.7 Permits, Franchises. GT and its Subsidiaries possess all
permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name rights
necessary to enable GT and its Subsidiaries to conduct the business in which
they are now engaged, except where the failure to possess such items would have
a Material Adverse Impact;
7.8 Perfected Security Interest in Collateral. No further action is
necessary in order to establish and perfect Bank's lien on or security interest
in the Collateral, except for (i) the filing of a financing statement with
respect to the Collateral, (ii) the delivery to Bank of any Collateral as to
which possession is the only method of perfecting a security interest therein,
(iii) the filing of a security agreement covering patents, trademarks, and
similar collateral with the U.S. Patent and Trademark Office, and (iv) the
recording of a fixture filing with any county recorder's office;
7.9 Litigation. Except as disclosed on Schedule 7.9 hereto, there is
no litigation, tax claim, proceeding or dispute pending, or, to the knowledge of
GT or any of its Subsidiaries, threatened, against or affecting such Borrower or
its Subsidiaries or its property, the adverse determination of which might have
a Material Adverse Impact;
7.10 No Event of Default. No event has occurred and is continuing or
would result from the extension of credit under this Agreement which constitutes
or would constitute an Event of Default or which, upon a lapse of time or notice
or both, would become an Event of Default;
7.11 Other Obligations. Neither GT nor any of its Subsidiaries is in
default under any other agreement involving the borrowing of money, the
extension of credit, or the lease of real or personal property to which GT or
any of its Subsidiaries is a party as borrower, guarantor, installment purchaser
or lessee, except where being in default of such obligations would
<PAGE> 33
have a Material Adverse Impact;
7.12 Income Tax Returns. Except as disclosed on Schedule 7.12
hereto, neither GT nor any of its Subsidiaries has any knowledge of any pending
assessments or adjustments with respect to its income tax liabilities for any
year;
7.13 Information Submitted. All financial and other information that
has been or will be submitted by GT or any of its Subsidiaries to Bank,
including GT's consolidated financial statement dated as of June 30, 1996, is
and will be:
(a) prepared in accordance with generally accepted accounting
principles consistently applied;
(b) true and correct in all material respects and is complete
insofar as may be necessary to give Bank a true and accurate
knowledge of the subject matter thereof;
(c) in form and content required by Bank; and
(d) in compliance with all government regulations applicable
thereto;
7.14 No Material Adverse Change. There has been no material adverse
change in the financial condition of GT or any of its Subsidiaries since the
date of its most recent financial statements submitted to Bank;
7.15 Merchantable Inventory. All Inventory which is included in the
Borrowing Base is of good and merchantable quality and free from any material
defects;
7.16 ERISA Plan Compliance.
(a) GT and its Subsidiaries have fulfilled their obligations,
if any, under the minimum funding standards of ERISA and the
Internal Revenue Code of 1986, as amended from time to time, (the
"Code") with respect to each ERISA Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA
and the Code, and has not incurred any liability in excess of
$250,000 with respect to any ERISA Plan under Title IV of ERISA;
(b) No reportable event has occurred under Section 4043(b) of
ERISA for which the Pension Benefit Guaranty Corporation requires 30
day notice;
<PAGE> 34
(c) No action by GT or any of its Subsidiaries to terminate or
withdraw from any ERISA Plan has been taken and no notice of intent
to terminate an ERISA Plan has been filed under Section 4041 of
ERISA; and
(d) No proceeding has been commenced with respect to an ERISA
Plan under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the commencement
of such a proceeding;
7.17 Location of GT and Subsidiaries. GT's and each of its
Subsidiaries' place of business (or, if GT or any of its Subsidiaries has more
than one place of business, its chief executive office) is located at the
address listed on Schedule 7.17 hereto.
8. Covenants
So long as credit is available under this Agreement and until full
and final payment of all of Borrowers' obligations under this Agreement and any
instrument or agreement required under this Agreement, GT shall, and shall cause
each of its Subsidiaries to, unless Bank waives compliance in writing:
8.1 Notices of Certain Events. Promptly give written notice to Bank
of:
(a) all litigation affecting GT or any of its Subsidiaries
where the amount claimed is $500,000 or more;
(b) any substantial dispute which may exist between GT or any
of its Subsidiaries and any governmental regulatory body or law
enforcement authority;
(c) any Event of Default or any event which, upon a lapse of
time or notice or both, would become an Event of Default;
(d) the occurrence of any reportable event under Section
4043(b) of ERISA for which the Pension Benefit Guaranty Corporation
requires 30 day notice; any action by GT or any of its Subsidiaries
to terminate or withdraw from an ERISA Plan or the filing of any
notice of intent to terminate under Section 4041 of ERISA; any
<PAGE> 35
notice of noncompliance made with respect to an ERISA Plan under
Section 4041(b) of ERISA; or the commencement of any proceeding with
respect to an ERISA Plan under Section 4042 of ERISA;
(e) any other matter which has resulted or is reasonably
likely to have a Material Adverse Impact;
8.2 Financial and Other Information. Deliver to Bank in form and
detail reasonably satisfactory to Bank, and in such number of copies as Bank may
reasonably request:
(a) Within 90 days after the end of each fiscal year, GT's
consolidated financial statements for such year, audited by a
certified public accountant with an unqualified opinion, and GT's
consolidating financial statements for such year, prepared by GT
with a comparison to projections for such fiscal year and the
results of the prior fiscal year;
(b) Within 30 days after the end of each month, GT's
consolidated and consolidating financial statements for such period
and the fiscal year to date, prepared by GT with a comparison to
projections for such period and year-to-date and the same period and
year-to-date period for the prior fiscal year;
(c) Within 30 days after the end of each fiscal quarter, a
compliance certificate, substantially in the form of Exhibit A
attached hereto, with appropriate insertions, signed by a
responsible officer of GT;
(d) Not less than 30 days prior to the end of each fiscal year
of GT, monthly projections for the following fiscal year, prepared
by GT. The balance sheet and cash flow projections shall be prepared
on a consolidated basis and the income statement projection shall be
prepared on a consolidated and consolidating basis;
(e) Within 30 days after the date of filing with the
Securities and Exchange Commission, copies of GT's Form 10-K Annual
Report, Form 10-Q Quarterly Report and any Form 8-K Current Report;
(f) Within 20 days after the end of each monthly accounting
period, a borrowing certificate setting forth the respective amounts
of Acceptable Receivables and Acceptable Inventory as of the last
day of the
<PAGE> 36
preceding month;
(g) Within 20 days after the end of each monthly accounting
period, a summary report and detailed statement showing, separately
for (i) Receivable Debtors located in the United States and Canada
outside of Quebec and (ii) Receivable Debtors located elsewhere, an
aging and reconciliation of Receivables;
(h) Within 20 days after the end of each monthly accounting
period, a summary report and detailed statement showing an aging of
accounts payable and held checks;
(i) If collections are required to be delivered to Bank, a
schedule of the amounts so collected and delivered to Bank;
(j) Within 20 days after the end of each monthly accounting
period a summary report and detailed schedule of Inventory itemizing
and describing separately for each class of Inventory the kind,
quality and quantity thereof, its cost, and such other information
as Bank may reasonably request;
(k) Within 20 days after the end of each semi-
annual period, a listing of the names and addresses of
all Receivable Debtors;
(l) Promptly upon request of Bank, such other statements,
lists of property and accounts, budgets, forecasts or reports as to
GT or any of its Subsidiaries as Bank may reasonably request;
8.3 Books, Records, Audits and Inspections. Maintain adequate books,
accounts and records and prepare all financial statements required hereunder in
accordance with generally accepted accounting principles consistently applied,
and in compliance with the regulations of any governmental regulatory body
having jurisdiction over GT or any of its Subsidiaries or GT's or any of its
Subsidiaries' business. Further, GT and each of its Subsidiaries will permit
employees or agents of Bank at any reasonable time, at least semi-annually, to
inspect the Collateral and GT's and any of its Subsidiaries' properties, to
conduct appraisals of the Collateral, and to examine or audit GT's and any of
its Subsidiaries' books, accounts, and records and make copies and memoranda
thereof. Notwithstanding anything to the contrary elsewhere in this Agreement,
if Bank elects to conduct more than two (2) audits of GT or any of its
Subsidiaries
<PAGE> 37
in any calendar year at a time when no Event of Default has occurred and is
continuing, Bank will bear the cost of such additional audits. In the event any
Collateral, properties, books, accounts or records are in the possession of or
under the control of a third party, GT and each of its Subsidiaries shall direct
and hereby authorize such third party to permit access to Bank's employees or
agents for the purpose of performing the inspections, appraisals, examinations
or audits permitted under this Paragraph, and to respond to any requests from
Bank for information concerning the amount, status or condition of any
Collateral in such third party's possession or control;
8.4 Fixed Charge Coverage Ratio. Cause GT to achieve on a
consolidated basis a Fixed Charge Coverage Ratio of at least (a) 1.45 to 1.00
through December 30, 1997 and (b) 1.75 to 1.00 thereafter. This ratio shall be
calculated quarterly using the results of the most recently concluded quarterly
accounting period and each of the three immediately preceding quarterly
accounting periods; provided, however, that: (i) the current portion of long
term debt and capital leases shall be measured as of the last day of the most
recently concluded quarterly accounting period, and (ii) with respect to the
calculations as of the first, second, and third fiscal quarters of GT's fiscal
year ending 1996, interest expense in the denominator of the ratio calculation
shall be annualized on a year-to-date basis;
8.5 Quick Ratio. Cause GT to maintain at all times on a consolidated
basis, measured quarterly, the sum of cash, short-term cash investments,
marketable securities not classified as long-term investments, and trade
accounts receivable, at least equal to 0.55 times the sum of current liabilities
plus that portion of the Revolving Facility classified as long-term debt;
8.6 Other Indebtedness. Not create or incur any indebtedness for
borrowed money or for the deferred purchase price of property under capital
leases, or become liable as a surety, guarantor, accommodation endorser, or
otherwise for or upon the obligation of any other person, firm or corporation;
provided, however, that this Paragraph shall not be deemed to prohibit:
(a) direct or contingent obligations owed to Bank;
(b) the acquisition of goods, supplies or merchandise on
normal trade credit;
(c) the execution of bonds or undertakings in the ordinary
course of its business as presently conducted;
<PAGE> 38
(d) the endorsement of negotiable instruments received in the
ordinary course of its business as presently conducted;
(e) indebtedness and lease obligations existing as of the date
of this Agreement and which have been disclosed to Bank in writing;
(f) obligations under guaranties which do not exceed at any
time an aggregate amount for GT and its Subsidiaries of $500,000;
(g) additional indebtedness for the acquisition of fixed or
capital assets, including capital lease obligations, which does not
exceed an aggregate principal amount for GT and its Subsidiaries of
$2,000,000 in any fiscal year of GT;
(h) indebtedness of any party to this Agreement owing to any
other party to this Agreement;
(i) Permitted Subordinated Debt; and
(j) until the earlier of (i) 30 days after the date hereof and
(ii) the closing of the Caratti Facility, indebtedness outstanding
on the date hereof owing to Barclays Bank under the Barclays Bank
Facilities;
8.7 Liens. Not create, assume or suffer to exist any security
interest, lien (including the lien of an attachment, judgment or execution) or
encumbrance, securing a charge or obligation, on or of any of its property, real
or personal, whether now owned or hereafter acquired, except:
(a) security interest(s) and deed(s) of trust in
favor of Bank;
(b) liens, security interests and encumbrances in existence as
of the date of this Agreement which have been disclosed to Bank in
writing;
(c) liens for current taxes, assessments or other
governmental charges which are not delinquent or remain
payable without any penalty;
(d) purchase money security interests in personal property
hereafter acquired securing the obligations
<PAGE> 39
described in Paragraph 8.6(g) above, when the security interest does
not extend beyond the property purchased;
(e) statutory liens of landlords and liens of carriers,
warehousemen, mechanics, materialmen and other liens imposed by law
incurred in the ordinary course of business for sums not yet
delinquent or being diligently contested in good faith;
(f) liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment
insurance and other types of Social Security, or to secure the
performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return of
money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);
(g) any attachment or judgment lien (including judgment or
appeal bonds) which shall, within 45 days after the entry thereof,
have been discharged, bonded or execution thereof stayed pending
appeal, or which shall have been discharged or bonded within 45 days
after the expiration of any such stay;
(h) leases or subleases of real property granted to others not
interfering with the ordinary conduct of the business of GT and its
Subsidiaries;
(i) easements, rights of way, restrictions and other similar
charges or encumbrances which do not, individually or in the
aggregate, materially interfere with the ordinary conduct of the
business of GT or any of its Subsidiaries at any location;
(j) any interest, title or lien of a lessor under any
operating lease;
(k) liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(l) liens (including capitalized leases) and respective
property acquired, constructed, or improved by GT or any of its
Subsidiaries after the date of this Agreement, which liens exist or
are created at the time of acquisition or completion of construction
or
<PAGE> 40
improvement of such property, or within 60 days thereafter, to
secure indebtedness incurred pursuant to Section 8.6(g), but any
such lien shall cover only the property so acquired or constructed
and any improvements thereto (and any real property on which such
property is located, if such property is a building, improvement or
fixtures); and
(m) until the earlier of (i) 30 days after the date hereof and
(ii) the closing of the Caratti Facility, liens securing
indebtedness outstanding on the date hereof owing to Barclays Bank
under the Barclays Bank Facilities;
8.8 Acquisitions. Without Bank's prior written consent, not acquire
or purchase all or substantially all of the assets or business of any other
person, firm, corporation, or any division thereof, or acquire or purchase
securities; provided, however, that this Paragraph shall not prohibit:
(a) the acquisition or purchase of obligations issued or
guarantied by the United States;
(b) the acquisition or purchase of short term marketable
securities that do not constitute more than five percent of the
capital stock, partnership interests, membership interests, or
equity of any person, firm, or corporation;
(c) the acquisition or purchase of assets, business, or
securities of a person, firm, or corporation if (i) such acquisition
or purchase has been approved by the board of directors or similar
governing body of the person, firm, or corporation whose assets,
business, or securities are to be acquired or purchased, (ii) the
total consideration to be paid (including assumption of debt) for
any such acquisition or purchase does not exceed $1,000,000 in any
fiscal year, (iii) the outstanding indebtedness of the person, firm,
or corporation to be acquired or purchased would not, when incurred
or assumed by GT or any of its Subsidiaries and added to the
outstanding indebtedness of GT and its Subsidiaries, violate any
provision of Paragraph 8.6 above, and (iv) the total rental payments
due in the then current fiscal year of GT under operating leases of
the person, firm, or corporation to be acquired would not, when
added to the total rental payments under operating and capital
leases of GT and its Subsidiaries due in GT's then
<PAGE> 41
current fiscal year, exceed the amount permitted for such fiscal
year in Paragraph 8.10 below;
(d) Any subsidiary of GT may be merged or consolidated with or
into GT, any Borrower, or any of GT's Subsidiaries, or be
liquidated, wound up or dissolved, or all or substantially all of
the business, property or assets may be conveyed, sold, leased,
transferred or otherwise disposed of in one transaction or a series
of transactions, to GT or any of GT's U.S. Subsidiaries; provided,
however, that in the case of such a merger or consolidation (i) GT
or one of GT's U.S. Subsidiaries shall be the continuing or
surviving corporation, (ii) immediately before and immediately after
any such consolidation, merger or other disposition, no Event of
Default or event which with notice, lapse of time, or both would
become an Event of Default shall have occurred and be continuing,
and (iii) no disposition under this Subsection 8.8(d) shall release
GT, any surviving Borrower or any of GT's Subsidiaries from
liability in respect of the indebtedness hereunder; and
(e) the acquisition by GTBC of the stock of Caratti for a cash
purchase price not exceeding U.K.#9,000,000;
8.9 Dividends. Not declare or pay any dividends on any of its shares
except dividends payable in capital stock of GT or any of its Subsidiaries, and
not purchase, redeem or otherwise acquire for value any of its shares, or create
any sinking fund in relation thereto;
8.10 Operating and Capital Leases. Not enter into any operating or
capital lease of any real or personal property which would cause its aggregate
annual rental payments under all such operating leases plus payments under all
such capital leases to exceed $3,000,000 in any fiscal year of GT;
8.11 Capital Ownership. Not cause, permit, or suffer any change,
direct or indirect, in any Subsidiaries' capital ownership;
8.12 Covenant to Guarantee Obligations. At such time as any new
direct or indirect domestic Subsidiary is formed or acquired by GT (excluding
Subsidiaries of GT that are also Borrowers), cause such new Subsidiary that is a
wholly owned Subsidiary to (i) within 10 days thereafter or such later time as
Borrowers, GT, and Bank shall agree (but in any event no later
<PAGE> 42
than 30 additional days thereafter), duly execute and deliver to Bank
guarantees, in form and substance satisfactory to Bank, guaranteeing Borrowers'
obligations under this Agreement;
8.13 Sales and Leasebacks. Not dispose of any of its assets except
for full, fair and reasonable consideration, or enter into any sale and
leaseback agreement covering any of its fixed or capital assets;
8.14 Existence and Properties. Maintain and preserve GT's and each
of its Subsidiaries' existence and all rights, privileges and franchises now
enjoyed, conduct GT and each of its Subsidiaries' business in an orderly,
efficient and customary manner, keep all properties of GT and each of its
Subsidiaries in good working order and condition consistent with past practices,
and from time to time make all needed repairs, renewals or replacements thereto
and thereof consistent with past practices so that the efficiency of such
property shall be fully maintained and preserved;
8.15 Liquidations and Mergers. Not liquidate or dissolve or enter
into any consolidation, merger, partnership, joint venture or other combination,
except as permitted in Paragraph 8.8(d) of this Agreement;
8.16 Sale of Assets. Not sell, lease, or otherwise dispose of its
business or assets as a whole or such as in the opinion of Bank constitute a
substantial portion of its business or assets except in the ordinary course of
its business as heretofore conducted, except as permitted in Paragraph 8.8(d) of
this Agreement;
8.17 Consignments. Prior to placement of any Inventory on
consignment with any person ("Consignee"):
(a) Provide Bank with all consignment agreements and other
instruments and documentation to be used in connection with such
consignment, all of which agreements, instruments and documentation
must be in form and substance satisfactory to Bank;
(b) Prepare, execute and file appropriate financing statements
with respect to any consigned Inventory showing the Consignee as
debtor, the relevant Borrower or the relevant Guarantor as secured
party, and Bank as assignee of secured party;
(c) Prepare, execute and file appropriate financing statements
with respect to any consigned
<PAGE> 43
Inventory showing the relevant Borrower or the relevant Guarantor as
debtor and Bank as secured party;
(d) After all financing statements referred to in
subparagraphs (b) and (c) above have been filed, conduct a search of
all filings made against the Consignee in all jurisdictions in which
the consigned Inventory is to be located, and deliver to Bank copies
of the results of all such searches;
(e) Notify, in writing, all creditors of the Consignee which
are or may be holders of security interests in the Inventory to be
consigned that the relevant Borrower and the relevant Guarantor
expects to deliver certain Inventory to the Consignee, all of which
Inventory shall be described in such notice by item or type;
8.18 Insurance. Maintain and keep in force fire and hazard insurance
policies covering the tangible property comprising the Collateral. Each such
insurance policy shall be in an amount equal to the full replacement value of
such Collateral, shall include a replacement cost endorsement, shall be issued
by an insurance company reasonably acceptable to Bank, and shall include a loss
payable endorsement in favor of Bank in a form reasonably acceptable to Bank. GT
and each of its Subsidiaries shall also maintain and keep in force insurance
reasonably satisfactory to Bank as to amount, nature and carrier covering
property damage (including use and occupancy) to GT's and each of its
Subsidiaries' other properties, public liability insurance including coverage
for contractual liability, product liability, property damage and workers'
compensation, and any other insurance which is usual for GT's and each of its
Subsidiaries' business. Without limiting the foregoing, policies of product
liability insurance shall provide coverage in an aggregate amount per year of
not less than $25,000,000 with deductibles or self-insured retention not
exceeding $100,000 per claim and $500,000 per year for all claims in the
aggregate. If at any time the premium due for the product liability coverage
described in the preceding sentence should become so expensive as to be neither
commercially reasonable nor prudent to carry such coverage, GT and its
Subsidiaries may reduce such coverage; provided, however, that the reduced
coverage shall in no event be less than $5,000,000 in the aggregate per year. GT
and each of its Subsidiaries shall deliver to Bank upon Bank's request a copy of
each insurance policy or, if permitted by Bank, a certificate of insurance
listing all insurance in force;
8.19 Compliance with Laws. At all times comply with,
<PAGE> 44
or cause to be complied with in all material respects, all laws, statutes
(including but not limited to any fictitious name statute), rules, regulations,
orders and directions of any governmental authority having jurisdiction over GT
or any of its Subsidiaries or GT's or any of its Subsidiaries' businesses,
including but not limited to laws regulating GT's or any of its Subsidiaries'
sales to or performance of services for Receivable Debtors and disclosures in
connection therewith;
8.20 Accuracy of Financial Information. Cause all financial
information, including information relating to the Collateral, upon submission
by GT or any of its Subsidiaries to Bank to be true and correct in all material
respects and complete to the extent necessary to give Bank a true and accurate
knowledge of the subject matter thereof;
8.21 Additional Acts. Perform, on request of Bank, such acts as may
be necessary or advisable to perfect any lien or security interest provided for
herein or otherwise to carry out the intent of this Agreement;
8.22 Business Activities. Not engage in any business activities or
operations substantially different from or unrelated to present business
activities and operations;
8.23 Change in Name, Structure or Location. Notify Bank in writing
prior to any change in (a) GT's or any of its Subsidiaries' name, (b) GT's or
any its Subsidiaries' business or legal structure, or (c) GT's or any of its
Subsidiaries' place of business or chief executive office if GT or any of its
Subsidiaries has more than one place of business;
9. Events of Default
The occurrence of any of the following Events of Default shall
terminate any obligation on the part of Bank to extend credit under this
Agreement and, at the option of Bank under all Paragraphs except Paragraphs 9.5
and 9.6, and automatically in the case of Paragraphs 9.5 and 9.6, shall make all
obligations of Borrowers to Bank under or in respect of this Agreement and any
instrument or agreement required under this Agreement immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or other notices or demands of any kind or
character, except as specifically provided below:
9.1 Failure to Pay. Any Borrower fails to pay, within two (2)
Banking Days of when due, any installment of interest or principal or any other
sum due under this Agreement in accordance
<PAGE> 45
with the terms hereof;
9.2 Breach of Representation or Warranty. Any representation or
warranty herein or in any agreement, instrument or certificate executed pursuant
hereto or in connection with any transaction contemplated hereby proves to have
been false or misleading in any material respect when made;
9.3 Falsity of Information. Any financial or other information
delivered by GT or any of its Subsidiaries to Bank proves to be false or
misleading in any material respect;
9.4 Security Interest. Bank fails to have a valid and enforceable
perfected security interest in or lien on the Collateral or such security
interest or lien fails to be prior to the rights and interest of others except
those consented to in writing by Bank;
9.5 Failure to Pay Debts; Voluntary Bankruptcy. GT or any of its
Subsidiaries fails to pay its debts generally as they come due, or files any
petition, proceeding, case, or action for relief under any bankruptcy,
reorganization, insolvency, or moratorium law, or any other law or laws for the
relief of, or relating to, debtors;
9.6 Involuntary Bankruptcy. An involuntary petition is filed under
any bankruptcy or similar statute against GT or any of its Subsidiaries, or a
receiver, trustee, liquidator, assignee, custodian, sequestrator, or other
similar official is appointed to take possession of the properties of GT or any
of its Subsidiaries, and such petition or appointment is not dismissed or
withdrawn or does not cease to be in effect within 60 days of filing or
appointment;
9.7 Suits. One or more suits are filed against GT or any of its
Subsidiaries, by a trade creditor or trade creditors of such person in the
aggregate amount of $500,000 or more and are not being contested in good faith
by appropriate proceedings by such person;
9.8 Judgments. One or more judgments or arbitration awards are
entered against GT or any of its Subsidiaries on a claim or claims not covered
by insurance and remain undischarged, unvacated, unbonded, or unstayed for a
period of 30 days or in any event later than five days prior to any proposed
sale under any such judgment or award, or GT or any of its Subsidiaries enters
into any settlement agreements with respect to any litigation or arbitration, in
the aggregate amount of $500,000 or more on a claim or claims not covered by
insurance;
<PAGE> 46
9.9 Suspension of Business. GT or any of its Subsidiaries
voluntarily suspends its business for more than five business days in any 30 day
period;
9.10 Governmental Action. Any governmental regulatory authority
takes or institutes action which, in the opinion of Bank, will materially
adversely affect GT's or any of its Subsidiaries' condition, operations or
ability to pay any of their respective obligations owing to Bank;
9.11 Default of Other Financial Obligations. Any default which is
not waived (prospectively or retroactively) occurs under any other agreement
involving the borrowing of money or the extension of credit in the amount of
$250,000 or more to which GT or any of its Subsidiaries may be a party as
borrower, guarantor or installment purchaser if such default consists of the
failure to pay any obligation when due or if such default gives to the holder of
the obligation concerned the right to accelerate the obligation;
9.12 Default under Guaranty or Subordination Agreement. Any
guaranty, subordination agreement or other agreement or instrument required
hereunder is breached or becomes ineffective or any default which is not waived
(prospectively or retroactively) occurs under any such agreement or instrument;
9.13 Misuse of Collateral. Bank, in good faith, considers any
Collateral to be unsafe or in danger of misuse by GT or any of its Subsidiaries
to the extent that Bank's prospect of or right to payment or performance under
this Agreement or any instrument or agreement required hereunder is materially
impaired;
9.14 Default of Other Bank Obligations. Any default which is not
waived (prospectively or retroactively) occurs under any other obligation of GT
or any of its Subsidiaries to Bank or to any subsidiary or affiliate of Bank and
such default is not cured within 30 days if in Bank's reasonable discretion such
default is capable of being cured;
9.15 Material Adverse Change. Any material adverse change occurs in
the financial condition or results of operations of GT or any of its
Subsidiaries or in GT's or any of its Subsidiaries' ability to perform its
obligations under this Agreement or under any instrument or agreement required
by this Agreement;
9.16 ERISA Plan Termination. Any ERISA Plan
<PAGE> 47
termination or any full or partial withdrawal from an ERISA Plan occurs which
could result in liability of GT or any of its Subsidiaries to the Pension
Benefit Guaranty Corporation or to the ERISA Plan in an aggregate amount which,
in the reasonable opinion of Bank, will have a material adverse effect on the
financial condition of GT or any of its Subsidiaries;
9.17 Breach of Certain Covenants. Any Borrower or any Guarantor
fails to comply with or perform any term or provision contained in Paragraphs
8.2(a) through 8.2(e), inclusive, Paragraphs 8.2(j) through 8.2(l), inclusive,
and Paragraph 8.3 of this Agreement, and such failure is not remedied or waived
in writing of Bank within 30 days of the occurrence thereof, or any Borrower or
any Guarantor fails to comply with or perform any term or provision contained in
Paragraphs 8.2(f) through 8.2(i), inclusive, of this Agreement and such failure
is not remedied or waived in writing by Bank within 10 days of the occurrence
thereof;
9.18 Breach of Other Covenants. Any Borrower or any Guarantor fails
to comply with or perform any term or condition contained in this Agreement
other than those specifically referred to in Paragraph 9.17 above or elsewhere
in this Article 9;
9.19 Effectiveness of Caratti Facility. Failure for any reason of
the Barclays Bank Facilities to be terminated, and the Caratti Facility to
concurrently become effective, within 30 days after the date hereof.
9.20 Registry and Delivery of Caratti Stock. All shares of Caratti
have not been entered in Caratti's U.K. Register of Members showing GTBC as the
holder of such shares or all of such shares have not been delivered to Bank with
undated signed stock power certificates within 45 days after the date hereof.
<PAGE> 48
Upon the occurrence of any event which, with notice or lapse
of time or both would become an Event of Default, Bank may decline to extend
further credit to Borrowers under this Agreement until the event has been cured
or no longer exists.
10. Miscellaneous
10.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, that neither any Borrower nor any Guarantor shall assign this
Agreement or any of the rights, duties or obligations of such Borrower or any
Guarantor hereunder without the prior written consent of Bank.
10.2 Consents and Waivers. No consent or waiver under this Agreement
shall be effective unless in writing. No waiver of any breach or default shall
be deemed a waiver of any breach or default thereafter occurring.
10.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California.
10.4 Administration Costs. Borrowers and GT agree to pay to Bank, on
demand, all reasonable costs and expenses incurred by Bank in connection with
the administration of this Agreement and any instrument or agreement required
under this Agreement, subject to any limitations provided elsewhere in this
Agreement.
10.5 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and severally
liable to Bank for the payment of all obligations arising under this
Agreement, and that such liability is independent of the obligations
of the other Borrowers or any Guarantor. Bank may bring an action
against any Borrower, whether an action is brought against any other
Borrower or any Guarantor.
(b) Each Borrower agrees that any release which may be given
by Bank to any other Borrower or any Guarantor will not release such
Borrower from its obligations under this Agreement.
(c) Each Borrower waives any right to assert against Bank any
defense, setoff, counterclaim, or claims which such Borrower may
have against any other Borrower or any Guarantor or any other party
liable to
<PAGE> 49
Bank for the obligations of Borrowers under this Agreement.
(d) Each Borrower agrees that it is solely responsible for
keeping itself informed as to the financial condition of any other
Borrower or any Guarantor and of all circumstances which bear upon
the risk of nonpayment. Each Borrower waives any right it may have
to require the Bank to disclose to such Borrower any information
which the Bank may now or hereafter acquire concerning the financial
condition of any other Borrower or any Guarantor.
(e) Each Borrower waives all rights to notices of default or
nonperformance by any other Borrower or any Guarantor under this
Agreement. Each Borrower further waives all rights to notices of the
existence or the creation of new indebtedness by any other Borrower
or any Guarantor.
(f) Borrowers and each of them represent and warrant to the
Bank that each will derive benefit, directly and indirectly, from
the collective administration and availability of credit under this
Agreement. Borrowers agree that Bank will not be required to inquire
as to the disposition by any Borrower of funds disbursed in
accordance with the terms of this Agreement.
(g) Each Borrower waives any right of subrogation,
reimbursement, indemnification and contribution (contractual,
statutory or otherwise), including without limitation, any claim or
right of subrogation under the Bankruptcy Code (Title 11 of the U.S.
Code) or any successor statute, which such Borrower may now or
hereafter have against any other Borrower or any Guarantor with
respect to the indebtedness incurred under this Agreement. Each
Borrower waives any right to enforce any remedy which Bank now has
or may hereafter have against any other Borrower or any Guarantor,
and waives any benefit of, and any right to participate in, any
security now or hereafter held by Bank.
10.6 Attorneys' Fees. Borrowers and GT agree to pay to Bank, on
demand, all reasonable costs, expenses and attorneys' fees (including allocated
costs for in-house legal services) incurred by Bank in connection with the
enforcement and preservation of any rights or remedies under this Agreement and
<PAGE> 50
any instrument or agreement required under this Agreement, and including any
amendment, waiver, "workout" or restructuring under this Agreement. In the event
a legal action or arbitration proceeding is commenced in connection with the
enforcement of this Agreement or any instrument or agreement required under this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees
(including allocated costs for in-house legal services), costs and necessary
disbursements incurred in connection with such action or proceeding, as
determined by the court or arbitrator.
10.7 Integration. This Agreement and any instrument, agreement or
document attached hereto or referred to herein (a) integrate all the terms and
conditions mentioned herein or incidental hereto, (b) supersede all oral
negotiations and prior writings in respect to the subject matter hereof, and (c)
are intended by the parties as the final expression of the agreement with
respect to the terms and conditions set forth in this Agreement and any such
instrument, agreement or document and as the complete and exclusive statement of
the terms agreed to by the parties. In the event of any conflict between the
terms, conditions and provisions of this Agreement and any such instrument,
agreement, or document, the terms, conditions and provisions of this Agreement
shall prevail.
10.8 Disposition of Schedules, Reports, Etc. Delivered by GT or
Subsidiaries. Bank shall be under no obligation to return any schedules,
invoices, statements, budgets, forecasts, reports or other papers delivered by
GT or any of its Subsidiaries and shall destroy or otherwise dispose of same at
such time as Bank, in its discretion, deems appropriate.
10.9 Confidentiality. Bank agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
non-public information provided to it by GT or any of its Subsidiaries in
connection with this Agreement and agrees and undertakes that neither it nor any
of its affiliates shall use any such information for any purpose or in any
manner other than pursuant to the terms contemplated by this Agreement. Bank may
disclose such information (i) at the request of any regulatory authority or in
connection with an examination of Bank by any such authority; (ii) pursuant to
subpoena or other court process; (iii) when required to do so in accordance with
the provisions of any applicable law; (iv) at the express direction or any other
agency of any State of the United States of America or of any other jurisdiction
in which Bank conducts its business; and (v) to Bank's independent auditors and
other professional advisors.
<PAGE> 51
10.10 Returned Merchandise. Until Bank exercises its rights to
collect the Receivables as provided under any security agreement required under
this Agreement, each Borrower or each Guarantor may continue its present
policies for returned merchandise and adjustments. Credit adjustments with
respect to returned merchandise shall be made immediately upon receipt of the
merchandise by such Borrower or such Guarantor or upon such other disposition of
the merchandise by the Receivable Debtor in accordance with such Borrower's or
such Guarantor's instructions. If a credit adjustment is made with respect to
any Acceptable Receivable, the amount of such adjustment shall no longer be
included in the amount of such Acceptable Receivable in computing the Borrowing
Base.
10.11 Verification of Receivables. Bank may at any time, either
orally or in writing, request confirmation from any Receivable Debtor of the
current amount and status of the Receivable upon which such Receivable Debtor is
obligated.
10.12 Participations. Bank may at any time sell to any other person,
firm, or corporation (a "Participant") participations in a portion of the
obligations of Borrowers and Guarantors under this Agreement. On condition that
any Participant or prospective Participant agrees to keep information concerning
GT or any of its Subsidiaries confidential on substantially the terms of
Paragraph 10.9 above, Borrowers and Guarantors authorize Bank to disclose to any
prospective Participant and any Participant any and all information in Bank's
possession concerning GT and any of its Subsidiaries, this Agreement and the
Collateral.
10.13 Indemnification. Each Borrower and each Guarantor agree to
indemnify Bank against, and hold Bank harmless from, all claims, actions,
losses, costs and expenses (including reasonable attorneys' fees and allocated
costs for in-house legal services) incurred by Bank and arising from any
contention, whether well-founded or otherwise, that there has been a failure to
comply with any law regulating any Borrower's or any Guarantor's sales to or
performance of services for Receivable Debtors and disclosures in connection
therewith. The provisions of this Paragraph shall survive termination of this
Agreement.
10.14 Arbitration; Reference Proceeding.
(a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to
this Agreement or any agreements or instruments relating hereto or
delivered in connection herewith and any claim based on or arising
from an
<PAGE> 52
alleged tort, shall at the request of any party be determined by
arbitration. The arbitration shall be conducted in accordance with
the United States Arbitration Act (Title 9, U.S. Code),
notwithstanding any choice of law provision in this Agreement, and
under the Commercial Rules of the American Arbitration Association
("AAA"). The arbitrator(s) shall give effect to statutes of
limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in
any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary
remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial
relief.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the
consent of all parties if, at the time of the proposed submission,
such controversy or claim arises from or relates to an obligation to
Bank which is secured by real property collateral located in
California. If all parties do not consent to submission of such a
controversy or claim to arbitration, the controversy or claim shall
be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subparagraphs (a) and (b)
shall, at the request of any party, be determined by a reference in
accordance with California Code of Civil Procedure Sections 638 et
seq. If such an election is made, the parties shall designate to the
court a referee or referees selected under the auspices of the AAA
in the same manner as arbitrators are selected in AAA-sponsored
proceedings. The presiding referee of the panel, or the referee if
there is a single referee, shall be an active attorney or retired
judge. Judgment upon the award rendered by such referee or referees
shall be entered in the court in which such proceeding was commenced
in accordance with California Code of Civil Procedure Sections 644
and 645.
(d) No provision of this paragraph shall limit the right of
any party to this Agreement to exercise
<PAGE> 53
self-help remedies such as setoff, to foreclose against or sell any
real or personal property collateral or security, or to obtain
provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any
arbitration or other proceeding. The exercise of a remedy does not
waive the right of either party to resort to arbitration or
reference. At Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of power of sale
under the deed of trust or mortgage or by judicial foreclosure.
10.15 Notices. All notices required hereunder shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses set
forth on the signature page of this Agreement, or to such other addresses as the
parties hereto may specify from time to time in writing.
10.16 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.
10.17 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
10.18 Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same agreement.
10.19 Amendment and Restatement of Existing Agreement. This
Agreement amends and restates the Existing Agreement. Any extensions of credit
outstanding under the Existing Agreement shall be deemed outstanding hereunder
with the same tenor and, as applicable, interest periods as under the Existing
Agreement, but with any changes in interest rate margins set forth herein to be
effective on any continuing LIBOR Rate Portions and Offshore Rate Portions
outstanding as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
<PAGE> 54
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By:_________________________
E. M. Amendt
Vice President
Address where notices to Bank are to be sent:
3233 Park Center Drive, 2nd
Floor
Costa Mesa, California 92626
<PAGE> 55
GT BICYCLES CALIFORNIA, INC.
RITEWAY PRODUCTS EAST, INC.
RITEWAY PRODUCTS NORTH
CENTRAL, INC.
RITE-WAY DISTRIBUTORS
CENTRAL, INC.
RITE-WAY DISTRIBUTORS, INC.
GT BICYCLES, INC.
By:_________________________
Michael Haynes
President
Address where notices to all
Borrowers and GT are to be
sent:
3100 West Segerstrom Avenue
Santa Ana, California 92704
Attn: Chief Financial
Officer
<PAGE> 56
SCHEDULE 1.1(b)
(Locations of Inventory)
<PAGE> 57
SCHEDULE 7.2
(Conflicting Documents)
<PAGE> 58
SCHEDULE 7.9
(Litigation)
<PAGE> 59
SCHEDULE 7.12
(Pending Income Tax Assessments or Adjustments)
<PAGE> 60
SCHEDULE 7.17
(Locations of GT and Subsidiaries)
<PAGE> 61
EXHIBIT A
FORM OF
COMPLIANCE CERTIFICATE
To: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
Reference is made to that certain Second Amended and Restated Credit
Agreement (Receivables and Inventory) dated as of August 12, 1996, among Bank of
America National Trust and Savings Association and GT Bicycles California, Inc.,
Riteway Products East, Inc., Riteway Products North Central, Inc., Rite-Way
Distributors Central, Inc., Rite-Way Distributors, Inc. and GT Bicycles, Inc.
(the "Credit Agreement"). Capitalized terms not otherwise defined in this
Certificate shall have the meanings ascribed to them in the Credit Agreement.
This Certificate is delivered in accordance with Paragraph 8.2(c) of the Credit
Agreement.
I. COMPLIANCE WITH FINANCIAL COVENANTS
Computations showing compliance with certain paragraphs of the Credit
Agreement are as follows:
Paragraph 8.5; Quick Ratio. As of the date of the attached financial
statements, the quick ratio was calculated as follows:
(a) The sum of:
cash $
plus short-term cash investments $
plus marketable securities not
classified as long-term investments $
plus trade accounts receivable $
equals $
Divided by $
(b) The sum of:
current liabilities $
<PAGE> 62
plus the portion of the
Revolving Facility classified
as long-term debt $
equals $
(c) The sum of the components of
section (a) above divided by the
sum of the components of section (b)
above equals, expressed as a ratio: : 1
minimum permitted: : 1
Paragraph 8.4; Fixed Charge Coverage Ratio. As of the date of the
attached financial statements, the Fixed Charge Coverage Ratio was
calculated as follows for the period consisting of the most recently ended
fiscal quarter plus the immediately preceding three fiscal quarters ("Fiscal
Period"):
(a) The sum of:
net income (or loss) from operations
(excluding extraordinary or non-
recurring gains) for the Fiscal
Period $
plus interest expense $
plus depreciation expense for
the Fiscal Period $
plus amortization expense $
plus equity contributions and
subordinated loans $
minus dividends paid $
equals $
Divided by $
(b) The sum of:
current portion of long-term
debt and capital leases for
the Fiscal Period $
<PAGE> 63
plus capital expenditures made
in cash for the Fiscal Period $
plus interest expense for
the Fiscal Period $
equals $
(c) The sum of the components of section
(a) above divided by the sum of the
components of section (b) above
equals, expressed as a ratio: : 1
minimum permitted: : 1
Paragraph 8.6; Other Indebtedness. As of the date of the
attached financial statements:
the outstanding amount of obligations under guaranties
described in Paragraph 8.6(f) was $_________________.
maximum permitted: $500,000
the outstanding amount of indebtedness incurred for the acquisition
of fixed or capital assets in the current fiscal year of GT under
Paragraph 8.6(g) was $ .
maximum permitted: $2,000,000 in
any fiscal year
Paragraph 8.7; Liens. As of the date of the attached
financial statements, the outstanding amount of obligations
secured by liens was $ .
maximum permitted: $2,000,000 in
any fiscal year
Paragraph 8.8; Acquisitions. [Neither GT nor any Subsidiary has acquired or
purchased any assets or businesses except as permitted under subparagraphs
(a) and (b) and (e) of Paragraph 8.8.] [The following acquisitions or
purchases of assets or businesses, excluding those permitted under
subsections (a) and (b) of Paragraph 8.8, have occurred: [briefly describe
transactions]. The total consideration paid (including assumption of debt)
in the current fiscal year of GT for these transactions was
$________________.]
<PAGE> 64
maximum permitted: $1,000,000 in
any fiscal year
Paragraph 8.10; Operating Capital Leases. As of the date of the attached
financial statements, the aggregate amount of rental payments due under
operating leases and payments due under capital leases in the current fiscal
year of GT is $______________.
maximum permitted: $3,000,000 in
any fiscal year
II. PERFORMANCE OF OBLIGATIONS
A review of the activities of GT and Borrowers during the fiscal period
covered by this Certificate has been made under the supervision of the
undersigned with a view to determining whether during such fiscal period all
Guarantors and Borrowers performed and observed all of their respective
obligations. To the best knowledge of the undersigned, during the fiscal period
covered by this Certificate, all covenants and conditions have been so performed
and observed and no Event of Default or event which with notice or lapse of time
or both would be an Event of Default has occurred and is continuing, with any
exceptions set forth below, in response to which Borrowers and GT have taken or
propose to take the following actions (if none, so state):
III. NO MATERIAL ADVERSE CHANGE
To the best knowledge of the undersigned, no event or circumstance has
occurred that constitutes a material adverse change under Paragraph 9.15 of the
Credit Agreement since the date the most recent Certificate was executed and
delivered, with any exceptions being set forth below (if none, so state):
This Certificate is by a responsible officer of GT and Borrowers. The
undersigned hereby certify that each and every matter contained herein is
derived from GT's and its
<PAGE> 65
Subsidiaries' books and records and is, to the best knowledge of the
undersigned, true and correct.
Dated: ___________, 19___.
In signing below, the undersigned is executing this Certificate on
behalf of all Guarantors and all Borrowers.
_________________________
_________________________
Printed Name and Title
<PAGE> 66
CONTINUING CROSS-GUARANTY
To: Bank of America National Trust
and Savings Association
(1) For valuable consideration, the undersigned ("Guarantors") jointly and
severally unconditionally guarantee and promise to pay to Bank of America
National Trust and Savings Association ("Bank"), or order, on demand, in lawful
money of the United States, any and all indebtedness of GT Bicycles California,
Inc., Riteway Products East, Inc., Riteway Products North Central, Inc.;
Rite-Way Distributors Central, Inc., and Rite-Way Distributors, Inc., and
Caratti Sport Ltd (collectively, the "Borrowers") to Bank. The word
"indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Borrowers or any one or
more of them, heretofore, now, or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether direct or acquired by Bank
by assignment or succession, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Borrowers
may be liable individually or jointly with others, or whether recovery upon such
indebtedness may be or hereafter become barred by any statute of limitations, or
whether such indebtedness may be or hereafter become otherwise unenforceable.
(2) The liability of Guarantors under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantors) shall not exceed at
any one time the U.S. Dollar equivalent total of (a) an amount equal to the sum
of (i) all indebtedness owing by any Borrower to Bank in connection with
interest rate protection agreements entered into with Bank, (ii) all
indebtedness owing by any Borrower to Bank relating to any duty/VAT deferment
guaranties issued by Bank in the United Kingdom, and (iii) $95,000,000, for the
principal amount of other indebtedness owing by any Borrower to Bank and (b) all
interest, fees, and other costs and expenses relating to or arising out of such
indebtedness. If, due to currency exchange rate fluctuations, the indebtedness
exceeds the foregoing limitation in U.S. Dollars, such increased indebtedness
shall nonetheless be covered by this Continuing Guaranty. Bank may permit the
indebtedness to exceed Guarantors' liability, and may apply any amounts received
from any source, other than from Guarantors, to the unguaranteed portion of the
indebtedness. This is a continuing guaranty relating to any indebtedness,
including that arising under successive transactions which shall either continue
the indebtedness or from time to time renew it after it has been satisfied. Any
payment by Guarantors shall not reduce Guarantors' maximum obligation hereunder,
unless written notice to that effect be actually received by Bank at or prior to
the time of such payment.
(3) The obligations hereunder are joint and several, and independent of
the obligations of Borrowers, and a separate action or actions may be brought
and prosecuted against Guarantors whether action is brought against any Borrower
or whether any Borrower be joined in any such action or actions; and Guarantors
waive the benefit of any statute of limitations affecting Guarantors' liability
hereunder.
<PAGE> 67
(4) Guarantors authorize Bank, without notice or demand and without
affecting Guarantors' liability hereunder, from time to time, either before or
after revocation hereof, to (a) renew, compromise, extend, accelerate or
otherwise change the time for payment of, or otherwise change the terms of the
indebtedness or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security for the payment of this Guaranty
or any of the indebtedness, and exchange, enforce, waive, release, fail to
perfect, sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine; and (d) release or substitute any one or more of the
endorsers or guarantors.
(5) Guarantors waive any right to require Bank to (a) proceed against any
Borrower; (b) proceed against or exhaust any security held from any Borrower; or
(c) pursue any other remedy in Bank's power whatsoever. Guarantors waive any
defense arising by reason of any disability or other defense of any Borrower, or
the cessation from any cause whatsoever of the liability of any Borrower, or any
claim that Guarantors' obligations exceed or are more burdensome than those of
any Borrower. Until the indebtedness shall have been paid in full, even though
the indebtedness is in excess of Guarantors' liability hereunder, Guarantors
waive any right of subrogation, reimbursement, indemnification, and contribution
(contractual, statutory or otherwise), including without limitation, any claim
or right of subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or
any successor statute, arising from the existence or performance of this
Guaranty, and Guarantors waive any right to enforce any remedy which Bank now
has or may hereafter have against any Borrower, and waive any benefit of, and
any right to participate in, any security now or hereafter held by Bank.
Guarantors waive all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Guaranty and of the existence, creation, or incurring of
new or additional indebtedness.
(6) (a) Guarantors understand and acknowledge that if Bank forecloses,
either by judicial foreclosure or by exercise of power of sale, any deed of
trust securing the indebtedness, that foreclosure could impair or destroy any
ability that Guarantors may have to seek reimbursement, contribution, or
indemnification from Borrowers or others based on any right Guarantors may have
of subrogation, reimbursement, contribution, or indemnification for any amounts
paid by Guarantors under this Guaranty. Guarantors further understand and
acknowledge that in the absence of this paragraph, such potential impairment or
destruction of Guarantors' rights, if any, may entitle Guarantors to assert a
defense to this Guaranty based on Section 580d of the California Code of Civil
Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968).
By executing this Guaranty, Guarantors freely, irrevocably, and unconditionally:
(i) waive and relinquish that defense and agree that Guarantors will be fully
liable under this Guaranty even though Bank may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing the
indebtedness; (ii) agree that Guarantors will not assert that defense in any
action or proceeding which Bank may commence to enforce this Guaranty; (iii)
acknowledge and agree that the rights and defenses waived by Guarantors in this
Guaranty include any right or defense that Guarantors may have or be entitled to
assert based upon or arising out of any one or more of Sections 580a, 580b,
580d, or 726 of the California Code of Civil Procedure or Section 2848 of the
California Civil Code; and (iv) acknowledge and agree that Bank is relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which Bank is receiving for creating the indebtedness.
<PAGE> 68
(b) Guarantors waive any rights and defenses available to Guarantors
by reason of Sections 2787 to 2855, inclusive, of the California Civil Code
including, without limitation, (1) any defenses Guarantors may have to its
obligations under this Guaranty by reason of an election of remedies by Bank and
(2) any rights or defenses Guarantors may have by reason of protection afforded
to any Borrower with respect to any of the indebtedness pursuant to the
antideficiency or other laws of California limiting or discharging any of the
indebtedness, including, without limitation, Sections 580a, 580b, 580d, or 726
of the California Code of Civil Procedure.
(c) Guarantors waive all rights and defenses arising out of an
election of remedies by Bank, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Guarantors' rights of subrogation and reimbursement against any
Borrower by the operation of Section 580d of the California Code of Civil
Procedure or otherwise.
(d) No provision or waiver in this Guaranty shall be construed as
limiting the generality of any other waiver contained in this Guaranty.
(7) Guarantors acknowledge and agree that they shall have the sole
responsibility for obtaining from each Borrower such information concerning such
Borrower's financial condition or business operations as Guarantors may require,
and that Bank has no duty at any time to disclose to Guarantors any information
relating to the business operations or financial conditions of any Borrower.
(8) To secure all of Guarantors' obligations hereunder, Guarantors assign
and grant to Bank a security interest in all moneys, securities and other
property of Guarantors now or hereafter in the possession of Bank, all deposit
accounts of Guarantors maintained with Bank, and all proceeds thereof. Upon
default or breach of any of Guarantors' obligations to Bank, Bank may apply any
deposit account to reduce the indebtedness, and may foreclose any collateral as
provided in the Uniform Commercial Code and in any security agreements between
Bank and Guarantors.
(9) Any obligations of any Borrower to Guarantors, now or hereafter
existing, including but not limited to any obligations to Guarantors as
subrogees of Bank or resulting from Guarantors' performance under this Guaranty,
are hereby subordinated to the indebtedness. Such obligations of any Borrower to
Guarantors if Bank so requests shall be enforced and performance received by
Guarantors as trustees for Bank and the proceeds thereof shall be paid over to
Bank on account of the indebtedness to Bank, but without reducing or affecting
in any manner the liability of Guarantors under the other provisions of this
Guaranty.
(10) This Guaranty may be revoked at any time by Guarantors in respect to
future transactions, unless there is a continuing consideration as to such
transactions which Guarantors do not renounce. Such revocation shall be
effective upon actual receipt by Bank at the address shown below of written
notice of revocation. Revocation shall not affect any of Guarantors' obligations
or Bank's rights with respect to transactions which precede Bank's receipt of
such notice, regardless of whether or not the indebtedness related to such
transactions, before or after revocation, has been renewed, compromised,
extended,
<PAGE> 69
accelerated, or otherwise changed as to any of its terms, including time for
payment or increase or decrease of the rate of interest thereon, and regardless
of any other act or omission of Bank authorized hereunder. Revocation by any
other guarantor of the indebtedness shall not affect any obligations of any
nonrevoking Guarantors. If this Guaranty is revoked, returned, or canceled, and
subsequently any payment or transfer of any interest in property by any Borrower
to Bank is rescinded or must be returned by Bank to any Borrower, this Guaranty
shall be reinstated with respect to any such payment or transfer, regardless of
any such prior revocation, return, or cancellation.
(11) It is not necessary for Bank to inquire into the powers of any
Borrower or of the officers, directors, partners or agents acting or purporting
to act on such Borrower's behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
(12) Bank may, without notice to Guarantors and without affecting
Guarantors' obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantors agree that Bank may disclose to any assignee or
purchaser and any purchaser of all or part of the indebtedness any and all
information in Bank's possession concerning Guarantors, this Guaranty, and any
security for this Guaranty.
(13) Guarantors agree to pay all reasonable attorneys' fees, including
allocated costs of Bank's in-house counsel, and all other costs and expenses
which may be incurred by Bank (a) in the enforcement of this Guaranty or (b) in
the preservation, protection, or enforcement of any rights of Bank in any case
commenced by or against Guarantors under the Bankruptcy Code (Title 11, United
States Code) or any similar or successor statute.
(14) (a) Any controversy or claim between or among the parties, including
but not limited to those arising out of or relating to this Guaranty or any
agreements or instruments relating hereto or delivered in connection herewith
and any claim based on or arising from an alleged tort, shall at the request of
any party be determined by arbitration. The arbitration shall be conducted in
accordance with the United States Arbitration Act (Title 9, U.S. Code),
notwithstanding any choice of law provision in this Agreement, and under the
Commercial Rules of the American Arbitration Association ("AAA"). The
arbitrators shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrators. Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to Bank which is secured by real
property collateral located in California. If all parties do not consent to
submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to arbitration as
provided and limited in subparagraphs (a) and (b) shall, at the request of any
party, be determined by
<PAGE> 70
a reference in accordance with California Code of Civil Procedure Sections 638
et seq. If such an election is made, the parties shall designate to the court a
referee or referees selected under the auspices of the AAA in the same manner as
arbitrators are selected in AAA-sponsored proceedings. The presiding referee of
the panel, or the referee if there is a single referee, shall be an active
attorney or retired judge. Judgment upon the award rendered by such referee or
referees shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of any
party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference. At Bank's option, foreclosure under a deed
of trust or mortgage may be accomplished either by exercise of power of sale
under the deed of trust or mortgage or by judicial foreclosure.
(15) This Guaranty shall be governed by and construed according to the
laws of the State of California, to the jurisdiction of which the parties hereto
submit.
(16) In each instance when any Borrower shall have agreed, relative to any
indebtedness, to pay or provide any of your branches or affiliates with any
amount of money that is other than that which is locally in common circulation
at the time as currency in the place where such agreement is made, and such
amount is not actually paid or provided as and when agreed or within such time
as you may deem reasonable, the undersigned will, upon request and as you may
elect, either pay or provide the amount in the exact currency and place as
agreed by such Borrower or pay or provide you at your lending office in the
United States with the equivalent of the amount in U.S. Dollars at your then
prevailing rate for sales of the kind of currency agreed to be paid or provided.
(17) Notwithstanding the foregoing, the liability of each Guarantor except
GT Bicycles, Inc. (each, a "Subsidiary Guarantor" and collectively, the
"Subsidiary Guarantors") ) under this guaranty shall not exceed at any time the
"Maximum Guarantied Amount" as to such Subsidiary Guarantor. As used herein,
"Maximum Guarantied Amount" as to any Subsidiary Guarantor shall mean the
greatest of, in the sole judgment and at the election of Bank (i) the reasonably
equivalent value actually received by such Subsidiary Guarantor as a result of
the indebtedness (including, without limitation, investments made in, and
capital contributions or advances made to, such Subsidiary Guarantor, directly
or indirectly, by any Borrower with the proceeds of any credit extended under
the any agreement relating to the indebtedness), in exchange for or in
connection with its guaranty of the indebtedness, and (ii) 95% of the "Qualified
Net Worth" of such Subsidiary Guarantor, as of the date hereof, and (iii) 95% of
the "Qualified Net Worth" of such Subsidiary Guarantor, as of the date demand
for payment is made under this guaranty.
As used herein, "Qualified Net Worth" means the excess of (A) the amount
of the "Fair Value" of the assets of such Subsidiary Guarantor as of the date of
determination, over the (B) the amount of the "Fair Value" of the consolidated
liabilities of such Subsidiary Guarantor as of the date of determination.
<PAGE> 71
As used herein, "Fair Value" of any assets means the amount which may be
realized, as of the calculation date, within a reasonable time, either through
collection of such assets or sale of such assets at the regular market value,
understanding "regular market value" to mean the amount which could be obtained
for the assets in question within such period by a capable and diligent business
person from an interested buyer who is willing to purchase under ordinary
selling conditions. As used herein, "Fair Value" of consolidated liabilities
means the present value, as of a calculation date, of all liabilities, whether
matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent,
but excluding any liabilities under this guaranty; and provided that contingent
or unliquidated liabilities shall be valued as of a calculation date at the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount which could reasonably be expected to become an actual
matured liability. Notwithstanding the foregoing, Bank may permit the
indebtedness of the Borrowers to exceed any Subsidiary Guarantor's liability
under this guaranty.
<PAGE> 72
(18) This guaranty amends and restates that certain guaranty dated as of
November 29, 1995 executed and delivered by GT Bicycles, Inc.
Executed as of August 12, 1996.
GT BICYCLES, INC.
GT BICYCLES CALIFORNIA, INC.
RITEWAY PRODUCTS EAST, INC.
RITEWAY PRODUCTS NORTH CENTRAL, INC.
RITE-WAY DISTRIBUTORS CENTRAL, INC.
RITE-WAY DISTRIBUTORS, INC.
By:____________________________________
Michael Haynes
President
Address for notices to Bank: Address for notices to Guarantor:
3233 Park Center Drive, 2nd Floor 3100 West Segerstrom Avenue
Costa Mesa, California 92626 Santa Ana, California 92704
Attn: Chief Financial Officer
<PAGE> 73
FIRST AMENDED AND RESTATED
SECURITY AGREEMENT
1. THE SECURITY. Each of GT Bicycles, Inc., GT Bicycles
California, Inc., Riteway Products East, Inc., Riteway Products North Central,
Inc., Rite-Way Distributors Central, Inc., Rite-Way Distributors, Inc.
(individually, a "Debtor" and collectively, "Debtors") hereby assigns and grants
to Bank of America National Trust and Savings Association ("Bank") a security
interest in the following described property ("Collateral"):
A. All of the following, whether now owned or hereafter
acquired such Debtor: accounts, contract rights, chattel
paper, instruments, deposit accounts, and general intangibles.
B. All inventory now owned or hereafter acquired by
such Debtor.
C. All machinery, furniture, fixtures and other
equipment of every type now owned or hereafter acquired by such
Debtor.
D. All negotiable and nonnegotiable documents of title
now owned or hereafter acquired by such Debtor covering any of
the above-described property.
E. All patents and patent applications and all rights
corresponding thereto throughout the world, and all unpatented
or unpatentable developments and inventions.
F. All trademarks, service marks, logos, and all United
States, state and/or foreign applications for registration and
registrations thereof, all trade names, trade styles, designs,
and the like, all elements of package or trade dress of goods,
the goodwill of such Debtor's business connected with the use
of, and symbolized by any of the above, and all property of
such Debtor necessary to produce any products sold under any of
the above.
G. All copyrights and copyrighted works, all derivative
works thereof, all mask works of semiconductor chip products,
and United States and/or foreign applications for registration
and registrations thereof.
H. All computer software programs developed or to be
developed by such Debtor or in which such Debtor asserts or
could assert a proprietary interest; all personal property,
including but not limited to source codes, object codes or
similar information, which is necessary to the practical
utilization of such programs; all tangible property of such
Debtor embodying or incorporating any such programs.
I. All trade secrets, proprietary information, customer
lists, instructional materials, working drawings, manufacturing
techniques, process
<PAGE> 74
technology documentation, and product formulations.
J. All rights to damages or profits due or accrued
arising out of past, present or future infringement of the
Collateral or injury to such Debtor's good will connected with
the use of the Collateral and the right to sue therefor.
K. All renewals, modifications, amendments, re-issues,
divisions, continuations in whole or part, and extensions of
any Collateral.
L. All rights under contracts of insurance now owned or
hereafter acquired by such Debtor covering any of the
above-described property.
M. All proceeds, products, rents and profits now owned
or hereafter acquired by such Debtor of any of the
above-described property.
N. All books and records now owned or hereafter
acquired by such Debtor pertaining to any of the above-
described property, including but not limited to any
computer-readable memory and any computer hardware or
software necessary to process such memory ("Books and
Records").
2. THE INDEBTEDNESS. The Collateral secures and will secure all
obligations of each Debtor to Bank under (i) that certain Continuing
Cross-Guaranty dated as of August 12, 1996, executed by Debtors in favor of Bank
(as such guaranty may be amended, extended, renewed or otherwise modified from
time to time, the "Guaranty"), (ii) that certain Second Amended and Restated
Credit Agreement (Receivables and Inventory) dated as of August 12, 1996 (as
such agreement may be amended, extended, renewed or otherwise modified from time
to time, the "Credit Agreement") and (iii) under any instrument or agreement
required under or in connection with the Guaranty or the Credit Agreement (the
"Indebtedness"), whether the Indebtedness is now or hereafter existing,
voluntary or involuntary, due or not due, or absolute or contingent.
3. WARRANTIES AND REPRESENTATIONS. Each Debtor jointly and
severally represents and warrants to Bank as follows:
A. Exhibit A to this Agreement is a complete list of
all patents, federal trademark and service mark registrations,
copyright registrations, mask work registrations, and all
applications therefor, in which any Debtor has registered, or
has registrations pending, with the United States Copyright
Office or the United States Patent and Trademark Office.
B. Exhibit B to this Agreement is a complete list of
all patents, trademark and service mark registrations,
copyright registrations, mask work registrations, and all
applications therefor, in which any Debtor has registered, or
has registrations pending, with appropriate offices outside of
the United States.
C. Exhibit C to this Agreement is a complete list of
all patents, trademark and service mark registrations,
copyright registrations, mask work
<PAGE> 75
registrations, and all applications therefor, in which any
Debtor has registered, or has registrations pending, with any
State patent or trademark registration office.
D. Each Debtor has full power and authority to execute
this Agreement and perform its obligations hereunder, and to
subject the Collateral to the security interest transferred
hereby.
E. Each Debtor is the lawful owner of the entire right,
title and interest in and to all the Collateral, free and clear
of all liens, charges, encumbrances, claims of infringement,
setoffs, counterclaims, licenses, shop rights, and covenants
not to sue third persons, except such rights and licenses as
are granted upon commercially reasonable terms and in the
ordinary course of business or as Bank has consented to in
writing.
4. DEBTORS' COVENANTS RE PATENTS, TRADEMARKS, ETC. Each Debtor
jointly and severally covenants and warrants that unless compliance is waived by
Bank in writing:
A. Debtors will at their expense properly maintain the
Collateral and shall not fail to renew and shall not otherwise
abandon any Collateral. Debtors will, at their expense,
diligently prosecute all patent, trademark or service mark or
copyright applications pending on or after the date hereof,
will maintain in effect all issued patents and will renew all
trademark and service mark registrations, including payment of
any and all maintenance and renewal fees relating thereto;
Debtors also will promptly make application on any patentable
but unpatented inventions, registerable but unregistered
trademarks and service marks, and copyrightable but
uncopyrighted works. This Paragraph 4.A shall not apply to any
Collateral, or any such applications or registrations, which
Debtors determine in good faith is or are not material to their
ordinary course of business.
B. Debtors will at its expense protect and defend all
rights in the Collateral against any claims and demands of all
persons other than the Bank and will, at its expense, enforce
all rights in the Collateral against any and all infringers of
the Collateral, except in those instances where Debtors, in
good faith, determine that it would not be commercially
reasonable to enforce such rights and that the infringement
will not have a material adverse impact on Debtors or their
business or operations. No Debtor will license or transfer any
of the Collateral except upon commercially reasonable terms and
in the ordinary course of business.
C. Debtors will promptly notify Bank of any acquisition
(by adoption and use, purchase, license or otherwise) of any
patent, trademark or service mark registration, copyright
registration, mask work registration, and applications
therefor, and unregistered trademarks and service marks and
copyrights, throughout the world, which are granted or filed or
acquired after the date hereof or which are not listed on
Exhibit A, Exhibit B, or Exhibit C hereto. Debtors authorize
Bank, without notice to any Debtor, to modify this
<PAGE> 76
Agreement by amending Exhibit A, Exhibit B, or Exhibit C, as
applicable, to include any such Collateral.
D. Debtors will promptly notify Bank of any legal
process which is levied against the Collateral and any other
event which may have a material adverse effect on the value of
the Collateral (including, but not limited to, conduct which
might infringe on any Collateral) or the rights and remedies of
Bank in relation thereto, and Debtors will enforce all rights
in the Collateral against any and all infringers thereof,
except in those instances where Debtors, in good faith,
determines that it would not be commercially reasonable to
enforce such rights and that the infringement will not have a
material adverse impact on Debtors or their businesses or
operations.
5. DEBTORS' COVENANTS RE ALL COLLATERAL. Each Debtor jointly
and severally covenants and warrants that unless compliance is waived by Bank in
writing:
A. Each Debtor will, at the request of Bank, execute
such other agreements, documents or instruments in connection
with this Agreement as Bank may reasonably deem necessary,
including, but not limited to, those documents prepared by Bank
which, at Bank's option, Bank chooses to record with any
governmental entity, in any State or at the Federal level or in
any foreign country, relating to the security interest Bank
holds in the Collateral.
B. Debtors will pay to Bank, on demand, the amounts of
any fees required to be paid in connection with recordation of
this Agreement or any other agreement, document, or instrument
evidencing Bank's security interest and any other rights in or
to the Collateral.
C. Debtors will properly preserve the Collateral;
defend the Collateral against any adverse claims and demands;
and keep accurate Books and Records.
D. Debtors have notified Bank in writing of, and will
notify Bank in writing prior to any change in, the locations of
(i) any Debtor's place of business or any Debtor's chief
executive office if any Debtor has more than one place of
business, and (ii) any Collateral, including the Books and
Records.
E. Debtors will notify Bank in writing prior to any
change in any Debtor's name, identity or business structure.
F. Debtors will maintain and keep in force insurance
covering Collateral designated by Bank against fire and
extended coverages. Such insurance shall require losses to be
paid on a replacement cost basis, be issued by insurance
companies reasonably acceptable to Bank and include a loss
payable endorsement in favor of Bank in a form reasonably
acceptable to Bank.
<PAGE> 77
G. Except as may otherwise be permitted by the Credit
Agreement, no Debtor has granted nor will grant any security
interest in any of the Collateral except to Bank, and will keep
the Collateral free of all liens, claims, security interests
and encumbrances of any kind or nature except the security
interest of Bank.
H. No Debtor will sell, lease, agree to sell or lease,
or otherwise dispose of, or remove from any Debtor's places of
business (i) any inventory except in the ordinary course of
business as heretofore conducted by Debtors, or (ii) any other
Collateral except for commercially reasonable terms in the
ordinary course of business.
I. Debtors will promptly notify Bank in writing of any
event which materially adversely affects the value of the
Collateral, the ability of any Debtor or Bank to dispose of the
Collateral, or the rights and remedies of Bank in relation
thereto, including, but not limited to, the levy of any legal
process against any Collateral and the adoption of any
marketing order, arrangement or procedure affecting the
Collateral, whether governmental or otherwise.
J. If any Collateral is or becomes the subject of any
registration certificate or negotiable document of title,
including any warehouse receipt or bill of lading, Debtors
shall immediately deliver such document to Bank.
K. After the date of this Agreement, no Debtor will
attach any material amount of Collateral to any real property
or fixture in a manner which might cause such Collateral to
become a part thereof unless Debtors first obtain (i) the
written consent of any owner, holder of any lien on the real
property or fixture, or other person having an interest in such
property to the removal by Bank of the Collateral from such
real property or fixture or (ii) Bank's written waiver of the
requirement of obtaining such consent. Such written consent
shall be in form and substance acceptable to Bank and shall
provide that Bank has no liability to such owner, holder of any
lien, or any other person except to repair any damage caused by
Bank's removal of the Collateral.
L. Until Bank exercises its rights to make collection,
Debtors will diligently collect all Collateral consisting of
rights to payment, including without limitation accounts and
general intangibles.
6. ADDITIONAL OPTIONAL REQUIREMENTS. Each Debtor jointly and
severally agreed that Bank may at its option at any time, whether or not any
Debtor is in default:
A. Require Debtors to deliver to Bank (i) copies of or
extracts from the Books and Records, and (ii) information on
any contracts or other matters affecting the Collateral.
B. Examine the Collateral, including the Books and
Records, and
<PAGE> 78
make copies of or extracts from the Books and Records, and
for such purposes enter at any reasonable time upon the
property where any Collateral or any Books and Records are
located.
C. Require Debtors to deliver to Bank any instruments
or chattel paper.
D. Require Debtors to obtain Bank's prior written
consent to any sale, lease, agreement to sell or lease, or
other disposition of any inventory outside of the ordinary
course of Debtors' business.
7. DEFAULTS. Any one or more of the following shall be a
default hereunder:
A. An Event of Default occurs under and as defined in
the Guaranty or the Credit Agreement.
B. Any Debtor breaches any term, provision, warranty or
representation under this Agreement; provided, however, that
Debtors shall have thirty (30) days within which to cure any
breach under Paragraphs 3.B or 3.C above.
C. Except as permitted under the Credit Agreement, any
involuntary lien of any kind or character attaches to any
Collateral.
8. BANK'S REMEDIES AFTER DEFAULT. In the event of any default
Bank may do any one or more of the following:
A. Declare any Indebtedness immediately due and
payable, without notice or demand.
B. Enforce the security interest given hereunder
pursuant to the Uniform Commercial Code and any other
applicable law.
C. Enforce the security interest of Bank in any deposit
account of any Debtor maintained with Bank by applying such
account to the Indebtedness.
D. Require Debtors to assemble the Collateral,
including the Books and Records, and make them available to
Bank at a place designated by Bank.
E. Enter upon the property where any Collateral,
including any Books and Records, are located and take
possession of such Collateral and such Books and Records, and
use such property (including any buildings and facilities) and
any of Debtors' equipment, if Bank deems such use necessary or
advisable in order to take possession of, hold, preserve,
process, assemble, prepare for sale or lease, market for sale
or lease, sell or lease, or otherwise dispose of, any
Collateral.
<PAGE> 79
F. Grant extensions and compromise or settle claims
with respect to the Collateral for less than face value, all
without prior notice to any Debtor.
G. Use or transfer any of Debtors' rights and interests
in any Intellectual Property now owned or hereafter acquired by
Debtors, if Bank deems such use or transfer necessary or
advisable in order to take possession of, hold, preserve,
process, assemble, prepare for sale or lease, market for sale
or lease, sell or lease, or otherwise dispose of, any
Collateral. Debtors agree that any such use or transfer shall
be without any additional consideration to Debtors. As used in
this paragraph, "Intellectual Property" includes, but is not
limited to, all trade secrets, computer software, service
marks, trademarks, trade names, trade styles, copyrights,
patents, applications for any of the foregoing, customer lists,
working drawings, instructional manuals, and rights in
processes for technical manufacturing, packaging and labelling,
in which any Debtor has any right or interest, whether by
ownership, license, contract or otherwise.
H. Have a receiver appointed by any court of competent
jurisdiction to take possession of the Collateral.
I. Require Debtors to segregate all collections and
proceeds of the Collateral so that they are capable of
identification and deliver daily such collections and proceeds
to Bank in kind.
J. Notify any account debtors, any buyers of the
Collateral, or any other persons of Bank's interest in the
Collateral.
K. Require Debtors to direct all account debtors to
forward all payments and proceeds of the Collateral to a post
office box under Bank's exclusive control.
L. Demand and collect any payments and proceeds of the
Collateral. In connection therewith Debtors irrevocably
authorize Bank to endorse or sign any Debtor's name on all
checks, drafts, collections, receipts and other documents, and
to take possession of and open the mail addressed to any Debtor
and remove therefrom any payments and proceeds of the
Collateral.
M. Take such measures as Bank may deem necessary or
advisable to take possession of, hold, preserve, process,
assemble, insure, prepare for sale or lease, market for sale or
lease, sell or lease, or otherwise dispose of, any Collateral,
and each Debtor hereby irrevocably constitutes and appoints
Bank as such Debtor's attorney-in-fact to perform all
acts and execute all documents in connection therewith.
9. JOINT AND SEVERAL LIABILITY.
A. Each Debtor agrees that it is jointly and severally
liable to Bank
<PAGE> 80
for the payment of all obligations arising under this
Agreement, and that such liability is independent of the
obligations of the other Debtors. Bank may bring an action
against any Debtor, whether an action is brought against any
other Debtor.
B. Each Debtor agrees that any release which may be
given by Bank to any other Debtor will not release such Debtor
from its obligations under this Agreement.
C. Each Debtor waives any right to assert against Bank
any defense, setoff, counterclaim, or claims which such Debtor
may have against any other Debtor or any other party liable to
Bank for the obligations of Debtors under this Agreement.
D. Each Debtor agrees that it is solely responsible for
keeping itself informed as to the financial condition of any
other Debtor and of all circumstances which bear upon the risk
of nonpayment. Each Debtor waives any right it may have to
require the Bank to disclose to such Debtor any information
which the Bank may now or hereafter acquire concerning the
financial condition of any other Debtor.
E. Each Debtor waives all rights to notices of default
or nonperformance by any other Debtor under this Agreement.
Each Debtor further waives all rights to notices of the
existence or the creation of new indebtedness by any other
Debtor.
F. Debtors and each of them represent and warrant to
the Bank that each will derive benefit, directly and
indirectly, from the collective administration and availability
of credit under this Agreement. Debtors agree that Bank will
not be required to inquire as to the disposition by any Debtor
of funds disbursed in accordance with the terms of this
Agreement.
G. Each Debtor waives any right of subrogation,
reimbursement, indemnification and contribution (contractual,
statutory or otherwise), including without limitation, any
claim or right of subrogation under the Bankruptcy Code (Title
11 of the U.S. Code) or any successor statute, which such
Debtor may now or hereafter have against any other Debtor with
respect to the indebtedness incurred under this Agreement. Each
Debtor waives any right to enforce any remedy which Bank now
has or may hereafter have against any other Debtor, and waives
any benefit of, and any right to participate in, any security
now or hereafter held by Bank.
10. MISCELLANEOUS.
A. Any waiver, express or implied, of any provision
hereunder and any delay or failure by Bank to enforce any
provision shall not preclude Bank from enforcing any such
provision thereafter.
B. Each Debtor shall, at the request of Bank, execute
such other
<PAGE> 81
agreements, documents, instruments, or financing statements in
connection with this Agreement as Bank may reasonably deem
necessary.
C. All notes, security agreements, subordination
agreements and other documents executed by any Debtor or
furnished to Bank in connection with this Agreement must be in
form and substance satisfactory to Bank.
D. This Agreement shall be governed by and construed
according to the laws of the State of California, to the
jurisdiction of which the parties hereto submit.
E. All rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies
otherwise provided by law. Any single or partial exercise of
any right or remedy shall not preclude the further exercise
thereof or the exercise of any other right or remedy.
F. All terms not defined herein are used as set forth
in the Uniform Commercial Code.
G. In the event of any action by Bank to enforce this
Agreement or to protect the security interest of Bank in the
Collateral, or to take possession of, hold, preserve, process,
assemble, insure, prepare for sale or lease, market for sale or
lease, sell or lease, or otherwise dispose of, any Collateral,
Debtors agree to pay immediately the costs and expenses
thereof, together with reasonable attorney's fees and allocated
costs for in-house legal services.
H. This Agreement and any agreement or document
attached hereto, referred to herein or executed concurrently
herewith, integrate all the terms and conditions mentioned
herein or incidental hereto, and supersede all oral
negotiations and prior writings in respect to the subject
matter hereof. In the event any term of this Agreement
conflicts with any term of the Credit Agreement or other
document evidencing or relating to the Indebtedness, the term
of the Credit Agreement or such other document shall govern the
rights of the parties.
<PAGE> 82
I. This Agreement amends and restates as one agreement
(i) each separate Security Agreement (Receivables, Inventory
and Equipment) dated November 29, 1995, as amended, executed by
each Debtor, and (ii) each separate Security Agreement
(Patents, Trademarks, Copyrights, Computer Software) dated
November 29, 1995, as amended, executed by GT Bicycles
California, Inc., and Riteway Products North Central, Inc.
Dated: August 27, 1996
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
___________________________________
E. M. Amendt
Vice President
GT BICYCLES, INC.
GT BICYCLES CALIFORNIA, INC.
RITEWAY PRODUCTS EAST, INC.
RITEWAY PRODUCTS NORTH CENTRAL,
INC.
RITE-WAY DISTRIBUTORS CENTRAL, INC.
RITE-WAY DISTRIBUTORS, INC.
By:
___________________________________
Michael Haynes
President
<PAGE> 83
EXHIBIT A
UNITED STATES PATENTS AND TRADEMARKS
All owned by GT Bicycles California, Inc. unless otherwise indicated
<TABLE>
<CAPTION>
Patents
Patent
Description Patent No. Issue Date
<S> <C> <C>
Changeable Dropout Assembly 5,082,303 01/21/92
Bicycle Construction with Grooved 5,236,212 08/17/93
Structural Member
Rocker Arm and Rear Suspension 5,244,224 09/14/93
Bicycle
Bicycle Frame Composition (Elostomer 5,269,552 09/03/92
TTI Suspension)
Bicycle Rear Suspension 5,259,637 11/09/93
(Double Rocker)
Bicycle Rear Suspension (Continuation) 5,306,036 04/26/94
Bicycle Rear Suspension System 5,409,249 04/25/95
</TABLE>
Pending Patent Applications
<TABLE>
<CAPTION>
Patent Description Application Application
Serial No. Filing Date
<S> <C> <C>
Bicycle Rear Suspension System 08/227,009 04/13/94
(Continuation of LTS)
Aerodynamic Bicycle (Super Bike) 29/032,641 12/15/94
</TABLE>
Trademark Registrations
<TABLE>
<CAPTION>
Trademark Description Registration No. Registration
Date
<S> <C> <C>
Groove Tube 1,774,659 06/01/93
Mt. Shasta 1,688,959 05/26/92
GT All Terra and Design 1,683,721 04/21/92
Cycle Design CD and Design 1,680,245 03/24/92
Cycle Design (Black Letters) 1,832,703 04/26/94
</TABLE>
<PAGE> 84
EXHIBIT A (CONTINUED)
Trademark Registrations (Cont.)
<TABLE>
<CAPTION>
Trademark Description Registration No. Registration
Date
<S> <C> <C>
Cycle Design (Stylized) 1,859,145 10/18/94
TCP Total Concept Plan 1,674,484 02/04/92
Rileway and Design 1,645,618 05/21/91
Dyno (Stylized Letters) 1,582,622 02/13/90
Hybrid 1,573,225 12/26/89
Geicel and Design 1,571,759 12/19/89
GT Triple Triangle and Design 1,567,013 11/21/89
Crossover 1,563,269 10/31/89
GT 1,516,316 12/13/88
Drain Pipe and Design 1,433,766 03/24/87
GT BMX and Design 1,345,992 07/02/85
GT Bicycles Plus Design 1,818,446 01/25/94
Timberline 1,884,831 03/21/95
Robinson and Design 1,320,570 02/19/85
Powerlite 1,852,340 09/06/94
Dyno Boy 1,447,655 09/02/94
Auburn 1,553,648 04/23/90
Sanwa 1,109,960 12/26/78
Traker1 1,218,337 11/30/82
Timberlin1 1,357,921 09/03/85
</TABLE>
Pending Trademark Applications
<TABLE>
<CAPTION>
Trademark Description Application Application
Serial No. Filing Date
<S> <C> <C>
Performer 74/420,483 07/28/93
Duo Cycle (Stylized Letters) 74/360,681 02/22/93
Gearheads (Word Only) 74/607,023 12/05/94
HammerDown (Word Only) 74/607,024 12/05/94
Spin (Word Only) 74/648,540 03/20/95
</TABLE>
<PAGE> 85
EXHIBIT B
FOREIGN PATENTS AND TRADEMARKS
All owned by GT Bicycles California, Inc.
Patents
<TABLE>
<CAPTION>
Country Patent Description Patent No. Issue Date
<S> <C> <C> <C>
Japan Rocker Arm Rear 61771 04/11/93
Suspension
</TABLE>
Pending Patent Applications
<TABLE>
<CAPTION>
Country Patent Description Application Application
Serial No. Filing Date
<S> <C> <C> <C>
Europe Rocker Arm Rear Suspension PCT/US93/02227 03/05/93
(also filed for
in Taiwan)
New Zealand Rocker Arm Rear Suspension 251158 03/05/93
Bicycle
Brazil Rocker Arm Rear Suspension ? ?
Bicycle
</TABLE>
<PAGE> 86
EXHIBIT B (CONTINUED)
Trademark Registrations
<TABLE>
<CAPTION>
Country Trademark Description Registration No. Registration
GT All Terra and Design (GTA):
<S> <C> <C> <C>
France GTA (France) 1,651,360 02/21/91
United Kingdom GTA (United Kingdom) 1,464,384 05/16/91
Switzerland GTA (Switzerland) 389,923 05/14/91
Canada GTA (Canada)- 438,411 01/27/95
(clothing only)
Germany GTA (Germany) 2,027,743 01/11/93
Benelux GTA (Benelux) 763,737 05/15/91
Austria GTA (Austria) 140,409 02/19/92
Paraguay GTA (Paraguay) 165,958 11/19/93
Colombia GTA (Columbia) 17516 04/28/94
Japan GTA (Japan) 2,694,728 09/30/94
Mexico GTA (Mexico) 412,802 11/26/91
GT BMX:
Mexico GT BMX (Mexico) 412,801 11/26/91
Japan GT BMX (Japan) 2,694,727 09/30/94
Switzerland GT BMX (Switzerland) 344,157 08/20/85
South Africa GT BMX (South Africa) 84/0051 01/18/84
Italy GT BMX (Italy) 464,541 08/01/85
Australia GT BMX (Australia) A403,140 (Cls 12) 09/13/83
Australia GT BMX (Australia) A403,139 (Cls 25) 09/13/83
United Kingdom GT BMX (Australia) B1211971 03/26/86
Spain GT BMX (Spain) 1,111,359 05/05/88
Germany GT BMX (Germany) 1,087,401/12 02/09/94
Germany GT BMX (New '95 Design) 394 06 583.2 12/14/94
Benelux GT BMX (Benelux) 395,632 01/17/84
France GT BMX (France) 1,260,257 02/10/84
Canada GT BMX (Canada) 322,523 01/09/87
Colombia GT BMX - New '95 94/058.693 (Cls 12) 03/00/95
Design (Colombia)
Colombia GT BMX - New '95 94/058.698 (Cls 25) 03/00/95
Design (Colombia)
</TABLE>
<PAGE> 87
EXHIBIT B (CONTINUED)
Trademark Registrations (Cont.)
<TABLE>
<CAPTION>
Country Trademark Description Registration No. Registration
GT BICYCLES (plus Wing Design):
<S> <C> <C> <C>
Mexico GT w/wings (Mexico) 412,804 11/26/91
Germany GT w/wings (Germany) 394 06 581.6 12/14/94
Germany GT - for letterhead only 394 06 584.0 12/14/94
(Germany)
ALL GT TERRA:
Canada All GT Terra (Canada) 744,899 07/00/94
Germany All GT Terra (Canada) 394 06 582.4 12/14/94
Mexico Dyno (plus Design) 412,803 11/26/91
Mexico Powerlite (plus Design) 451,425 05/17/93
Mexico Robinson (plus Design) 451,426 05/17/93
Mexico Riteway (plus Design) 400,198 08/31/90
France Robinson 1,647,826 03/04/91
France Dyno (Stylized) 1,647,825 03/04/91
France D & Dyno (Stylized) 1,647,824 03/04/91
France Karakorom 1,649,507 03/12/91
France Avalanche 1,649,501 03/12/91
France Timberline 1,649,505 03/12/91
France Outpost 1,649,506 03/12/91
France Zaskar 1,649,508 03/12/91
France Xizang 1,649,504 03/12/91
Canada Dyno 391,880 12/20/91
Canada Riteway 413,295 06/11/93
Colombia Powerlite (Colombia) 94/058,695 (Cls 12) 03/00/95
Colombia Powerlite (Colombia) 94/058,699 (Cls 16) 03/00/95
Colombia Auburn (Colombia) 94/058,555 (Cls 16) 12/27/94
Colombia Auburn (Colombia) 94/058,697 (Cls 12) 12/28/94
Colombia Dyno (Colombia) 94/058,554 (Cls 12) 12/12/94
Colombia Dyno (Colombia) 94/058,692 (Cls 16) 12/12/94
Colombia Dyno (Colombia) 94/058,694 (Cls 25) 12/12/94
</TABLE>
<PAGE> 88
EXHIBIT B (CONTINUED)
Pending Trademark Registrations
<TABLE>
<CAPTION>
Country Trademark Description Application Application
Serial No. Filing Date
<S> <C> <C> <C>
United Kingdom GT Only (U.K.) 1,570,367 ?
Venezuela GTA (Venezuela) 323-93 (Cls 12) ?
Venezuela GTA (Venezuela) 324-93 (Cls 25) ?
Argentina GTA (Argentina) 1868139 (Cls 12) ?
Argentina GTA (Argentina) 1868140 (Cls 25) ?
Chile GTA (Chile) 233,422 (Cls 12) ?
Chile GTA (Chile) 233,423 (Cls 25) ?
Brazil GTA (Brazil) 817433040 08/13/93
</TABLE>
<PAGE> 89
EXHIBIT C
STATE PATENTS AND TRADEMARKS
All owned by GT Bicycles California, Inc.
California Trademarks
<TABLE>
<CAPTION>
Trademark Description Registration No. Issue Date
<S> <C> <C>
GT Bicycles and Design 0095486 01/29/92
Duo Cycle and Design 0094470 07/26/91
Powerlite 0093402 12/18/90
Hybrid and Design 0090347 08/25/89
Auburn 0087391 04/12/88
RRP and Design 0065591 02/24/82
Dyno 0077783 07/10/85
</TABLE>
<PAGE> 90
SECURITY AGREEMENT:
SECURED PARTY IN POSSESSION
(1) In consideration of any financial accommodation given, to be
given or continued to GT Bicycles California, Inc., Caratti Sport Ltd
("Caratti"), Riteway Products East, Inc., Riteway Products North Central, Inc.,
Rite-Way Distributors Central, Inc., and Rite-Way Distributors, Inc.
(collectively, "Borrowers" and, individually, a "Borrower") by BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association organized
under the laws of the United States of America ("Secured Party"), and as
security for the payment of all debts, obligations or liabilities now or
hereafter existing, absolute or contingent, of Borrowers and GT Bicycles, Inc.,
("Debtor"), or any one or more of them to Secured Party (hereinafter called
indebtedness), Debtor pursuant to the provisions of the Uniform Commercial Code
of the State of California hereby grants to Secured Party a security interest in
(a) all money and property this day delivered to and deposited with Secured
Party, and all money and property heretofore delivered or which shall hereafter
be delivered to or come into the possession, custody or control of Secured Party
in any manner during the existence of this Security Agreement, and whether held
in a general or special account or deposit or for safe-keeping or otherwise;
provided, however, that Bank's security interest in the capital stock of Caratti
("Caratti Stock") shall not extend beyond 65% of the Caratti Stock; and (b) any
stock rights, rights to subscribe, liquidating dividends, stock dividends,
dividends, dividends paid in stock, new securities or other property to which
Debtor is or may hereafter become entitled to receive on account of such
property; and in the event that Debtor receives any such property, Debtor will
immediately deliver it to Secured Party to be held by Secured Party hereunder in
the same manner as the property originally delivered hereunder. All money and
property so delivered to Secured Party under this paragraph is hereinafter
called collateral.
(2) At any time, without notice, and at the expense of Debtor,
Secured Party in its name or in the name of Debtor may, but shall not be
obligated to: (a) collect by legal proceedings or otherwise, endorse, receive
and receipt for all dividends, interest, principal payments and other sums now
or hereafter payable upon or on account of said collateral; (b) make any
compromise or settlement it deems desirable or proper with reference to the
collateral; (c) insure, process and preserve the collateral; (d) participate in
any recapitalization, reclassification, reorganization, consolidation,
redemption, stock split, merger or liquidation of any issuer of securities which
constitute collateral, and in connection therewith may deposit or surrender
control of the collateral, accept money or other property in exchange for the
collateral, and take such action as it deems proper in connection therewith, and
any other money or property received in exchange for the collateral shall be
applied to the indebtedness or held by Secured Party thereafter as collateral
pursuant to the provisions hereof; (e) cause collateral to be transferred to its
name or to the name of its nominee; (f) exercise as to the collateral all the
rights, powers and remedies of an owner necessary to exercise its rights under
this paragraph (3), but, except pursuant to paragraph (7) hereof, Secured Party
shall not vote any securities constituting collateral except as instructed by
Debtor.
(3) The Debtor agrees to pay prior to delinquency all taxes,
charges, liens and assessments against the collateral, and upon the failure of
Debtor to do so Secured Party at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
(4) All advances, charges, costs and expenses, including
reasonable attorneys' fees, incurred or paid by Secured Party in exercising any
right, power or remedy conferred by this Security
<PAGE> 91
Agreement or in the enforcement thereof, shall become a part of the
indebtedness secured hereunder and shall be paid to Secured Party by Debtor
immediately and without demand, with interest thereon at seven percent per
annum.
(5) Any failure to keep or perform any of the terms or provisions
of this Security Agreement shall constitute an "Event of Default" as defined in
the Second Amended and Restated Credit Agreement (Receivables and inventory)
dated as of August 12, 1996, as amended, restated, supplemented or otherwise
modified from time to time among the Borrower and Debtor (the "Credit
Agreement").
(6) Upon the happening of any Event of Default under the Credit
Agreement, Secured Party may then exercise as to such collateral all the rights,
powers and remedies of an owner including the right to vote any securities
constituting collateral, and may elect to sell the collateral in one or more
sales after giving a notice in writing by mail to Debtor of such sale at least
five (5) days before the date fixed for such sale, provided, however, that if
the collateral is perishable, or threatens to decline speedily in value, or is
of a type customarily sold on a recognized market, then such notice may be
dispensed with; the proceeds of such sale shall be applied to: (a) the
reasonable expenses of retaking, holding, preparing for sale, selling and the
like, reasonable attorneys' fees and legal expenses incurred by Secured Party
and (b) the indebtedness secured by the security interest herein created and the
surplus if any to the person or persons entitled thereto; if there be a
deficiency, Debtor will promptly pay the same to Secured Party; the Secured
Party may buy at any public sale and if the collateral is customarily sold in a
recognized market, or is the subject of widely or regularly distributed standard
price quotations, Secured Party may buy at private sale. Any sale may be
conducted by an auctioneer or by an officer, attorney or agent of Secured Party.
(7) Secured Party shall be under no duty or obligation
whatsoever, (a) to make or give any presentment, demands for performances,
notices of nonperformance, protests, notices of protest or notices of dishonor
in connection with any obligations or evidences of indebtedness held by Secured
Party as collateral, or in connection with any obligation or evidences of
indebtedness which constitute in whole or in part the indebtedness secured
hereunder, or (b) to give Debtor notice of, or to exercise any subscription
rights or privileges, any rights or privileges to exchange, convert or redeem or
any other rights or privileges relating to or affecting any collateral held by
Secured Party.
(8) Debtor waives any right to require Secured Party to (a)
proceed against any person, (b) proceed against or exhaust any collateral, or
(c) pursue any other remedy in Secured Party's power; and waives any defense
arising by reason of any disability or other defense of any Borrower or any
other person, or by reason of the cessation from any cause whatsoever of the
liability of any Borrower or any other person. Until all indebtedness shall have
been paid in full Debtor shall have no right of subrogation and waives any right
to enforce any remedy which Secured Party now has or may hereafter have against
any Borrower or against any other person and waives any benefit of and any right
to participate in any collateral or security whatsoever now or hereafter held by
Secured Party. Debtor authorizes Secured Party without notice or demand and
without affecting Debtor's liability hereunder or on the indebtedness, from time
to time to: (a) renew, extend, accelerate or otherwise change the time for
payment of, or otherwise change the terms of, the indebtedness or any part
thereof, including increase or decrease of the rate of interest thereon; (b)
take and hold security, other than the collateral herein described for the
payment of the indebtedness or any part thereof, and exchange, enforce, waive
and release the collateral herein described or any part thereof or any such
other security; and (c) release or substitute any Borrower, or any of the
endorsers or guarantors of the indebtedness or any part thereof, or any other
parties thereto.
<PAGE> 92
(9) Secured Party may at any time deliver the collateral or any
part thereof to Debtor and the receipt of Debtor shall be a complete and full
acquittance for the collateral so delivered, and Secured Party shall thereafter
be discharged from any liability or responsibility therefor.
(10) Upon the transfer of all or any part of the indebtedness
Secured Party may transfer all or any part of the collateral and shall be fully
discharged thereafter from all liability and responsibility with respect to such
collateral so transferred, and the transferee shall be vested with all the
rights and powers of Secured Party hereunder with respect to such collateral so
transferred; but with respect to any collateral not so transferred Secured Party
shall retain all rights and powers hereby given.
(11) This is a continuing Security Agreement and all the rights,
powers and remedies hereunder shall apply to all past, present and future
indebtedness of Debtor to Secured Party, including that arising under successive
transactions which shall either continue the indebtedness, increase or decrease
it, or from time to time create new indebtedness after all or any prior
indebtedness has been satisfied, and notwithstanding the death, incapacity, or
bankruptcy of Debtor, or any other event or proceeding affecting Debtor.
(12) Until all indebtedness shall have been paid in full the
power of sale and all other rights, powers and remedies granted to Secured Party
hereunder shall continue to exist and may be exercised by Secured Party at the
time specified hereunder irrespective of the fact that the indebtedness or any
part thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased.
(13) The rights, powers and remedies given to Secured Party by
this Security Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any statute or rule of law. Secured Party
may exercise its banker's lien or right of setoff with respect to the
indebtedness in the same manner as if the indebtedness were unsecured. Any
forbearance or failure or delay by Secured Party in exercising any right, power
or remedy hereunder shall not be deemed to be a waiver of such right, power or
remedy, and any single or partial exercise of any right, power or remedy
hereunder shall not preclude the further exercise thereof; and every right,
power and remedy of Secured Party shall continue in full force and effect until
such right, power or remedy is specifically waived by an instrument in writing
executed by Secured Party.
(14) Debtor represents and warrants that Debtor has its chief
executive office in the state specified on the signature page hereof. Debtor
agrees to give Secured Party at least thirty (30) days notice before changing
its state of residence or chief executive office.
(15) In all cases where more than one party executes this
Security Agreement all words used herein in the singular shall be deemed to have
been used in the plural where the context and construction so require, and the
obligations and undertakings hereunder are joint and several.
(16) (a) If, at any time when Secured Party has the right to sell
the collateral under the terms of this Agreement, (i) Secured Party obtains an
offer from a third party in a bona fide transaction to acquire all, but not less
than all, of the Caratti Stock, Secured Party shall promptly notify Debtor, and
(ii) if no better offer is obtained by Debtor within 30 days of its receipt of
the Come-Along Notice (as defined below), then Secured Party shall have the
right (the "Come-Along Right") to compel Debtor to sell and Debtor hereby agrees
to sell all, but not less than all, of the Caratti Stock owned, directly or
indirectly, by Debtor, and further agrees to vote in favor of, and otherwise
authorize and take all further action necessary or desirable to consummate, the
sale of all or substantially all of the assets
<PAGE> 93
of Caratti, to such third party; provided, however, that Debtor shall receive
consideration per share identical to that received by Secured Party pursuant to
such transfer. This Come-Along Right may be exercised by Secured Party by
providing Debtor with notice (the "Come-Along Notice") setting forth (w) the
name and address of the third party, (x) the time and place of the proposed
closing of the Come-Along Right, which time and place shall not be less than 5
business days after the expiration of the 30 day period described in clause (ii)
above, (y) the terms and conditions of such transfer, and (z) the expected
compensation to be paid per share of the Caratti Stock at such closing.
(b) At the closing of the Come-Along Right, Debtor and
Secured Party shall cause the third party to remit to Secured Party and Debtor
stockholders identical consideration for each share of the Caratti Stock sold
pursuant to the Come-Along Right, against delivery by Debtor of certificates for
all shares of the Caratti Stock owned by Debtor, duly endorsed or with duly
executed stock powers, warranting as to good and marketable title, free and
clear of any liens, encumbrances and adverse claims, and the compliance with any
other conditions of closing applicable to Secured Party. If either Debtor or
Secured Party receives funds in excess of identical consideration for its shares
of the Caratti Stock sold pursuant to the Come-Along Right, as aforesaid, such
party shall remit funds to the other party in order that each party receive such
identical consideration.
(c) The parties hereto agree to use all reasonable
efforts to take, or cause to be taken and to do, or cause to be done, all things
necessary, proper, or advisable to implement and make effective as promptly as
practicable any Come-Along Right pursuant to the provisions hereof.
(17) Debtor hereby irrevocably appoints Secured Party as its
attorney-in-fact to do (but Secured Party shall not be obligated to and shall
incur no liability to Debtor or any third party for failure to do so), any act
which Debtor is obligated hereunder to do, and to exercise all come along rights
and powers as Debtor might exercise with respect to the collateral, including,
without limitation, the right to (i) collect by legal proceedings or otherwise
and endorse, and receive all dividends, distributions, interests, payments,
proceeds and other sums and property now or hereafter payable on or on account
of the collateral; (ii) enter into any extension, reorganization, deposit,
merger, reorganization (not including a reorganization pursuant to any filing
for protection under applicable bankruptcy laws), consolidation or other
agreement pertaining to, or deposit, surrender, accept, hold or apply other
property in exchange for the collateral; (iii) insure, process and preserve the
collateral; (iv) transfer the collateral to Secured Party's own or its nominee's
name; (v) make any compromise or settlement, and take any other action it deems
advisable with respect to the collateral; and (vi) exercise any Come-Along
Right. Debtor agrees to reimburse Secured Party upon demand for any reasonable
costs and expenses, including, without limitation, attorneys' fees (including,
without limitation, the allocated cost of in-house counsel), Secured Party may
incur while acting as Debtor's attorney-in-fact hereunder, all of which costs
and expenses are included in the indebtedness secured hereby.
(18) If Debtor fails to perform any agreement contained herein,
Secured Party may itself perform, or cause performance of, such agreement, and
the reasonable expenses of Secured Party incurred in connection therewith shall
be payable by Debtor as aforesaid.
IN WITNESS WHEREOF, Debtor has executed this Security Agreement
as of August 12, 1996.
GT BICYCLES, INC.
<PAGE> 94
By:____________________________________
Michael Haynes
President
Address for notices to Secured Party: Address for notices to Guarantor:
3233 Park Center Drive, 2nd Floor 3100 West Segerstrom Avenue
Costa Mesa, California 92626 Santa Ana, California 92704
Attn: Chief Financial Officer
<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
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,071
<SECURITIES> 0
<RECEIVABLES> 41,660
<ALLOWANCES> (1,618)
<INVENTORY> 66,257
<CURRENT-ASSETS> 110,549
<PP&E> 8,020
<DEPRECIATION> (3,219)
<TOTAL-ASSETS> 137,301
<CURRENT-LIABILITIES> 21,581
<BONDS> 60,932
0
0
<COMMON> 10
<OTHER-SE> 54,778
<TOTAL-LIABILITY-AND-EQUITY> 54,788
<SALES> 145,399
<TOTAL-REVENUES> 145,399
<CGS> 104,272
<TOTAL-COSTS> 104,272
<OTHER-EXPENSES> 26,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,514
<INCOME-PRETAX> 12,094
<INCOME-TAX> 4,039
<INCOME-CONTINUING> 8,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,055
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
