<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[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 EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO________
COMMISSION FILE NUMBER 1-14360
BEC GROUP, INC.
---------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-3868804
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
Suite B-302
555 Theodore Fremd Avenue
Rye, New York 10580
- -------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Registrant's telephone number, including area code: (914) 967-9400
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
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE.
Common Shares, par value $.01 -- 17,647,260 Shares as of November 7, 1996
Page 1 of 23.
Exhibit Index Appears at page 13.
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1 CONDENSED FINANCIAL STATEMENTS
BEC GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,358 $ 4,404
Trade receivables, net 11,467 12,856
Inventories 16,858 14,936
Investment in discontinued operations 34,000 191,672
Other current assets 3,882 3,106
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Total current assets 71,565 226,974
Property and equipment, net 13,673 14,785
Goodwill, net 11,445 11,599
Intangible assets, net 2,002 2,325
Equity in affiliated companies 11,765 10,564
Other assets 3,612 7,030
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Total assets $114,062 $273,277
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt and current portion of long term debt $ 11,226 $ 62,870
Accounts payable 6,211 4,636
Accrued compensation 2,529 2,366
Other accrued expenses 13,135 7,198
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Total current liabilities 33,101 77,070
Term loan 20,000 --
Long-term debt 18,390 18,606
Convertible subordinated notes 21,133 40,950
Other 12,159 5,517
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Total liabilities 104,783 142,143
Stockholders' equity:
Preferred stock - par value $1;
500 shares authorized; none outstanding -- --
Common stock - par value $.01; 50,000 shares
authorized; 17,639 and 32,101 shares issued 176 321
Additional paid-in capital 28,640 131,553
Cumulative translation adjustment -- --
Treasury stock 0 and 195 shares, at cost -- (1,365)
Retained earnings (accumulated deficit) (19,537) 625
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Total stockholders' equity 9,279 131,134
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Total liabilities and stockholders' equity $114,062 $273,277
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</TABLE>
2
See accompanying notes to consolidated financial statements.
<PAGE> 3
BEC GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------- --------------
1996 1995 1996 1995
--------- --------- ------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Net Sales $16,252 $16,517 $51,800 $49,920
COSTS AND EXPENSES
Cost of sales 9,290 9,641 28,965 26,741
Selling, general and administrative 4,974 5,474 16,073 19,023
Special charges and merger related expenses -- 5,237 -- 5,237
Interest expense 756 841 1,856 2,976
Other income (477) (912) (1,749) (3,019)
--------- --------- ------- ---------
Total costs and expenses 14,543 20,281 45,145 50,958
--------- --------- ------- ---------
Income (loss) from continuing operations before taxes 1,709 (3,764) 6,655 (1,038)
Provision for income taxes 581 (1,355) 2,262 (374)
--------- --------- ------- ---------
Income (loss) from continuing operations 1,128 (2,409) 4,393 (664)
Income (loss) from discontinued operations (23,850) (10,650) 79,544 (731)
--------- --------- ------- ---------
Net income (loss) ($22,722) ($13,059) $83,937 ($1,395)
Weighted average shares outstanding 17,697 17,600 17,671 17,600
PRIMARY EARNINGS PER SHARE:
Income (loss) from continuing operations $0.06 ($0.14) $0.25 ($0.04)
Income (loss) from discontinued operations ($1.34) ($0.60) $4.50 ($0.04)
--------- --------- ------- ---------
Net income (loss) ($1.28) ($0.74) $4.75 ($0.08)
SUPPLEMENTARY INFORMATION:
Depreciation and amortization from continuing operations 312 470 1,022 1,902
Capital expenditures by continuing operations 228 477 771 857
</TABLE>
3
See accompanying notes to consolidated financial statements.
<PAGE> 4
BEC GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided (used) by operating activities
of continuing operations $ 5,937 $ (7,819)
Net cash provided by operating activities
of discontinued operations 5,079 684
---------- ----------
Net cash provided (used) by operating activities 11,016 (7,135)
Cash flows from investing activities:
Cash expended in acquisitions, net of cash received -- (2,373)
Capital expenditures (771) (857)
Intangible assets (2) (402)
Proceeds from sale of fixed assets 157 3,649
Net cash provided (used) by investing activities
of discontinued operations 247,431 (33,736)
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Net cash provided (used) by investing activities 246,815 (33,719)
Cash flows from financing activities:
Proceeds (payments) from revolving credit line 2,946 (3,941)
Proceeds (payments) from long term obligations (55) (810)
Proceed (payments) from short term obligations -- 2,270
Proceeds from issuances of common stock 2,503 23,548
Cash dividends to stockholders (230,071) --
Net cash provided (used) by financing activities
of discontinued operations (32,200) 18,225
---------- ----------
Net cash provided (used) by financing activities (256,877) 39,292
Net increase (decrease) in cash 954 (1,562)
Cash and cash equivalents at beginning of period 4,404 17,233
Cash and cash equivalents at end of period 5,358 15,671
</TABLE>
4
See accompanying notes to consolidated financial statements.
<PAGE> 5
BEC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles, Regulation S-X and
the instructions for Form 10-Q and Regulation S-X. These statements contain
all adjustments, consisting of only normal recurring adjustments, which in the
opinion of management are necessary to fairly present the consolidated
financial position of the Company as of September 30, 1996 and its results of
operations and cash flows for the three and nine months ended September 30,
1996 and 1995. The results of operations of the interim periods presented are
not necessarily indicative of the results to be expected for the full fiscal
year. The consolidated balance sheet at December 31, 1995 and September 30,
1996 reflects the investment in discontinued operations. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Registration Statement
on Form S-1.
NOTE 2 - DISCONTINUED OPERATIONS
Foster Grant Group and Dallas Corporate Headquarters
On November 13, 1996, the Company entered into a definitive agreement to sell to
Foster Grant Holdings, Inc. all of the issued and outstanding shares of capital
stock of the entities comprising the Foster Grant Group ("FGG"). The sale is
subject to expiration of all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and satisfaction of certain
other conditions precedent. At closing, the Company will receive $29 million in
cash and non-voting preferred stock with redemption and conversion features and
a $6 million face and liquidation value. The cash consideration will be used to
pay down the Company's credit facility and pay transaction expenses. The
results of operations for FGG and the Dallas Corporate Headquarters, which is
being closed in connection with the sale of FGG, are presented as discontinued
operations of the Company. The assets of FGG and the Prescription Eyewear
Business, net of liabilities, are presented as investment in discontinued
operations at September 30, 1996 and December 31, 1995. A loss of $23.5 million
net of transaction expenses, phase-out period losses and taxes was recorded on
the sale of FGG as of July 30, 1996, the measurement date. The sale is expected
to close before the end of the year.
Prescription Eyewear Business
On May 3, 1996, Benson Eyecare Corporation ("Benson"), BEC Group (the "Company"
or "BEC"), Essilor International, S.A. ("Essilor"), Essilor of America, Inc.
("Essilor of America"), a wholly owned subsidiary of Essilor and Essilor
Acquisition Corporation, Inc. ("Essilor Sub"), a wholly owned subsidiary of
Essilor of America, entered into an Agreement and Plan of Merger, as amended
(the "Merger") pursuant to which Essilor purchased Benson and the Omega Group,
5
<PAGE> 6
Benson's wholesale optical laboratory business. Benson also entered into an
Asset Purchase Agreement, pursuant to which Benson's lens manufacturing
business, Orcolite, was purchased by the Monsanto Company (the "Asset Sale").
The Omega Group and Orcolite comprised the Prescription Eyewear Business of
Benson.
Pursuant to the Merger, each outstanding share of Benson common stock was
exchanged for $6.60 in cash and one share of BEC's common stock was received
for every two shares of Benson common stock. Upon consummation of the Merger,
the equity interest in Benson of its stockholders ceased and Benson became a
wholly owned subsidiary of Essilor of America. Also upon consummation of the
Merger, BEC became a Registrant whose common shares are traded on the New York
Stock Exchange.
For accounting purposes, BEC is considered the continuing entity. Accordingly,
the Merger and Asset Sale were considered to be a sale of Omega and Orcolite by
BEC to Essilor and Monsanto, respectively. The accounting treatment of the
Merger and Asset Sale differs from the legal and federal income tax treatment.
The gain on the sale of these businesses of $99.9 million and the results of
operations for these businesses are presented as discontinued operations of
BEC. The cash merger consideration is treated as a dividend of BEC Group, Inc.
The assets of the discontinued operation, net of liabilities, are presented as
investment in discontinued operations at December 31, 1995.
During the third quarter, the final Closing Balance Sheet for the sale of Omega
was agreed upon by the Company and Essilor. According to the terms of the
Merger, a purchase price adjustment of $2.1 million was paid to Essilor on
October 3, 1996, decreasing the gain on the sale. Additionally, Essilor and
the Company agreed to settle the Contingent Valuation Right (the "CVR") early
for cash of $2.2 million payable by the Company to Essilor in January 1997.
Prior to the settlement, the Company carried the CVR at $4.6 million,
increasing the gain on the sale by approximately $2.4 million. The net result
of the described adjustments is a $291,000 incremental gain on the sale of the
Prescription Eyewear Business recorded in discontinued operations in the third
quarter.
Summarized information on the combined discontinued operations, excluding the
net gain on the transactions follows. The 1996 amounts represent the operating
results of FGG based on the measurement date of July 30, 1996 and the operating
results of the Prescription Eyewear Business through the date of disposal, May
3, 1996.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 5,755 18,541 101,565 188,198
Income (loss) before tax (999) (15,190) 4,368 1,018
Income tax expense (benefit) (340) (5,468) 1,542 1,794
Earnings (loss) from discontinued operations
net of tax (659) (9,722) 2,826 (776)
</TABLE>
6
<PAGE> 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Transaction Summary
On May 3, 1996, Benson, BEC, Essilor, Essilor of America and Essilor Sub
effected a Merger pursuant to which Essilor purchased Benson and the Omega
Group, Benson's wholesale optical laboratory business. Benson also entered
into an Asset Purchase Agreement, pursuant to which Benson's lens manufacturing
business, Orcolite, was purchased by the Monsanto Company on May 3, 1996 (the
"Asset Sale"). Pursuant to the Merger, each outstanding share of Benson common
stock was exchanged for $6.60 in cash and one share of BEC's common stock was
received for every two shares of Benson common stock. For accounting purposes,
BEC is considered the continuing entity. Accordingly, the Merger and Asset
Sale were considered to be a sale of Omega and Orcolite by BEC to Essilor and
Monsanto, respectively. The accounting treatment of the Merger and Asset Sale
differs from the legal structure and the federal income tax treatment.
On November 13, 1996, the Company entered into a definitive agreement to sell to
Foster Grant Holdings, Inc. all of the issued and outstanding shares of capital
stock of the entities comprising the Foster Grant Group ("FGG"). The sale is
subject to expiration of all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and satisfaction of certain
other conditions precedent. At closing, the Company will receive $29 million in
cash and non-voting preferred stock with redemption and conversion features and
a $6 million face and liquidation value. The cash consideration will be used to
pay down the Company's credit facility and pay transaction expenses. The
results of operations for FGG and the Dallas Corporate Headquarters, which is
being closed in connection with the sale of FGG, are presented as discontinued
operations of the Company. The assets of FGG and the Prescription Eyewear
Business, net of liabilities, are presented as investment in discontinued
operations at September 30, 1996 and December 31, 1995. A loss of $23.5 million
net of transaction expenses, phase-out period losses and taxes was recorded on
the sale of FGG as of July 30, 1996, the measurement date. The sale is expected
to close before the end of the year.
The net gain on the sale of these businesses and the results of operations for
these businesses are presented as discontinued operations of BEC. The cash
consideration from the Essilor merger was treated as a dividend of BEC. The
assets of the discontinued operations, net of liabilities, are presented as
investment in discontinued operations at December 31, 1995.
The discussion of the results of operations will consist of a discussion of the
continuing operations of BEC Group, Inc.
7
<PAGE> 8
Results of Operations
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995
Net sales for the three months ended September 30, 1996 were $16.3 million
compared to $16.5 million for the same period in 1995. The Company's Optical
Technologies Group sales increased from $9.7 million in the third quarter of
1995 to $9.8 million for the same period in 1996. These increases were offset
by a decrease in sales at Bolle from $6.6 million to $6.2 million for the same
periods.
The gross profit margin increased from 41.7% in the third quarter of 1995 to
42.8% in 1996, driven by manufacturing efficiencies achieved in the Optical
Technologies Group.
Selling, general and administrative expense improved on both a percentage of
sales basis and a dollar basis decreasing from $5.5 million or 33% of net sales
in the third quarter of 1995 to $5.0 million or 31% of net sales in the third
quarter of 1996. This decrease was effected by head office cost savings
achieved at BEC and Bolle and operating cost savings at the Optical
Technologies Group. Bolle's savings result from the elimination of the costs
of being a stand- alone public company. BEC costs have decreased with the
smaller size of BEC as compared to Benson. The Optical Technologies Group
continues to combine sales growth with cost efficiencies and increasing
operating margins.
Interest expense for the third quarter was $0.8 million in 1996, substantially
the same dollar amount as 1995, reflecting the low working capital debt level
and consistent long term outstandings.
Other income in 1996 consists primarily of equity income from the Company's
investment in Eyecare Products, plc and interest income on notes receivable.
In 1995, other income was higher due to nonrecurring income earned from the
sale of assets.
The effective continuing operations income tax rate used for the third quarter
of 1996 was 34% based on the expected effective income tax rate for the year of
34%. For 1995, a pro forma tax rate of 36% was applied to continuing
operations.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Net sales for the nine months ended September 30, 1996 were $51.8 million
versus $49.9 million for the nine months ended September 30, 1995. The
Company's Optical Technologies Group sales increased 16% from $27.2 million for
the nine months ended September 30, 1995 to $31.5 million for the same period
in 1996. Bolle America sales also increased slightly. Sales of $2.6 million
from Superior Eye Care, Inc. ("Superior"), which was sold on June 28, 1995,
were included in the 1995 nine month period.
8
<PAGE> 9
Adjusted for the fee income from Superior Eye Care, the gross profit margin
increased from 43.5% for the nine months ended September 30, 1995 to 44.0% in
1996. Gross margins in the Optical Technologies Group increased compared to
prior year while Bolle America remained relatively consistent.
Selling, general and administrative expense decreased from $19 million or 38.1%
of net sales in 1995 to $16.1 million or 31% of net sales for the nine months
ended September 30, 1996. This decrease was affected by the same factors
discussed in the quarter comparison.
Interest expense for the nine months ended September 30, 1996 was $1.9 million
compared to $3.0 million for the same period in 1995, reflecting lower
outstandings. Interest rates during 1996 have remained relatively stable and
BEC's average effective interest rate on the revolving credit facility has been
below 7.5%.
Other income in 1996 consists primarily of equity income from the Company's
investment in Eyecare Products, plc and interest income on notes receivable.
In 1995, other income was higher due to nonrecurring income earned from the
sale of assets.
The effective income tax rate for 1996 was 34%, based on the expected effective
continuing operations income tax rate for BEC. For 1995, a pro forma tax rate
of 36% was applied to continuing operations.
Liquidity and Capital Resources
During the nine months ended September 30, 1996, working capital and continuing
operations provided $5.9 million of cash reflecting a $3.4 million increase in
accounts payable and accrued expenses and a $0.7 million decrease in inventories
and other assets primarily offset by non-cash expenses and a $1.3 million
decrease in accounts receivable. Capital expenditures for the continuing
operations were $.8 million. These uses of cash were funded by the revolving
credit facility and stock issuances under the Company's stock compensation
plans.
On October 31, 1996, the Company and certain of its subsidiaries entered into a
second amendment to that certain Credit Agreement (the "Credit Agreement"),
dated as of April 3, 1996, with a syndicate of lenders, led by NationsBank,
N.A. The Credit Agreement (as amended) provides for a $25 million revolving
credit facility. The amendment was entered into in anticipation of the sale of
the Foster Grant Group, amending covenants to conform to the Company's business
and structure following completion of the sale of the Foster Grant Group.
The Company expects cash flow from operations combined with available borrowing
capacity under the bank credit facility to be sufficient to fund the Company's
operating needs in the short term. On a long term basis, if cash for expansion
or acquisitions is required, the Company has had a successful track record of
being able to access the public equity and debt markets for capital and
liquidity.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On November 13, 1996, the Company entered into a definitive agreement to sell
to Foster Grant Holdings, Inc. ("Foster Grant Holdings") all of the issued and
outstanding shares of capital stock of the entities comprising the Foster Grant
Group. The Foster Grant Group is a leading distributor of popular-priced
sunglasses and non-prescription reading glasses in the United States. The
Foster Grant Group's owned brands include Foster Grant(R), Blues(R), FG
Sport(R), and Rebels(R); its licensed brands include ABC Sports(R),
Coppertone(R), Revlon(R) and Spalding(R). The Company previously had announced
its intent to divest the Foster Grant Group in its Current Report on Form 8-K
dated July 30, 1996 and in its Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996.
Foster Grant Holdings, a recently-formed Delaware corporation, is currently a
wholly owned subsidiary of Accessories Associates, Inc. ("AAI"), a Rhode Island
corporation. Upon closing of the Foster Grant transaction, AAI will hold a 50%
equity interest in Foster Grant Holdings and appoint a majority of the members
of its board of directors. Marlin Capital, L.P. ("Marlin"), a Delaware limited
partnership, will hold a minority interest in Foster Grant Holdings. Marlin
Holdings, Inc. ("Holdings"), a Delaware corporation, is the general partner of
Marlin. Mr. Martin E. Franklin, the Company's Chairman and Chief Executive
Officer, is the Chief Executive Officer and principal shareholder of Holdings.
The sale is subject to expiration of all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and satisfaction of certain
other conditions precedent. At closing, the Company will receive $29 million in
cash and non-voting preferred stock with redemption and conversion features and
a $6 million face and liquidation value. The cash consideration will be used to
pay down the Company's credit facility and pay transaction expenses. The
results of operations for FGG and the Dallas Corporate Headquarters, which is
being closed in connection with the sale of FGG, are presented as discontinued
operations of the Company. The assets of FGG and the Prescription Eyewear
Business, net of liabilities, are presented as investment in discontinued
operations at September 30, 1996 and December 31, 1995. A loss of $23.5 million
net of transaction expenses, phase-out period losses and taxes was recorded on
the sale of FGG as of July 30, 1996, the measurement date. The sale is expected
to close before the end of the year.
In connection with its previously announced intent to divest the Foster Grant
Group, the Company had formed an independent committee of its Board of
Directors to evaluate any and all offers received. Such committee received,
from an independent investment banker, a favorable fairness opinion on the
planned sale.
10
<PAGE> 11
On October 31, 1996, the Company and certain of its subsidiaries entered into a
second amendment to that certain Credit Agreement (the "Credit Agreement"),
dated as of April 3, 1996, with a syndicate of lenders, led by NationsBank,
N.A. The Credit Agreement (as amended) provides for a $25 million revolving
credit facility. The amendment was entered into in anticipation of the sale of
the Foster Grant Group, amending covenants to conform to the Company's business
and structure following completion of the sale of the Foster Grant Group.
ITEM 6. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
The following exhibits are filed herewith:
10.1 Amendment No. 2 to Credit Agreement, dated as of the 31st day of
October, 1996, by and among BEC Group, Inc., et al.
27 Financial Data Schedule (for electronic filing only).
(B) REPORTS ON FORM 8-K:
The following Current Report on Form 8-K was filed during the quarter ended
September 30, 1996:
<TABLE>
<CAPTION>
Description Date of Report
----------- --------------
<S> <C>
Form 8-K, reporting under Item 5 Registrant's decision July 31, 1996
to divest its Foster Grant Group operation; and its
preliminary discussions with the manufacturer and
certain key independent distributors of Bolle(R) brand
products regarding the prospective consolidation and
unification of the Bolle(R) brand worldwide.
</TABLE>
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEC GROUP, INC.
Date: November 13, 1996 By: /s/ Martin E. Franklin
-----------------------------------
Martin E. Franklin
Chairman and Chief Executive Officer
Date: November 13, 1996 By: /s/ Ian G.H. Ashken
-----------------------------------
Ian G.H. Ashken
Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
The following Exhibits are filed herewith or incorporated by reference:
<TABLE>
<CAPTION>
Number Exhibit Page No.
- ------ ------- --------
<S> <C> <C>
10.1 Amendment No. 2 to Credit Agreement, Filed electronically herewith, at page
dated as of the 31st day of October, 14.
1996, by and among BEC Group, Inc., et al.
27 Financial Data Schedule (for electronic Filed electronically herewith, at page
filing only) 23.
</TABLE>
13
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT (this "Agreement") is made and
entered into as of this 31st day of October, 1996 among:
BEC GROUP, INC., a Delaware corporation ("Borrower"), BEC DISTRIBUTION,
INC., a Delaware corporation ("BEC Distribution"), BONNEAU HOLDINGS, INC., a
Delaware corporation ("Bonneau Holdings"), BONNEAU GENERAL, INC., a Delaware
corporation ("Bonneau General"), FOSTER GRANT GROUP, L.P., a Delaware limited
partnership ("Foster Grant LP"), OPTICAL RADIATION CORPORATION, a Delaware
corporation ("Optical Radiation"), OPTI-RAY, INC., a New York corporation
("Opti-Ray"), O-RAY HOLDINGS, INC., a Delaware corporation ("O-Ray"), ORC
CARIBE, a California corporation ("ORC Caribe"), THE BONNEAU COMPANY, a Texas
corporation ("Bonneau") (each of BEC Distribution, Bonneau Holdings, Bonneau
General, Foster Grant LP, Optical Radiation, Opti-Ray, O-Ray, ORC Caribe and
Bonneau sometimes being hereinafter referred to individually as a "Guarantor"
and collectively referred to as the "Guarantors"), EACH LENDER EXECUTING AND
DELIVERING A SIGNATURE PAGE HERETO (individually, a "Lender" and collectively,
the "Lenders"); and
NATIONSBANK, N.A., a national banking association organized under the
laws of the United States of America, in its capacity as agent for the Lenders
(in such capacity, the "Agent");
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Guarantors, the Lenders and the Agent have
entered into a Credit Agreement, dated as of April 3, 1996, as amended hereby
and as amended pursuant to that certain Amendment No. 1 to Credit Agreement
dated as of June 17, 1996, (the "Credit Agreement"), pursuant to which the
Lenders agreed to make certain Advances to the Borrower; and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended in the manner set forth herein and the Agent and the Lenders are
willing to agree to such amendment;
NOW, THEREFORE, in consideration of the mutual covenants and the
fulfillment of the conditions set forth herein, the parties hereto do hereby
agree as follows:
1. Definitions. Any capitalized terms used herein without definition
shall have the meaning set forth in the Credit Agreement.
2. Amendment. Subject to the terms and conditions set forth herein,
the Credit Agreement is hereby amended as follows:
14
<PAGE> 2
(a) A new defined term "FGG Disposition" is hereby inserted in
alphabetical position in Section 1.1 of the Credit Agreement and shall
read as follows:
"FGG Disposition" means the sale of all of the issued
and outstanding capital stock of The Bonneau Company, Opti-Ray,
Inc. and Asian Buying Source, Inc., upon terms and conditions
acceptable to the Lenders, resulting in net proceeds to the
Borrower of at least $31,000,000;
(b) The definition of "Consolidated EBITDA" in Section 1.1 of
the Credit Agreement is hereby amended by inserting after the words
"applied on a Consistent Basis" in the last line thereof the following:
"provided, however, for any Four-Quarter Period during which
the FGG Disposition was effective, the Borrower's Consolidated
EBITDA shall be determined on a pro forma basis as if the FGG
Disposition had occurred immediately prior to such Four-
Quarter Period".
(c) The definition of "Consolidated Fixed Charge Ratio" in
Section 1.1 of the Credit Agreement is hereby amended by inserting
after the following:
"for such period" in the last line thereof the words "provided,
however, for any Four-Quarter Period during which the FGG
Disposition was effective, the Borrower's Consolidated Fixed
Charge Ratio shall be determined on a pro forma basis as if the
FGG Disposition had occurred immediately prior to such
Four-Quarter Period".
(d) The definition of "Consolidated Funded Indebtedness" in
Section 1.1 of the Credit Agreement is hereby amended by inserting
after the following:
"applied on a Consistent Basis" in the last line thereof the
words "provided, however, for any Four-Quarter Period during
which the FGG Disposition was effective, the Borrower's
Consolidated Funded Indebtedness shall be determined on a pro
forma basis as if the FGG Disposition had occurred immediately
prior to such Four-Quarter Period".
(e) The definition of "Revolving Credit Termination Date" in
Section 1.1 of the Credit Agreement is hereby amended by deleting the
words "the fifth anniversary of the Closing Date" in the second line
thereof and inserting in replacement thereof the words "364 days from
the effective date of the FGG Disposition";
15
<PAGE> 3
(f) A new definition of Permitted Stock Repurchases is
hereby inserted in proper alphabetical sequence in Section 1.1 of the
Credit Agreement which shall read as follows:
"Permitted Stock Repurchases" means the Borrower's
repurchase of its capital stock on the open market in accordance
with the following terms: (i) the aggregate expense incurred in
connection with such repurchases, including without limitation
the consideration tendered to holders of the Borrower's capital
stock and related professional and other expenses does not
exceed $5,000,000, (ii) the consideration paid by the Borrower
to holders of its capital stock is exclusively cash, (iii) no
such repurchase shall be made until the aggregate principal
amount of Consolidated Funded Indebtedness shall be less than
$15,000,000, and (iv) after the initial such repurchase is made
in compliance with (i), (ii) and (iii) above, no further
repurchase may be made at any time that the aggregate principal
amount of Outstandings equals or exceeds $20,000,000.
(g) The definition of "Total Revolving Credit Commitment"
in Section 1.1 of the Credit Agreement is hereby amended by deleting the
dollar figure "$30,000,000" therein and inserting in replacement thereof
the dollar figure "$25,000,000";
(h) Section 10.1(i) of the Credit Agreement is hereby
deleted in its entirety;
(i) Section 10.3 of the Credit Agreement is hereby deleted
in its entirety and inserted in replacement thereof is the following:
SECTION 10.3 INVESTMENTS; ACQUISITIONS. Make any
Acquisition or otherwise purchase, own, invest in or otherwise
acquire, directly or indirectly, any stock or other securities,
or make or permit to exist any interest whatsoever in any other
Person or permit to exist any loans or advances to any Person,
except that the Borrower and its Subsidiaries may maintain
investments or invest in:
(a) Eligible Securities;
(b) investments existing as of the date hereof and
as set forth in Schedules 8.4 and 8.5 attached hereto;
(c) accounts receivable arising and trade credit
granted in the ordinary course of business and any securities
received in satisfaction or partial satisfaction thereof in
connection with accounts of
16
<PAGE> 4
financially troubled Persons to the extent reasonably necessary
in order to prevent or limit loss;
(d) loans and advances to and investments in
Subsidiaries which are Guarantors;
(e) investment existing in Eyecare Products Plc as
of the date hereof and additional investment after the date
hereof therein consisting of stock dividends declared and issued
to the Borrower; and
(f) Permitted Stock Repurchases.
(j) Section 10.4 of the Credit Agreement is hereby amended
by inserting after the words "Schedule 10.4 hereto" in the second line
thereof the words "and for the FGG Disposition and disposition of all or
any part of the Borrower's investment in Eyecare Products Plc as
permitted pursuant to Section 10.3(e) hereof";
(k) Section 10.10 of the Credit Agreement is hereby amended
by inserting at the commencement thereof the words "Except for Permitted
Stock Repurchases,";
(l) Section 10.11 of the Credit Agreement is hereby amended
by deleting all of clause (iii) thereof and inserting in replacement
thereof the words "(iii) the Borrower may prepay the TIA Debt after
consummation of the FGG Disposition provided (A) no Default or Event of
Default exists hereunder either immediately prior to or immediately
after such prepayment and (B) no Indebtedness is incurred by the
Borrower at any time prior to or after such prepayment in order to make
such prepayment";
(m) Section 11.1 of the Credit Agreement is hereby deleted
in its entirety and inserted in replacement thereof is the following:
SECTION 11.1 CONSOLIDATED FIXED CHARGE RATIO.
Permit at any time during any Four-Quarter Period of the
Borrower the Consolidated Fixed Charge Ratio at the end of such
Four-Quarter Period to be less than 2.75 to 1.00.
(n) Section 11.2 of the Credit Agreement is hereby deleted
in its entirety and inserted in replacement thereof is the following:
SECTION 11.2 CONSOLIDATED FUNDED INDEBTEDNESS TO
CONSOLIDATED EBITDA. Permit at any time during any Four-Quarter
Period of the Borrower the ratio of Consolidated Funded
Indebtedness at the end of such Four-Quarter Period to
Consolidated EBITDA for such Four-Quarter Period to be equal to
or greater than 2.50 to 1.00.
17
<PAGE> 5
(o) SECTION 11.3 of the Credit Agreement is hereby deleted
in its entirety and inserted in replacement thereof is the following:
SECTION 11.3 CONSOLIDATED NET WORTH. Permit at any
time Consolidated Net Worth to be less than (i) $5,000,000 from
October 31, 1996 until the earlier of November 14, 1996 and the
date on which the financial statements of the Borrower and its
Subsidiaries for the fiscal quarter ending September 30, 1996
are delivered to the Agent and the Lenders in accordance with
Section 9.1(b) (such earlier date being the "Third Quarter Net
Worth Date"), and (ii) at all times on and after the Third
Quarter Net Worth Date, the greater of (A) $5,000,000 and (B)
the difference of Consolidated Net Worth as reported in the
consolidated balance sheet of the Borrower and its Subsidiaries
delivered on the Third Quarter Net Worth Date less $5,000,000.
(p) SECTION 11.4 of the Credit Agreement is hereby deleted
in its entirety and inserted in replacement thereof is the following:
SECTION 11.4 CAPITAL EXPENDITURES. Make or become
committed to make Capital Expenditures with respect to any asset
which exceed $5,000,000 in the aggregate in any Fiscal Year of
the Borrower (all on a noncumulative basis, with the effect that
amounts not expended in any Fiscal Year may not be carried
forward to a subsequent period); provided, however, that the
calculation of Capital Expenditures in the Fiscal Year in which
the FGG Disposition is effective shall be determined as if the
FGG Disposition had occurred immediately prior to such Fiscal
Year.
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent
and the Lenders to enter into this Agreement, the Borrower represents and
warrants to the Agent and the Lenders as follows:
(a) The representations and warranties made by Borrower in
Article 8 of the Credit Agreement are true and correct on and as of the
date hereof, except to the extent that such representations and
warranties expressly relate to an earlier date;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its Subsidiaries,
taken as a whole, since the date of the most recent financial reports of
the Borrower received by the Agent and the Lenders under Section 9.1 of
the Credit Agreement;
(c) No event has occurred and is continuing which
constitutes, and no condition exists which upon the
18
<PAGE> 6
consummation of the transaction contemplated hereby would constitute, a
Default or an Event of Default on the part of the Borrower under the
Credit Agreement.
4. Conditions Precedent. The effectiveness of this Agreement is
subject to the receipt by the parties hereto of the following:
(a) The Agent shall have received:
(i) eight (8) counterparts of this Agreement duly
executed by all signatories hereto;
(ii) Updated Schedules 8.7 and 10.1 containing
information relating to Liens and Indebtedness in form and
content acceptable to the Agent and the Lenders; and
(iii) copies of all additional agreements, instruments
and documents which the Agent may reasonably request, such
documents, when appropriate, to be certified by appropriate
governmental authorities.
(b) All of the proceeds of the FGG Disposition shall have
been applied first as a prepayment of the Term Loan Outstandings and a
permanent reduction of the Term Loan Commitment to zero and second, if
the Term Loan Outstandings are paid in full, to prepay the TIA Debt in
accordance with Section 10.11(iii) of the Credit Agreement as amended
hereby and, third, if all the Term Loan Outstandings and the TIA Debt
are paid in full, to prepay the Revolving Credit Outstandings. All
prepayments made pursuant to this Section 4(b) shall be accompanied by
all amounts due, if any, under Section 5.4 of the Credit Agreement.
(c) All proceedings of the Borrower relating to the matters
provided for herein shall be reasonably satisfactory to the Lenders, the
Agent and their counsel.
5. Entire Agreement. This Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, condition, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and not one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledge that, except
as otherwise expressly stated in this Agreement, no representations, warranties
or commitments, express or implied, have been made by any party to the other.
None of the terms or conditions of this Agreement may be changed, modified,
waived or canceled orally or otherwise, except by writing, signed by all the
parties hereto, specifying such change, modification, waiver or cancellation of
such terms or conditions, or of any proceeding or succeeding breach thereof.
19
<PAGE> 7
6. Limitation of Waiver and Consents. The waiver and consents
contained herein are limited as specified herein and shall remain in effect
only so long as the Borrower is in compliance with the terms of this Agreement.
The waiver and consents are granted only for the specific instance specified
herein and in no manner creates a course of dealing or otherwise impairs the
future ability of the Agent or the Lenders to declare a default under or
otherwise enforce the terms of the Credit Agreement.
7. Full Force and Effect of Agreement. Except as hereby
specifically amended, modified or supplemented, the Credit Agreement and all
other Loan Documents are hereby confirmed and ratified in all respects and
shall remain in full force and effect according to their respective terms. Each
Guarantor hereby acknowledges and agrees to the amendments of the Credit
Agreement set forth herein and hereby confirms and ratifies in all respects the
Guaranty and enforceability of the Guaranty against such Guarantor in
accordance with its terms.
8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
9. Governing Law. This Agreement shall in all respects be
governed by the laws and judicial decisions of the state of New York, without
giving effect to the conflict of laws provisions thereof.
10. Enforceability. Should any one or more of the provisions of
this Agreement be determined to be illegal or unenforceable as to one or more
of the parties hereto, all other provisions nevertheless shall remain effective
and binding on the parties hereto.
11. Credit Agreement. All references in any of the Loan Documents
to the "Credit Agreement" shall mean the Credit Agreement as amended hereby.
12. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of each of the Borrower, the Lenders and the Agent and
their respective successors, assigns and legal representatives; provided,
however, that the Borrower, without the prior consent of the Agent and each of
the Lenders, may not assign any rights, powers, duties or obligations
hereunder.
13. Expenses. Borrower agrees to pay to the Agent all reasonable
out-of-pocket expenses incurred or arising in connection with the negotiation
and preparation of this Agreement.
[Signature pages follow]
20
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all as of the day and year
first above written.
BORROWER:
BEC GROUP, INC.
By: /s/ IAN G. H. ASKEN
-----------------------------------------------
Name: Ian G. H. Asken
--------------------------------------------
Title: Executive Vice President of Finance
and Administration
--------------------------------------------
LENDERS:
NATIONSBANK, N.A.
By: /s/ PETER C. HALL
-----------------------------------------------
Name: Peter C. Hall
--------------------------------------------
Title: Vice President
--------------------------------------------
EUROPEAN AMERICAN BANK
By: /s/ BRIAN A. FOSTER
-----------------------------------------------
Name: Brian A. Foster
--------------------------------------------
Title: Vice President
--------------------------------------------
NATIONAL CITY BANK, KENTUCKY
By: /s/ DON PULLEN
-----------------------------------------------
Name: Don Pullen
--------------------------------------------
Title: Vice President
--------------------------------------------
NATIONAL BANK OF CANADA
By: /s/ GAETAN R. FROSINA /s/ VINCENT LIMA
-----------------------------------------------
Name: Gaetan R. Frosina Vincent Lima
--------------------------------------------
Title: Vice President Assistant V.P.
--------------------------------------------
By: /s/ VINCENT LIMA
-----------------------------------------
Name: Vincent Lima
--------------------------------------
Title: Assistant V.P.
--------------------------------------
Signature Page 1
21
<PAGE> 9
KEYBANK NATIONAL ASSOCIATION
By: /s/ KAREN A. LEE
------------------------------------
Name: Karen A. Lee
---------------------------------
Title: Vice President
---------------------------------
AGENT:
NATIONSBANK, N.A., as Agent for the
Lenders
By: /s/ PETER C. HALL
-----------------------------------
Name: Peter C. Hall
---------------------------------
Title: Vice President
---------------------------------
ACKNOWLEDGED AND AGREED this
31st day of October, 1996:
- ----
BEC DISTRIBUTION, INC.
BONNEAU HOLDINGS, INC.
BONNEAU GENERAL, INC.
FOSTER GRANT GROUP, L.P.
OPTICAL RADIATION CORPORATION
OPTI-RAY, INC.
O-RAY HOLDINGS, INC.
ORC CARIBE
THE BONNEAU COMPANY
By: /s/ IAN G. H. ASHKEN
----------------------------------
Name: Ian G. H. Ashken
-------------------------------
Title: Executive Vice President of
Finance and Administration
-------------------------------
Signature Page 2
22
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<ARTICLE> 5
<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> 5,358
<SECURITIES> 0
<RECEIVABLES> 11,467
<ALLOWANCES> 0
<INVENTORY> 16,858
<CURRENT-ASSETS> 71,565
<PP&E> 13,673
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,062
<CURRENT-LIABILITIES> 33,101
<BONDS> 18,390
0
0
<COMMON> 176
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<TOTAL-LIABILITY-AND-EQUITY> 114,062
<SALES> 51,800
<TOTAL-REVENUES> 51,800
<CGS> 28,965
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<OTHER-EXPENSES> 14,324
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<INTEREST-EXPENSE> 1,856
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<INCOME-TAX> 2,262
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<DISCONTINUED> 79,544
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