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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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 000-23899
BOLLE INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-393-4135
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
555 Theodore Fremd Avenue, Rye, NY 10580
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Registrant's telephone number, including area code: 914-967-9475
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None
Securities registered pursuant to Section 12(g) of the Act: Common Stock.
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 ___
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON AFFILIATES OF THE
REGISTRANT AT APRIL 14, 1998 WAS $ 41,490,988, COMPUTED BY REFERENCE TO
THE CLOSING PRICE AS OF THAT DATE.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S ONLY CLASS OF COMMON
STOCK AS OF APRIL 14, 1998 WAS 6,638,558 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED TO THE
BEST OF REGISTRANT'S KNOWLEDGE IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO
THIS FORM 10-K. [ X ]
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BOLLE INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
Page
PART I -----
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 8
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............ 8
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................................ 8
Item 6. Selected Financial Data........................................ 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 15
Item 8. Financial Statements and Supplementary Data.................... 15
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure......................... 36
PART III
Item 10. Directors and Executive Officers of the Registrant............. 36
Item 11. Executive Compensation......................................... 38
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................... 43
Item 13. Certain Relationships and Related Transactions................. 44
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K........................................ 47
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PART I
ITEM 1. BUSINESS
GENERAL
Bolle Inc. (the "Company" or "Bolle") was organized on February 3, 1997
in connection with the July 1997 acquisition by the Company's then parent
corporation, BEC Group, Inc., which changed its name to Lumen Technologies,
Inc. on March 11, 1998 (hereinafer "BEC" or "Lumen"), of Holding B.F. ("Bolle
France") Bolle France is a French holding company, which at the time of
acquisition owned the Bolle(Registered Trademark) design and manufacturing
operation and certain distribution interests, including the worldwide rights
to the Bolle(Registered Trademark) brand. The Company is a holding company,
the principal subsidiaries of which are Bolle America, Inc. ("Bolle America")
and Bolle France. Bolle America is the exclusive distributor of Bolle
(Registered Trademark) brand products in the United States and Mexico. The
Company also owns an interest in several other entities which hold exclusive
Bolle (Registered Trademark) brand distribution rights in other markets
throughout the world.
On March 11, 1998, BEC distributed to its stockholders of record as of
such date all of BEC's equity interest in the Bolle and Bolle's business
(the "Spinoff"). Shares distributed in the Spinoff were registered with the
Securities and Exchange Commission ("SEC") and are listed on NASDAQ under the
symbol "BEYE.".
INTRODUCTION
The Company designs, manufactures and markets premium sunglasses and sport
shields, goggles and safety and tactical eyewear under the Bolle(Registered
Trademark) brand. Bolle(Registered Trademark) products enjoy worldwide
recognition and a high quality image in the sport and active lifestyle
markets, particularly skiing, golf and cycling, as well as a growing
reputation in the larger, fashion driven recreational sunglass market. The
Company's safety and tactical business, which accounts for approximately half
of the Company's aggregate unit sales, serves the specialty segment of the
safety eyewear market, including laser protection products and military
applications. The Company broadened the reach of this business by introducing
its safety eyewear products into the U.S. market in 1998.
The recent creation of Bolle Inc. through the combination of Bolle America
and Bolle France consolidates the Company's ownership of the worldwide rights
to the Bolle(Registered Trademark) trademark for the Company's products with
its international manufacturing and distribution capabilities under one
organization. For the first time, the Company is positioned to develop and
execute a unified marketing strategy targeted at promoting the Company's
competitive advantages. The Company believes that these advantages include
its strong brand name, integrated design, production and marketing
capabilities, superior technology, specialized product offerings, established
international distributors in over 40 countries and a one hundred year long
heritage of producing quality products. The Company intends to integrate its
international distributors into a cohesive worldwide network and to add new
distributors through acquisitions or distributorship agreements.
In recent years, the retail sunglass market has experienced the emergence
of a specific premium market, reflected by increased sales of higher priced
and quality oriented products. Based on available industry data, the Company
believes that sales of premium sunglasses grew from $825 million in 1989 to
$1.6 billion in 1996. The Company competes in the premium sunglass market.
The factors which contribute to the growth of this market include
advancements in product technology, growing demand for specialized
sunglasses, increased health concerns and greater fashion and image
consciousness, all of which encourage multiple purchases. Safety and tactical
eyewear products may be designed for general or special purpose. The Company
competes in the special purpose safety and tactical eyewear market. The
factors which may contribute to the potential growth of this market include
increasing regulation of safety eyewear, new special purpose applications,
advancements in product technology and growing demand for more style oriented
products. The Company believes that both its sunglass and safety and tactical
eyewear products, with their increased user-specific characteristics and
proven reputation for style and high performance, are suited to today's
consumer preferences in their respective markets.
The Company has recently announced the following corporate developments,
which constitute a significant start to its growth strategy:
Worldwide Marketing Initiative. The Company has launched a worldwide
marketing initiative to promote a consistent brand image through (i)
coordinated advertising campaigns in major international and local media and
at retail locations, (ii) focused sponsorship of athletes attracting
international interest, (iii) for the first time, a single marketing and
product brochure for distributors worldwide. Through a sport-specific
approach the Company plans to emphasize the technological characteristics,
style and performance of Bolle(Registered Trademark) products. The Company
also believes that the impact of its worldwide marketing initiative will be
maximized by its parallel efforts to build a cohesive distribution network.
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Significant Endorsement Advertising. As part of its strategy of building a
unified global marketing program, the Company has entered into agreements
with several world famous athletes to endorse Bolle products. Such athletes
include Martina Hingis, the youngest number one-ranked player in the history
of women's tennis, Jacques Villeneuve, the Formula One racing world
champion, Picabo Street and Jean-Luc Cretier, Olympic super G and
downhill gold medalists, respectively, and Steve Jones,
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winner of the U.S. Open golf championship. In addition, Bolle has sponsorship
programs with over a thousand athletes worldwide who wear Bolle(Registered
Trademark) products in competition.
Focused Product Offerings. In 1992, the Company was the first to introduce
a line of sunglasses specifically designed for golfers. The market for
premium sunglasses has shown a trend towards consumer preference for
sport-specific eyewear. The Company has a tradition of designing and
manufacturing sport-specific eyewear in cooperation with its sponsored
athletes. The Company is in the process of focusing its lines and collections
of sunglasses and sport glasses based on their use rather than their design,
style or other defining criteria. For instance, in cooperation with a major
distribution of tennis products, the Company recently introduced a new sunglass
model specifically suited to the needs of tennis players with a high
performance selective light filtration system designed to enhance the clarity
of yellow tennis balls. The Company believes that its experience in designing
sport specific eyewear products makes it particularly well positioned to
respond to current trends in consumer preferences.
Alyn Supply Agreement. Consistent with its traditional focus on
technological innovation, in October 1997, the Company has entered into the
three-year exclusive Alyn supply agreement with Alyn, a manufacturer of
specialized metal frames, to create premium sunglass frames using
Boralyn(Registered Trademark), a special patented metal matrix providing
greater strength and stiffness to weight ratios than titanium, which is
currently considered the leading metal for advanced metal eyewear.
Development work on the Boralyn(Registered Trademark) line is in progress
with launch planned for 1999.
Acquisition of Distributors. As part of its strategy of consolidating its
distributors, in March 1998, the Company acquired Bolle Canada, the
distributor of the Company's products in Canada. The Company has executed a
non-binding letter of intent to purchase 75% of Bill Bass Optical and
affiliate thereof, the largest independent and principal distributor of the
Company's products in Australia, where the Company believes Bill Bass Optical
commands a leading market share. As part of this proposed acquisition, the
Company will purchase 100% of the outstanding shares of Bolle Asia Ltd.
("Bolle Asia") (the distributor of the Company's sunglasses in Southeast Asia),
and the remaining 49% of the shares that the Company does not own of Bolle
Sunglasses Ltd. ("Bolle Sunglasses") (the distributor of the Company's
sunglasses in the U.K.) for an aggregate price of approximately $6,250,000,
consisting of $3,900,000 in cash and $2,350,000 in Common Stock. It is
contemplated that the transaction will be completed in the second quarter of
1998, and, thereupon, that the sellers would collectively retain a 25%
ownership interest in Bill Bass Optical providing them with a 25% share in the
profits generated by Bill Bass Optical and a pro rata share of any
distributions therefrom.
The Company believes that its competitive position is enhanced through (i)
its broad array of distribution channels, which reduces its reliance on any
one channel, (ii) its target markets due to its use of local subcontractors
to manufacture certain products, (iii) its internal design capabilities, and
(iv) the diversity of its safety and tactical product lines. The Company
believes that its flexible manufacturing and design capabilities allow the
Company to maintain a valuable costs structure and minimal inventories and to
respond quickly to shifting trends in the industry.
PRODUCTS
General
The Company designs, manufactures and markets premium sunglasses and sport
shields ranging in retail price from $30 to $165 and ski goggles at most
price points. The Company currently offers approximately 180 models of
sunglasses, sport shields and goggles in 15 collections for a total of
approximately 400 separate product offerings. Each year, the Company attempts
to introduce a number of new models and collections and retire slower moving
product offerings. Recently introduced Bolle(Registered Trademark) products
include the Breakaway(Trademark) and Snakes(Trademark) collections. The
Company believes that the continued introduction of new and innovative
products will be important to its success and that it must continue to
respond to changing consumer preferences in the areas of style, function and
technological innovation.
Active Lifestyle Focus
Bolle(Registered Trademark) sunglasses are particularly suitable to most
athletic endeavors, from recreational activities to hard-core competition,
such as skiing, snowboarding, triathlon, surfing, golf and other outdoor
pursuits and generally to the needs of customers having an active lifestyle.
Bolle(Registered Trademark) sport shields and goggles are offered for a broad
range of sports activities, including road and high-speed sports, squash,
racquetball and other high impact sports, golf, surfing and windsurfing, rock
and ice sports as well as sky diving. Bolle(Registered Trademark) ski goggles
are designed to provide performance and protection to persons facing the
elements encountered in skiing, snowboarding and other winter sports. Sales
in the ski goggle market are dependent to a significant extent on weather
conditions and the quality and duration of the ski season. Bolle(Registered
Trademark) safety and tactical eyewear includes safety glasses and goggles,
face shields, laser eye protection devices and other specialized safety and
tactical eyewear products.
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Technological Characteristics
Bolle(Registered Trademark) Frames. Bolle(Registered Trademark) nylon
frames are lightweight and virtually unbreakable. The Company uses an
hydrated "memory" nylon, a virtually unbreakable material obtained through a
proprietary process owned by the Company. The Company uses this special
process to saturate the nylon material so that it retains moisture. Bolle
(Registered Trademark) nylon frames return to their original shape after a
mistreatment, which significantly improves product life. Pigments are
incorporated during the manufacturing process and are therefore unalterable.
Grylamid frames are used for their transparent properties and light weight
while metal frames employ state-of-the-art alloys which provide durability
and resiliency while offering modern styling. Frames are offered in a variety
of monochromatic versions from black to fluorescent pink to white as well as in
exotic versions from patterns in the "Graffiti" line to various sparkling
colors in the "Crystal" line and most recently "Cyber" colors. Bolle also
distributes metal frames primarily through its optical distribution network.
Bolle(Registered Trademark) Polycarbonate Lenses. The Company's primary
lens material is polycarbonate, a lighter and more impact resistant material
than glass, which provides high protection from damaging sun light. The
Company was among the first to incorporate lightweight polycarbonate lenses
for use in recreational eyewear, including sunglasses and sport glasses. The
Company has since developed its own polycarbonate lens, the Bolle(Registered
Trademark) 100 which is capable of stopping 100% of ultraviolet rays, 100% of
infrared rays and 56% of blue light. This lens can achieve this high
performance without any surface coating. Its filtering power is due
exclusively to absorbers included in the material and its application is used
in sun protection, computer work, welding and lasers. Approximately 85% of
the Company's total current production features polycarbonate lenses. The
Company believes the use of polycarbonate lenses has played an important role
in its ability to manufacture high performance technologically-advanced
eyewear products. Although polycarbonate is three times lighter than glass
and maintains perfect optical quality, it is twenty times more impact
resistant than glass and can be pierced without creasing, cracking or
splitting. Optically correct polycarbonate lenses are quartz coated for
scratch resistance. Polycarbonate lenses are available in a variety of colors
including smoke, vermilion, amber, emerald and clear, each adapted to
particular weather conditions.
Acrylic, Acetate and Glass Lenses. Other lens materials in the Company's
product lines include acrylic, acetate and glass. Acrylic is a durable yet
inexpensive material used in the Company's medium-priced collections that
allows the Company to offer products at an economical price point. Acrylic
lenses are lighter than glass, pass tests adopted by the U.S. Food and Drug
Administration for impact resistance and offer scratch resistance through
quartz coating. CR-39(Registered Trademark) plastic lenses are available in
clear, yellow, vermilion, smoke and all-weather designs. Spectra lens
coatings that are available include blue, green, orange, rose, gold and
silver. The Polarized lens collection features glass lenses, offering light
smoke, dark smoke and light brown polarization. Polarized lenses reduce
surface glare. Multilayer colored lens coatings include blue, violet, green,
red, gun and infrared.
Optional Features
The Company offers an interchangeable lens system (marketed under the
Breakaway(Trademark) brand), which enables consumers to customize the style
and functions of certain Bolle(Registered Trademark) products by adapting
different lenses to the same frame. Also offered with many Bolle(Registered
Trademark) products is a patented Sport Optical System(Trademark), which the
Company has designed to satisfy the needs of an increasing number of its
customers requiring sport glasses with corrective lenses. Along with
anti-scratch coating and polarization, most Bolle(Registered Trademark) sport
and protective eyewear products offer anti-fog coating, which the Company was
the first to develop for its ski goggles in 1973.
SAFETY AND TACTICAL PRODUCT
The Company carries a line of approximately 50 safety and tactical styles and
produces customer specific designs for special purpose applications. The
products are based around the Company's proprietary "memory" nylon frames and
carboglass lenses, a high impact and scratch resistant material based on
polycarbonate, but sprayed with quartz crystal coating. The Bolle safety
spectacle range provides style, function and comfort using advanced technology
and materials. As well as manufacturing safety glasses for standard industrial
requirements, the Company specializes in specific application eyewear such as
Laser glasses, chemical splash protection and military approved products. A
number of the designs are based on the sunglass collection; similarly a
number of the technological features used on Bolle sunglasses are developed from
Bolle's in-house R&D laboratory.
ADVERTISING AND MARKETING
As a result of its recent acquisition of Bolle France, the Company owns
the production and design capabilities of Bolle France and the worldwide
rights to the Bolle(Registered Trademark) brand for its products. This
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organization enables the Company to create and execute a consistent and
unified worldwide marketing and distribution strategy. This strategy is
focused on leveraging Bolle(Registered Trademark)'s superior technology and
established distributors in over 40 countries to expand aggressively the
Bolle(Registered Trademark) brand with consistency of brand image and design
innovation. The Company's worldwide marketing initiative includes a unified
marketing and product brochure for distributors worldwide, coordinated
advertising campaigns in major international and local media and at retail
locations, increased sponsorship of significant sport competitions and
athletes attracting international interest and the unification of the Company's
sport celebrity endorsement program. The Company's marketing strategy also
includes training retail salespersons to understand fully the specifics of
Bolle(Registered Trademark) products and in-store education highlighting the
Bolle(Registered Trademark) style and technical features. The Company expects
that the impact of its worldwide marketing initiative will be maximized by
its parallel efforts to build a cohesive distribution network. The Company
expects to coordinate future introductions of new Bolle(Registered Trademark)
products, such as a new motorsports line, both with its international
distributors and through new distribution channels so as to maximize the
benefits which the Company may derive from its worldwide rights to the
Bolle(Registered Trademark) brand and enhance global sales. The Company's
marketing initiative will seek to emphasize through a unified sport-specific
approach the technological frame and lens characteristics and long-standing
proven reputation for style and performance of Bolle(Registered Trademark)
products.
The Company intends to unify and expand its sponsoring program through the
use of endorsement arrangements with sports celebrities and professional
athletes. Endorsement contracts typically have a two-to three-year term,
providing the Company with flexibility to renew such contracts. The Company
has sponsored athletes in a number of venues including the Tour de France,
the Olympic Games and the Pro Golf Tour. French Olympic gold medal ski
champion Luc Alphand uses and endorses the Company's Chrono line of ski
goggles. Martina Hingis, the youngest number one-ranked player in the history
of women's tennis, has agreed to wear exclusively Bolle(Registered Trademark)
sunglasses, sport glasses and ski goggles at all public events and for
recreation, and to appear in advertisements and promotions for
Bolle(Registered Trademark) products worldwide. Jacques Villeneuve, the 1997
Formula One racing world champion and Picabo Street, winner of the gold medal
in the Super G competition in the 1998 Winter Olympic Games and have also
agreed to wear exclusively Bolle(Registered Trademark) sunglasses, sport
glasses and ski goggles at all public events for recreation, and to appear in
advertisements and promotions for Bolle(Registered Trademark) products
worldwide. The Company also sponsors a variety of teams and organizations
including sport federations and the Professional Golfers Association. These
sponsorships are a cost effective means of publicizing the Bolle(Registered
Trademark) brand name and demonstrate the Company's ability to deliver
quality products that satisfy the performance needs of a broad array of
sports.
The Company intends to capitalize on the opportunity to consolidate
globally the brand management and marketing of the Bolle(Registered
Trademark) brand for its products. This will enable the coordination of new
product releases worldwide and promote a consistent brand image and an
international, focused athlete sponsorship program.
DESIGN AND PRODUCTION
Design. The Company employs a four person design team in Oyonnax and
maintains relationships with outside design agencies under the supervision of
Mr. Maurice Bolle. Mr. Maurice Bolle designed the famous cat eye sunglass in
the 1950's. The Bolle design team oversees the entire design process, from
carving the actual frame out of acetate to mold creation, forming, polishing
and the final lens development stage. Approximately 20 new molds are designed
each year. The Company currently houses a library of approximately 700 molds.
The molds for each Bolle(Registered Trademark) design have been inventoried
in a warehouse at the Company's facilities in Oyonnax, France and the Company
believes it maintains the capability to produce over 97% of the products
represented by its mold inventory.
Production. Although the Company has outsourced the completion of a
substantial number of steps in the process it uses to manufacture its
products, the Company still closely oversees the activities of its
subcontractors. This enables the Company to retain control over the entire
assembly process that leads to any finished Bolle(Registered Trademark)
product, including the production of eyeglass frames through injection
molding and of foam cushioning and straps for the Company's sport products as
well as the creation of design applications added to eyeglass frames. The
majority of the subcontractors of the Company are
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located in the immediate vicinity of the Company's facilities in Oyonnax,
France and the manufacture of Bolle(Registered Trademark) products is their
primary activity. The Company has not entered into binding agreements with
its subcontractors and has not outsourced the production of items involving
proprietary processes. However, the Company believes that its history of good
relations with such subcontractors and the close proximity of these
subcontractors to its operations provides a conducive environment for
continued good business relations. The Company believes its arrangements with
subcontractors enable it to maintain a variable cost structure and minimal
inventory levels as well as to respond quickly to shifting trends in the
industry.
Products manufactured entirely by the Company include those made pursuant
to orders that are not large enough to warrant subcontractor production, or
which require the utilization of certain molds which do not fit the machine
specifications of subcontractors or which correspond to new or specific
design requirements, such as hard eyewear cases or certain eyeglass frames
which feature a wire-reinforced temple. The Company also participates in
original equipment manufacturing for other manufacturers of premium-priced
eyewear at its manufacturing facility. Although such arrangements do not
represent a significant portion of its business, the Company believes the
manufacturing of these products is evidence of its continued reputation as a
quality producer of high performance eyewear.
SUPPLIERS
Raw Materials
The Company generally obtains the raw materials required for use in
eyewear production, such as polycarbonate and nylon, from distributors of
such materials and occasionally directly from suppliers. The Company is not
dependent on any one source for supply of such materials and has not in the
past had, and does not expect in the future to have, difficulty in obtaining
materials. These materials are generally available from a number of
U.S. and international suppliers.
Metal Frames
Pursuant to its supply agreement with the Company, Alyn, the exclusive
manufacturer of Boralyn(Registered Trademark), a special proprietary metal
matrix providing greater strength and stiffness to weight ratios than
titanium, has agreed to provide the Company exclusively with sunglass frames
using Boralyn(Registered Trademark), which is currently considered the
leading metal for advanced metal eyewear. Alyn has retained the right to
provide certain prescription eyeglass frames to other customers. In order to
retain exclusivity, the Company must maintain certain specified minimum
purchase amounts, starting at 100,000 units for the first year and increasing
by 50,000 units per year through the fourth year and by 25,000 units per year
for the two remaining years. The Alyn Supply Agreement is for a term of three
years beginning with the first shipment of frames from Alyn to the Company,
and extends for an additional three years if the Company meets its
contractual requirements and agrees to certain specified purchase levels.
COMPETITION
The Company faces intense competition in the premium sunglasses and ski
goggle business. The premium sunglass industry is dominated by three large
competitors, Bausch & Lomb, Luxottica and Oakley, with a combined share of
the U.S. premium sunglass market estimated at approximately 60%. The rest of
the market is fragmented, with numerous small competitors. The Company
competes with a number of manufacturers, importers and distributors whose
brand names may enjoy greater brand recognition than that of Bolle(Registered
Trademark). The principal methods of competition are style, product
performance, price and brand recognition. Most competitors of the Company
offer a portfolio of brands, as opposed to focusing exclusively on one brand,
as do the Company and Oakley.
In addition, the Company faces intense competition in safety and tactical
eyewear market, including competition from Bacou, Uvex, Dalloz, Karsurg and a
number of Far East manufacturers who have copied the Company's styles.
Competition is based on quality, price, reputation and technological features.
Companies active in the Company's industry must respond simultaneously to
changes in fashion and technology, yet maintain inexpensive and rapid
production in order to remain competitive. Moreover, general economic
conditions and regulatory policies complicate these companies' ability to
address all factors effectively. Consequently, these companies alleviate the
complexity through reliance on name brands and images. Consumers' purchasing
decisions are often the result of highly subjective
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preferences which can be influenced by many factors, including, among others,
advertising, media, promotions and product endorsements. The Bolle(Registered
Trademark) name has been recognized for decades and the Company believes that
it is well positioned to retain such strong recognition in the future. The
Company believes that its competitive advantages include its strong brand
name; product quality; product performance; leading edge styling; integrated
design, production and marketing; superior technology and technological
innovation; specialized product offerings; price; and international
distribution networks. The Company also believes that the competitive
advantage constituted by the Company's right to market Bolle(Registered
Trademark) products in the United States through multiple retail distribution
channels, including general and specialty sporting goods stores and
optometrists, ophthalmologists and opticians, is important to its competitive
position.
The Company believes its continued success will depend upon its ability to
remain competitive in its product areas. With several of its competitors
having greater financial, research and development, manufacturing and
marketing experience and resources than the Company, the Company faces
substantial long term competition. The failure to compete successfully in the
future could result in a material deterioration of customer loyalty and the
Company's image and could have a material adverse effect on the Company's
business.
CUSTOMERS
The distributors owned by the Company are not dependent upon a single
customer or a few customers. None of the Company's customers account for more
than 10% of the Company's consolidated revenues. Bolle America's top 25
customers represent approximately half of its total net sales. In addition to
its relationships with large chains, Bolle America has an established
distribution network to thousands of smaller customers.
QUALITY CONTROL AND PRODUCT IMPROVEMENT
Bolle(Registered Trademark) products are subject to stringent quality
control requirements. At every step of the production process, each piece of
a product is inspected by hand before moving to the next level of production.
The Company estimates that each unit of eyewear undergoes a minimum of four
quality control inspections before it leaves the facility. Technicians test
random samples from the manufacturing facility and from subcontractors to
check for durability and other production specifications. Product
improvements are continually developed in the Company's testing laboratory.
For instance, the Company tests the fit of its sport and safety goggles by
using a machine which agitates particles in the air and measures the amount
of particles which pass through the edges of the product. The Company's
testing laboratory meets all British, German and U.S. international standards
for testing. High velocity and radiation testing are conducted regularly.
Laser coating units and spectrophotometers add to the Company's ability to
produce superior products.
SALES AND DISTRIBUTION
The Company sells its products through a worldwide network of both
affiliated and independent wholesale distributors in over 40 countries, which
in turn distribute Bolle(Registered Trademark) products to retail outlets.
Information regarding the sales, operating profit or loss and identifiable
assets attributable to the Company's U.S. and foreign operations for the year
ended December 31, 1997 is set forth in Note 16 to the Company's Consolidated
Financial Statements included in this Form 10-K. Prior to the acquisition of
Bolle France by the Company in July 1997, the Company had no foreign
operations and the information regarding the sales, operating profit or loss
and identifiable assets of the Company for the years ended December 31, 1997,
1996 and 1995, which is provided in note 16 to the Company's Consolidated
Financial Statements, is primarily attributable to Bolle America's U.S.
operations. During 1997, 61% of total sales were to North American
distributors, 29% of sales were in Europe, 10% of sales were in Australia and
Asia and the rest of the world.
In the United States, the Company sells its products through a nationwide
network of approximately 200 independent sales representatives and
distributors to over 10,000 accounts, which include general and specialty
sporting good stores, opticians, ophthalmologists and optometrists, golf pro
shops, retail sunglass stores and mail order catalog companies.
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The Company's retail products distribution operations are designed to meet
the individual inventory and service requirements of its customers. Products
are shipped in a variety of volumes, ranging from full truck loads, to small
order to pre-stocked displays. Most orders are shipped by ground service via
common carriers to either a customer's distribution center or directly to the
customer's retail location. The Company believes that its operations are
capable of meeting a customer's individual service needs.
Howard Leight Industries ("Howard Leight"), a major distributor of
industrial safety products, has committed to purchase from the Company
certain safety eyewear products for exclusive marketing and sale through
industrial supply networks in North and South America. In February 1998, Bacou
USA, one of the main competitors of the Company, purchased Howard Leight.
The Company has consented to the assignment of the Howard Leight Agreement to
Bacou. Under the Agreement (as amended), if Bacou fails to make minimum
purchases aggregating $3,500,000 by December 31, 1998, Bacou must pay to the
Company liquidated damages equal to 27.5% of any shortfall in such purchases.
Pursuant to the Agreement, the Company and Bacou further agree to work toward
an agreement by September 30, 1998 to develop the worldwide Bolle(Registered
Trademark) safety business and continue to explore mutually advantageous
business opportunities. The agreement has an initial term of seven years,
beginning October 15, 1997, and is automatically renewed thereafter for
successive one-year terms unless either party gives three months' notice of
termination. Additionally, either party may terminate the Agreement effective
December 31, 1998 upon sixty (60) days written notice prior to that date.
The Company plans to consolidate certain of its distributors through
acquisitions or other arrangements over the next three years. As part of this
strategy, the Company has executed letters of intent to purchase 75% of Bill
Bass Optical, the largest independent distributor of the Company's products
and the principal distributor of the Company's products in Australia, whose
sales of Bolle(Registered Trademark) products in Australia exceeded $10 million
in 1997. The Company believes that this will provide the potential for
increases in the efficiency and utilization of its distribution channels. In
addition, the Company has also entered into a letter of intent to bring its
shareholding in Bolle UK to 75%.
SEASONALITY
The Company's sunglass business is seasonal in nature with the second
quarter having the highest sales due to the increased demand for sunglasses
during that period. The Company's goggle business is seasonal in nature with
the first quarter having the highest sales due to the increased demand for
goggles during the ski season. This seasonality is partially offset by safety
eyewear sales worldwide.
REGULATION
The Company has been specifically certified by appropriate industry and
governmental authorities to manufacture sunglasses, sport products and
industrial protection products as well as laser protection products and
eyewear produced for specific military orders.
INTELLECTUAL PROPERTY
The Company, directly or indirectly, owns the exclusive right to a number
of registered trademarks in the United States and other countries, including
Bolle (Registered Trademark); Bolle PC (Registered Trademark); ACRYLEX
(Registered Trademark); ALIEN (Registered Trademark); CONTOUR (Registered
Trademark); CHRONOSHIELD (Registered Trademark); MICRO EDGE (Registered
Trademark); GEOMETRIC (Registered Trademark); TIGER SNAKE (Registered
Trademark); SUNSPENDER (Registered Trademark); Bolle EYEZONE (Registered
Trademark); EYEZONE DESIGN (Registered Trademark); NORTHERN LIGHTS (Registered
Trademark); PUT 'EM ON YOUR FACE (Registered Trademark); EAGLE VISION
(Registered Trademark); TACTICAL (Registered Trademark); AVANT EDGE
(Registered Trademark); bf (Registered Trademark); MAURICE BOLLE (Registered
Trademark); CARBO GLAS (Registered Trademark); AQUASHIELD (Registered
Trademark); and the Snakes design. In addition, Bolle America has applications
pending to register a number of additional trademarks, including BREAKAWAY
(Trademark), SEE BETTER, PLAY BETTER (Trademark); Bolle MADNESS (Trademark);
Bolle ATTACK (Trademark); Bolle ESCAPE (Trademark); Bolle CARBONEX (Trademark);
VAPOR TRAIL (Trademark); and TOUR ELITE (Trademark).
The Company has a number of design and utility patents registered in the
United States and other countries and owns the Bolle(Registered Trademark)
trademark for the Company's products. The Company's United States patents have
expiration dates ranging from 2001 to 2015; certain of these patents are
subject to the payment of maintenance fees to maintain their registration.
These patents are intended to protect the unique design and functional
characteristics of certain Bolle(Registered Trademark) products from
duplication by competitors. There can be no assurance that any individual
patent will provide substantial protection or be of commercial value. The loss
of any one patent would not have a material adverse effect on the business of
the Company.
EMPLOYEES
As of April 14, 1998, the Company had approximately 160 employees, about half
of which were assigned to the Company's design, production and distribution
operations in France and the remainder to its distribution operations in the
United States and other parts of the world. None of the Company's employees
working in the United States is subject to a collective bargaining agreement.
Employees of the Company working in France are subject to the provisions of
the French Labor Code and a collective bargaining agreement. The Company
considers its relations with its employees in the United States and France to
be satisfactory.
ENVIRONMENTAL REGULATION
Manufacturing operations managed by corporations in which the Company
has an interest are subject to regulation by various foreign, federal, state
and local agencies concerned with environmental control. The Company believes
that these facilities are in substantial compliance with all existing foreign,
federal, state and local environmental regulations.
ITEM 2. PROPERTIES
As of April 10, 1998, the locations of the Company's principal facilities
are as follows:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE/USER(S) APPROXIMATE SQUARE FOOTAGE
- -------- --------------------- --------------------------
<S> <C> <C>
Oyonnax, France Manufacturing plant, design center, warehouse and office
space/Bolle France 90,000
Denver, Colorado Warehouse and office space (lease commencing May 1, 1998)
/Bolle America 30,000
</TABLE>
The Company owns all of its manufacturing facilities in France and leases
its Denver facilities. The Company's main manufacturing facility in France,
located just outside Oyonnax, France., houses the majority of the
manufacturing activities of the Company as well as the quality control
functions, management, and design.
In addition, the Company, through a wholly-owned subsidiary, owns and leases
to an unaffiliated lessee an approximately 150,000 square foot building located
in Farmer's Branch, Texas. The property is subject to a mortgage held by Wells
Fargo Bank (Texas) in the current principal amount of approximately $3.5
million. The Company has entered into a contract for the sale of this building.
ITEM 3. LEGAL PROCEEDINGS
While the Company is engaged in routine litigation incidental to its
business, the Company believes that there are no material pending legal
proceedings to which it is a party or to which any of its property is the
subject. In connection with the Spinoff, the Company agreed to indemnify Lumen
against liabilities which may arise from certain pending litigation not
relating to the Company's operations. The Company does not believe that any of
such pending litigation constitutes material legal proceedings for the
Company.
-8-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock commenced trading publicly on March 12,
1998. The Company's common stock is listed on the NASDAQ National Market under
the symbol "BEYE." Therefore, there is no relevant historical public market
information for the fiscal years ended December 31, 1997 and 1996.
As of April 14, 1998, there were approximately 600 stockholders of
record of the Company's common stock (representing approximately 5,000
beneficial owners of the Company's common stock). No dividends have ever been
declared on the Company's common stock, other than as disclosed in the
Selected Historical Financial Data set forth below and other than in
connection with the distribution of shares of common stock in immediately
prior to the Spinoff in order to effect a stock split in anticipation of
effecting the spinoff. The Company has no intention of paying dividends in the
foreseeable future. It is the present policy of the Company's Board of
Directors that any retained earnings accumulated will be used to finance
future acquisitions and expansion of the Company's operations.
Pursuant to the terms of the Amended and Restated Share Purchase
Agreement, dated July 9, 1997, by and among the Company, on the one hand, and
Mr. Robert Bolle, Mr. Maurice Bolle, Mr. Franck Bolle, Ms. Patricia Bolle
Passaquay, Ms. Brigitte Bolle and Ms. Christelle Roche (collectively, the
"Sellers") on the other hand, the Company issued to the Sellers an aggregate of
64,120 shares of Series A Preferred Stock. Holders of the Series A Preferred
Stock are not entitled to receive dividends.
Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company before any distribution of assets of the Company
shall be made to or set apart for the holders of Common Stock, the holders of
the Series A Preferred Stock will be entitled to receive from the Company's
assets legally available for distribution to stockholders, a payment in an
amount equal to the greater of (i) 1,000 French Francs per share or (ii) the
French Franc equivalent of US $172.41 per share of Series A Preferred Stock.
After payment of the full amount of the liquidation distributions to which
they are entitled, the holders of the Series A Preferred Stock will have no
right or claim to any of the remaining assets of the Company. In the event
that upon any such voluntary or involuntary liquidation, dissolution or winding
up, the available assets of the Company are insufficient to pay the amount of
the liquidation distributions on all outstanding shares of Series A Preferred
Stock, then the holders of the Series A Preferred Stock shall share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled. The
Series A Preferred Stock is not convertible or exchangeable for any other
securities of the Company.
Shares of the Series A Preferred Stock will be redeemed by the Company
upon 10 days' prior written notice on the third anniversary of their
issuance, subject to the provisions of the Company's senior indebtedness in
effect at the effective time of the Spinoff (which includes indebtedness
under the Credit Agreement)(the "Senior Indebtedness"). Prior to that, the
Company may redeem any shares of Series A Preferred Stock at any time upon 10
days' prior written notice. In addition, in the event the Company's EBITDA
exceeds US $18,400,000 for the fiscal year 1998 or US $24,700,000 for the
fiscal year 1999, the Company shall be obligated to redeem, upon 10 days'
prior written notice, and within 110 days after the close of the relevant
fiscal year, any shares of Series A Preferred Stock then outstanding,
provided in each case that Bolle remains in compliance with the financial
covenants contained in the Senior Indebtedness after giving effect to such
redemption and US $2,000,000 million is available for borrowing by Bolle
under such senior indebtedness. In the event that the Series A Preferred
Stock is not redeemed in full by its due date, it will begin accruing
interest from July 2000.
Generally, the shares of Series A Preferred Stock have no voting rights.
If the Company fails to give notice of a redemption within three years of the
date of issuance of any shares of Preferred Stock, the holders of more than
90% of such shares shall have the right to cause the Company to use
commercially reasonable efforts to either obtain cash in order to redeem in
full such shares or to effect without delay a commercially reasonable sale of
the Company's assets or the merger, consolidation or other reorganization of
the Company. So long as any shares of Series A Preferred Stock are
outstanding, the Company shall not, without the consent of holders of at
least 90% of such shares, (i) alter or change the rights, preferences or
privileges of such shares or (ii) issue any class or series of preferred
stock ranking senior or pari passu with the Series A Preferred Stock with
respect to dividend, redemption or liquidation rights. Shares of Series A
Preferred Stock may only be transferred to persons who are already holders of
such shares and in accordance with applicable law.
The issuance of such Series A Preferred Stock and Series B Preferred Stock
was exempt from the registration provisions of the Securities Act of 1933
pursuant to Section 4(a) thereof and rules promulgated thereunder, and the
securities so issued were deemed to be restricted securities. No underwriter
was engaged in connection with such issuance of securities.
In March 1998, subsequent to the period covered by this Form 10-K, the
Company additionally issued certain shares of Series B Preferred Stock.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data have been derived
from audited historical financial statements and should be read in conjunction
with the consolidated financial statements of the Company included herein.
The Company was formed in 1997 to complete the acquisition of Bolle
France and therefore has no historical activity or financial statements. Bolle
America was purchased by Lumen in November 1995 in a pooling of interests
transaction. In conjunction with the purchase of Bolle France, Bolle America
became a subsidiary of the Company. Accordingly, for accounting purposes only,
Bolle America is treated as the acquiror of Bolle France and therefore the
predecessor business for historical financial statement purposes.
-9-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
1997(1) 1996(2) 1995(3) 1994(4) 1993
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales $32,160 $24,425 $24,829 $23,094 $18,377
Cost of sales 15,354 12,130 12,181 10,814 9,126
Gross profit 16,806 12,295 12,648 12,280 9,251
Selling, general and 16,342 11,374 10,275 8,871 7,384
administrative expenses
(including advertising
and sponsoring expenses)
Merger and acquisition
integration related
expenses 3,750 -- 3,050 -- --
Interest expense (income) 963 (256) (302) 316 336
Other expense (income) (693) (450) 48 (104) (295)
Income (loss) before (3,556) 1,627 (423) 3,197 1,826
income taxes
Provision for (benefit 1,099 635 364 1,260 700
from) income taxes
Net income (loss) $(4,655) $992 $(787) $1,937 $1,126
Net income (loss) per
share $(2,586.11) $9,920.00 $(0.22) $0.65 $0.38
Weighted average shares
outstanding 1.8 0.1 3,510.6 2,997.0 2,963.0
French Franc per US
Dollar exchange rate
used(5) 5.9843
BALANCE SHEET DATA:
Working capital $(20,936) $8,535 $11,395 $12,781 $1,060
(deficiency)
Total assets 94,697 15,624 16,309 17,549 9,629
Long term debt -- -- -- 57 49
Mandatorily redeemable 11,055 -- -- -- --
preferred stock
Stockholders' equity 18,843 9,743 12,770 13,433 1,584
French Franc per US 5.9912
Dollar exchange rate
used(5)
(1) On July 10, 1997, the Company acquired Bolle France and related
assets in a transaction accounted for as a purchase. Accordingly, the
results of operations for Bolle France are included in historical
results of operations from that date.
(2) In 1996, the Company paid a dividend to BEC (its then current
stockholder) of $4,019.
(3) In November 1995, BEC acquired Bolle America in a transaction
accounted for as a pooling of interests. Accordingly, Bolle America
is included in all periods presented.
(4) In 1994, Bolle America paid a $50 dividend to its then current
shareholders.
(5) Represents the exchange rates used to translate the results of
operations and balance sheet amounts of Bolle France. The exchange
rate shown for the actual results of operations for the year ended
December 31, 1997 represents the average exchange rate for the six
months ended December 31, 1997 used to translate the results of
operations of Bolle France included in the Company's actual results.
</TABLE>
-10-
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Due to the acquisition of Bolle France on July 10, 1997, only six
months of results of operations of Bolle France are included in the results of
operations for the year ended December 31, 1997.
In conjunction with the acquisition of Bolle France and following the
Spinoff, it is anticipated the Company will be subject to interest on
approximately $16 million of senior indebtedness at an average current rate of
approximately 6.5%. Although this represents significantly less than the
indebtedness owed to Lumen prior to the Spinoff, it is nevertheless higher
than indebtedness had been prior to the Bolle France acquisition. In addition,
the acquisition of Bolle France has resulted in additional depreciation and
amortization of approximately $2.1 million, significantly increasing selling,
general and administrative expenses as a percentage of sales.
The Company has begun to develop and implement a global brand
management and marketing program, resulting in increased advertising expenses.
There is no guarantee that such increased expenses will result in increased
sales.
It is not anticipated that operating on a standalone basis following
the Spinoff will have a significant impact on the results of operations,
financial position or cash flows of the Company other than that which is
disclosed herein. The Company was operated as a separate segment of Lumen's
business and will, under a Management Service Agreement, continue to receive
management and administrative services from Lumen on similar terms to those
reflected in the historical financial statements.
The Company is in the process of upgrading its information systems to
support the implementation of its worldwide marketing strategy. The new
applications are expected to function properly with respect to dates in the
year 2000 and thereafter and the new single currency which is scheduled to be
introduced by the European Union at the beginning of 1999. The Company
started implementing the planned applications in 1997 and plans to finish
during 1999. This upgrading process will significantly affect many aspects of
the Company's business, including its manufacturing, sales and marketing
functions. The successful implementation and integration of the new
applications will be important to facilitate future growth. The Company could
experience unanticipated delays in the upgrading of its information systems
and such upgrading could cause significant disruption in operations. If the
Company is not successful in upgrading its information systems, fails to
train its personnel in their use in a timely manner or if the Company
experiences difficulties in the upgrading process, the Company could
experience problems with the delivery of its products or its ability to
access timely and accurate financial and operating information could be
adversely affected. In addition, delays in implementing the new systems could
require additional expenditures by the Company to modify or replace portions
of its existing information systems so that they will function properly with
respect to dates in the year 2000 and thereafter and the new European
currency. There can be no assurance that the Company will be able to correct
any problems with respect to such dates or the new currency in a timely
manner. Any failure by the Company to respond properly to these problems or
any other difficulties which the Company may face with its information
systems could have a material adverse effect on the Company's business and
financial results.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Net sales of $32.2 million for the year ended December 31, 1997
increased from $24.4 million for the comparable period in 1996 despite a $5.7
million decrease in sales in the United States, resulting from the acquisition
of Bolle France on July 10, 1997. For the year ended December 31, 1997 North
American Sales (primarily in the United States) represented 61% of net sales
with European sales representing 29%. Soft conditions in the U.S. Market for
premium sunglasses contributed to the decrease in sales in North America. A
major retail distributor of premium sunglasses, which had been growing rapidly
up until the fourth quarter of 1996, began closing outlets and returning excess
inventory at the end of 1996 and into 1997, negatively affecting the entire
premium sunglass industry. This customer represented approximately 14% of sales
for the year ended December 31, 1996 and less than 4% of sales for the year
ended December 31, 1997. While overall retail sales continued to grow, many
premium sunglass manufacturers had overproduced in anticipation of
significantly higher sales and took significant returns which eroded profit
margins. The Company does not expect this trend to continue in 1998.
Gross margin increased from 50.3% for the year ended December 31, 1996
to 52.3% for the year ended December 31, 1997, reflecting the higher gross
margins of the integrated manufacturing and distribution operations of the
Company following the Acquisition.
-11-
<PAGE>
Advertising and sponsoring expenses increased $0.5 million on a sales
increase of $7.7 million due to the acquisition of Bolle France.
For the year ended December 31, 1997 selling, general and
administrative expenses of $12.6 million increased form $8.1 million for the
year ended December 31, 1996, reflecting the acquisition of Bolle France. As a
percentage of sales, selling, general and administrative expenses increased due
to the 1997 combination of manufacturing and distribution sales.
Acquisition integration related expenses of $3.75 million in 1997
represent the following expenses incurred in connection with the integration
of Bolle France and creation of Bolle Inc.: (i) a reserve for the return of
product from the Company's owned and non-owned distributors in conjunction
with the redefining and streamlining of Bolle Inc.'s new product line, and
(ii) the legal, production and marketing expenses related to the set up of a
new logo for Bolle(Registered Trademark) worldwide and the creation of the
first worldwide catalog.
Interest expense of $1.0 million for the year ended December 31, 1997
reflects the interest expense on the debt incurred to fund the acquisition of
Bolle France. In the comparable period in 1996 Bolle America's cash on hand
generated interest income of $0.3 million.
Other income consists of allocated equity income and management fee
income from Lumen's investment in Eyecare Products of $0.6 million for the year
ended December 31, 1997 and $0.4 million for the year ended December 31, 1996.
This income was allocated to the Company by Lumen. For each of the years ended
December 31, 1997 and 1996 other income also included $0.1 million of foreign
exchange transaction gains.
The Company recorded a net tax provision of $1.1 million despite the
loss before taxes of $3.6 million for the year ended December 31, 1997. A
provision was recorded as a result of the Company establishing a valuation
allowance against the entire domestic net deferred tax asset for 1997. The
acquisition of Bolle France in 1997 had a significant impact on the tax rate.
In 1996, the effective tax rate was 39.0% of net income before taxes.
-12-
<PAGE>
Year ended December 31, 1996 compared to year ended December 31, 1995
Net sales were flat for the year ended December 31, 1996 compared to
the prior year. Although the premium sunglass market continued to grow, Bolle
America (the only business included in the Company at that time) was affected
by industry problems described above that reduced sales in the fourth quarter.
At the end of 1996 and into 1997, the Company's "grass roots" distribution to
many smaller, loyal retail outlets worked in its favor by lessening the effect
of sales declines experienced in certain of the Company's larger customers.
For the years ended December 31, 1996 and 1995, the Company's sales were
substantially all in the United States.
During 1996 and 1995 the Company purchased substantially all of its
products from Bolle France, which did not change its pricing significantly
during those years. Accordingly, the gross margin of 50% in 1996 did not
change materially from the 1995 gross margin of 51%.
For the year ended December 31, 1996, advertising and sponsoring
expenses were $3.3 million versus $2.7 million for the prior year. This
increase in dollars and as a percentage of sales was due to the Company's
strategy of building the brand in the United States where it competes with
other brands which are heavily marketed and advertised.
Selling, general and administrative costs increased from $7.6 million
in 1995 to $8.1 million in 1996 primarily due to corporate allocation of its
Lumen's general and administrative expenses in 1996. In 1995, because the
Company was acquired by Lumen in November, no allocations were effected.
In November 1995, the Company was acquired by Lumen in a transaction
accounted for as a pooling of interests. Accordingly, the merger related costs
of $3.1 million are included in the results of the Company for 1995.
In both 1996 and 1995, the Company's cash on hand resulted in interest
income of $0.3 million.
Other income in 1996 includes $0.4 million of allocated equity income
from BEC's investment in Eyecare Products. This income was allocated to the
Company by BEC. During 1995, because the acquisition of the Company by BEC did
not occur until November, the comparable equity income was not allocated. The
1995 amount consists of foreign exchange losses.
The effective tax rate of 39% in 1996 represents an operating basis
provision while the 1995 provision recorded against the loss before taxes
reflects the significant effect of the merger related expenses.
-13-
<PAGE>
Liquidity and capital resources
Net cash provided by operating activities during the year ended
December 31, 1997 of $1.1 million represents the net loss offset by the
positive effect of non cash expenses and the reduction of inventory and
accounts receivable. Depreciation and amortization for the year ended December
31, 1997 was $1.5 million compared to $0.4 million for 1996, reflecting the
acquisition of Bolle France. Cash paid for acquisitions in 1997 represents the
purchase of Bolle France net of cash received with the acquisition. Capital
expenditures of $0.7 million were also increased due to the acquisition. These
operating and investing activities were financed through proceeds from
indebtedness to related parties, primarily through borrowings from Lumen which
were funded by Lumen through its revolving credit facility. During 1997 the
Company borrowed US Dollars from Lumen at a rate of 8% and French Francs at a
rate of 5.5%. On March 11, 1998 the Company executed a separate credit facility
(the "New Credit Facility") with substantially the same terms as the Lumen
facility. Proceeds from the New Credit Facility were used to repay a portion of
indebtedness to related parties. There will be no intercompany credit
arrangements between Lumen and the Company. The Company will lend cash to its
subsidiaries in substantially the same manner as Lumen lends to the Company and
its subsidiaries. Management believes that the New Credit Facility, along with
cash provided from operations will be sufficient to fund the Company's cash
operating and investing requirements for the foreseeable future. It is not
expected that repatriation of French Franc cash flows, if any, will have a
significant impact on liquidity.
Net cash provided by operating activities during the year ended
December 31, 1996 consisted of net income and increases in accounts payable
offset by increases in receivables from related parties and inventory. The
Company's cash was paid to Lumen from which it received interest
income.
Net cash used by operating activities in 1995 consisted of the net
loss resulting from the merger-related expenses and increases in net working
capital. Cash on hand as a result of the December 1994 offering was used to
finance investing activities.
In connection with the Bill of Sale and Assignment Agreement (the
"Contribution Agreement"), between Lumen and the Company, approximately $17
million of indebtedness to related parties incurred to finance the acquisition
of Bolle France was capitalized. This reduction in the Company's debt improves
working capital levels. The Company expects cash flows from operations combined
with available borrowing capacity to be sufficient to fund the Company's
future operating and investing needs through at least 1998.
-14-
<PAGE>
ITEM 7A. QUALITATIVE AND QUANTITAVE DISCLOSURES ABOUT MARKET RISK
Approximately $18 million of the Company's revenues for the year ended
December 31, 1997 and $70 million of its total assets as of December 31, 1997
were denominated in French Francs. Substantially all of the Company's
approximately $36 million of indebtedness at December 31, 1997 was denominated
in French Francs at a fixed interest rate of 5.5%. The Company may from time to
time enter into forward or option contracts to hedge the related foreign
exchange risks. The Company does not enter into market risk sensitive
transactions for trading or speculative purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-15-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Bolle Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of comprehensive income (loss),
of stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of Bolle Inc. and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Notes 1 and 2, on March 11, 1998, the Company's
parent, Lumen Technologies, Inc. (formerly BEC Group, Inc.), distributed the
Company's stock to Lumen shareholders via a spinoff. Contemporaneously with
the Spinoff, certain assets and liabilities were transferred from Lumen to the
Company and a portion of the Company's indebtedness to related parties was
contributed to the capital of the Company, resulting in a decrease in current
liabilities of approximately $28 million and an increase in stockholders'
equity of approximately $14 million.
PRICE WATERHOUSE LLP
Dallas, Texas
April 15, 1998
-16-
<PAGE>
BOLLE INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,204 $ 311
Trade receivables from related parties (Note 14) 1,120
Trade receivables, less allowances of $857 and $445 11,332 4,895
Inventories 11,734 8,388
Prepaid and other current assets 1,617 822
-------------- -------------
Total current assets 27,007 14,416
Property and equipment, net 4,687 534
Trademark, net 39,029
Goodwill and other intangible assets, net 23,447 646
Other assets 527 28
-------------- -------------
Total assets $ 94,697 $15,624
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,247 $ 3,488
Indebtedness to related parties (Note 10) 35,782 1,420
Accrued compensation 1,111 146
Other accrued expenses 4,803 827
-------------- -------------
Total current liabilities 47,943 5,881
Deferred tax liability 14,000
Other long-term liabilities 2,856
-------------- -------------
Total liabilities 64,799 5,881
-------------- -------------
Mandatorily redeemable preferred stock--redemption value $11,055;
par value $.01; 64,120 shares authorized, issued and outstanding 11,055
Stockholders' equity:
Investment by stockholder 9,743
Common stock--par value $.01; 25,000 shares authorized, 2,000
shares issued and outstanding
Additional paid-in capital 23,960
Cumulative translation adjustment (462)
Accumulated deficit (4,655)
---------- ----------
Total stockholders' equity 18,843 9,743
Total liabilities, mandatorily redeemable preferred stock ---------- ----------
and stockholders' equity $ 94,697 $ 15,624
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
BOLLE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 32,160 $ 24,425 $ 24,829
Costs and expenses:
Costs of sales 15,354 12,130 12,181
Selling, general and administrative 12,584 8,105 7,610
expenses
Advertising and sponsoring expenses 3,758 3,269 2,665
Merger and acquisition integration
related expenses 3,750 3,050
Interest (income) expense 963 (256) (302)
Other (income) expense (693) (450) 48
----------------- -------------- --------------
Total costs and expenses 35,716 22,798 25,252
----------------- -------------- --------------
Income (loss) before income taxes (3,556) 1,627 (423)
Provision for income taxes 1,099 635 364
----------------- -------------- --------------
Net income (loss) $ (4,655) 992 (787)
================= ============== ==============
Basic and diluted earnings (loss) per share $ (2,586.11) $ 9,920.00 $ (0.22)
================= ============== ==============
Weighted average shares outstanding 1,800 100 3,510,624
================= ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE>
BOLLE INC.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- --------
Net income (loss) $(4,655) $ 992 $ (787)
Foreign currency translation adjustments (462)
Reclassification adjustment - (before taxes)
------- ------- -------
Comprehensive income (loss) before tax (5,117) $ 992 (787)
Other comprehensive income tax effect 142
------- ------- -------
Comprehensive income (loss) $(4,975) $ 992 $ (787)
======= ======= =======
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
BOLLE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- ADDITIONAL CUMULATIVE
PAR PAID-IN ACCUMULATED TRANSLATION TOTAL
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
------ ----- ---------- --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1994 $13,433
-----------
1995:
Net loss (787)
Compensation expense
accrued for stock options 124
-----------
Balance - December 31, 1995 12,770
1996:
Net income 992
Dividend to Lumen (4,019)
-----------
Balance-December 31, 1996 $9,743
===========
1997:
Beginning balance -
January 1, 1997 $9,743 $9,743
Capitalization of Bolle Inc. -
February 3,1997 1,900 -- 10,915 10,915
===========================================================================================================
Common stock issued
in connection
with Bolle
France acquisition 100 -- 3,302 3,302
Net income (loss) $(4,655) (4,655)
Cumulative
translation
adjustment $(462) (462)
------------ -------- ------------- ----------- --------- -------
Balance - December 31, 1997 2,000 -- $ 23,960 $(4,655) $(462) $18,843
============ ======== ============= =========== ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE>
BOLLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,655) $ 992 $ (787)
Adjustments to reconcile income (loss) to net cash provided
(used) by operating activities:
Merger and acquisition integration related 1,823 99
expenses, net of payments
Depreciation and amortization 1,477 386 254
Bad debt expense 489 73 183
Loss (gain) on sale of property and equipment 19 1
Changes in current assets and liabilities (net of effect of
companies acquired):
Accounts receivable 2,515 821 (203)
Receivables from related parties (1,120) (736) 736
Inventories 2,821 (1,470) (2,063)
Other assets (726) 291 (528)
Accounts payable 2,584 1,135 (323)
Accrued expenses and other (4,128) (191) (176)
-------- -------- --------
Net cash provided (used) by operating activities 1,099 1,302 (2,808)
-------- -------- --------
Cash flows from investing activities:
Cash expended in acquisitions, net of cash received (33,290)
Capital expenditures (665) (319) (131)
Proceeds from sale of fixed assets 65 2
Non-compete agreement and intangible assets (100) (2) (815)
-------- -------- --------
Net cash used by investing activities (33,990) (319) (946)
-------- -------- --------
Cash flows from financing activities:
Proceeds (payments) from long-term obligations (18) (21) (78)
Proceeds (payments) on indebtedness to related parties 34,362 (1,000) (1,600)
Proceeds from issuance of common stock (21)
-------- -------- --------
Net cash provided (used) by financing activities 34,344 (1,021) (1,699)
-------- -------- --------
Effect on cash of changes in foreign exchange rates (560)
Net increase (decrease) in cash 893 (38) (5,453)
Cash and cash equivalents at beginning of period 311 349 5,802
-------- -------- --------
Cash and cash equivalents at end of period $ 1,204 $ 311 $ 349
======== ======== ========
</TABLE>
(continued)
-21-
<PAGE>
Interest paid $ 46 $ 5 $ 42
Income taxes paid 2,635 * *
o Income taxes were paid by the Company's parent for the years ended
December 31, 1995 and 1996 as it has been part of a U.S. tax group
since 1995. In 1997, only the Company's domestic income taxes were
paid by the Parent on behalf of the Company. Accordingly, the income
taxes paid by the Company in 1997 represent foreign income taxes.
Noncash transactions:
1997
o The acquisition of Bolle France discussed in Note 3 was funded
through a combination of cash, equity and debt. The fair values of
the assets and liabilities at the dates of acquisition are presented
as follows:
Cash $ 1,294
Accounts receivable 9,441
Inventories 6,167
Other current assets 388
Property and equipment 3,949
Goodwill 22,642
Trademark 40,000
Other assets 181
Short-term debt (175)
Accounts payable and accrued liabilities (9,756)
Deferred tax liability (14,000)
Other long-term liabilities (1,896)
1996 and 1995
o During the fourth quarter of 1996, Bolle America forgave the
repayment of a $4,019 advance made to Lumen during the year. The
forgiveness of the advance was characterized as a dividend in 1996.
o There were no non-cash transactions during the year ended December
31, 1995.
(See accompanying notes to consolidated financial statements)
-22-
<PAGE>
BOLLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)
NOTE 1 -- SPINOFF SUBSEQUENT TO YEAR END
At December 31, 1997 Bolle Inc. (the "Company") was a subsidiary of
Lumen Technologies, Inc. (formerly known as BEC Group, Inc.)("Lumen"). On
March 11, 1998, Lumen distributed the stock of Bolle Inc. to Lumen's
shareholders (the "Spinoff") and the Company began trading on the NASDAQ
National Market under the symbol "BEYE" on March 12, 1998.
In connection with the Spinoff, pursuant to a Bill of Sale and
Assignment Agreement entered into between Lumen and the Company immediately
prior to the consummation of the Spinoff (the "Contribution Agreement"), (i)
Lumen assigned to the Company all of Lumen's assets other than assets related
to the ORC Business (as defined in the Contribution Agreement) and certain
other specified assets retained by Lumen; and (ii) the Company assumed all of
Lumen's liabilities prior to the Spinoff other than those related to the ORC
Business. Pursuant to this agreement, approximately $17 million of the
Company's indebtedness to related parties was contributed to the capital of
the Company and the remaining balance was refinanced via a bank credit
facility.
In connection with the Spinoff, the Company assumed all obligations
and liabilities of Lumen to each of Maurice Bolle, Robert Bolle, Franck Bolle,
Patricia Bolle Passaquay, Brigitte Bolle and Christelle Roche (collectively,
the "Sellers," and each a "Seller") incurred by Lumen in connection with the
purchase of Bolle France, and Lumen was released from all such obligations or
liabilities. In addition, each Seller conveyed to the Company all shares of
Series A Preferred Stock of Lumen (the "Lumen Preferred Stock") held by such
Seller and the Company issued in exchange to each Seller, shares of its Series
B Preferred Stock (the "Bolle Series B Preferred Stock") in proportion to the
number of shares of Lumen Preferred Stock conveyed by such Seller to the
Company. No shares of Bolle Common Stock were issued to the holders of
outstanding shares of Bolle Series B Preferred Stock pursuant to the Spinoff.
Lumen canceled all warrants (the "Lumen Warrants") and the Company issued in
exchange to each holder of canceled Lumen Warrants, warrants to purchase Bolle
Common Stock (the "Bolle Warrants") in proportion to the number of Lumen
Warrants held by such holder prior to the cancellation. No shares of Bolle
Common Stock were issued to holders of outstanding Bolle Warrants pursuant to
the Spinoff.
NOTE 2 -- GENERAL INFORMATION, BUSINESS AND BASIS OF PRESENTATION
GENERAL INFORMATION
The Company was organized on February 3, 1997 to effect the July 1997
acquisition by Lumen of Holding B.F. (hereinafter referred to as "Bolle
France"), the French holding company that owned the Bolle design,
manufacturing and certain distribution interests, including the worldwide
rights to the Bolle(Registered Trademark) brand. The Company is a holding
company, the principal subsidiaries of which are Bolle America, Inc. ("Bolle
America") and Bolle France. Bolle America was acquired by Lumen in November
1995 in a transaction accounted for as a pooling of interests.
The Company and Lumen entered into a management services agreement
(the "Management Agreement") contemporaneously with the Spinoff pursuant to
which certain executives of Lumen will provide key management services to the
Company for an initial term of three years. The agreement is thereafter
automatically renewed for successive one-year periods until terminated by
either party upon at least 90 days written notice prior to the expiration of
the initial, or any renewal, term then in effect.
BUSINESS
Bolle Inc. is a vertically integrated, designer, manufacturer and
marketer of Bolle(Registered Trademark) premium
-23-
<PAGE>
sunglasses, goggles, and tactical and safety eyewear. Products are
manufactured by Bolle France in Oyonnax, France and through subcontractors and
sold to distributors or direct customers primarily located in the United
States, Europe, Australia and Canada.
BASIS OF PRESENTATION
Bolle America was a wholly owned subsidiary of Lumen at the time the
Company was formed. The net assets of Bolle America were contributed to the
Company by Lumen as of July 1, 1997. At that time, the net book value of Bolle
America was $11,038 including retained earnings of $359. Accordingly, the
financial position and results of operations of Bolle Inc. presented herein
are those of the Company's predecessor for accounting purposes, Bolle America,
prior to the acquisition of Bolle France. The results of operations of Bolle
France are included beginning on July 10, 1997, (the closing date of the Bolle
France acquisition described in Note 3 below).
For the periods subsequent to the acquisition of Bolle America by
Lumen, certain revenues and expenses reflected in the financial statements
include allocations of certain corporate expenses from Lumen. These
allocations include income from Lumen's investment in Eyecare Products Plc, as
well as expenses for general management, treasury, legal, tax, financial
reporting, auditing, insurance, investor and public relations and information
management. Allocations were primarily based on relative sales. These
financial statements also reflect the allocation of certain corporate assets
including those relating to taxes.
Management believes that the foregoing allocations were made on a
reasonable basis; however, the allocations of costs and expenses do not
necessarily indicate the costs that would have been or will be incurred by the
Company on a stand-alone basis. Also, the financial information included in
the financial statements may not necessarily reflect the financial position,
results of operations and cash flows of the Company in the future or what the
financial position and results of operations would have been if it had been a
separate, stand-alone company during the periods covered.
The accompanying financial statements do not give effect to the
Contribution Agreement, which was executed subsequent to year end. On a
proforma basis, had the Contribution Agreement been effective at December 31,
1997, the effect would have been to increase assets by $10,680 (unaudited),
decrease liabilities by $13,457 (unaudited), increase mandatorily redeemable
preferred stock by $9,579 (unaudited), and increase equity by $14,378
(unaudited).
For periods prior to 1997, equity is presented in the accompanying
consolidated balance sheets and statements of stockholders' equity on one
line. Presentation of traditional equity categories is not considered
meaningful. Effective January 1, 1997, equity is presented in the traditional
manner.
NOTE 3 -- ACQUISITIONS
On July 10, 1997, the Company acquired, in a transaction accounted for
as a purchase, all of the shares of Bolle France which included Bolle France
and several consolidated and unconsolidated affiliates, for a total purchase
price of approximately $58,235, comprised of cash of $31,000, Lumen Series A
mandatorily redeemable preferred stock of $9,294, Company mandatorily
redeemable preferred stock of $11,055 and Company common stock of $3,302, as
well as direct acquisition costs of $3,585. Where such consideration was
denominated in French Francs, the July 10, 1997 exchange rate of 5.9197 was
used to translate to US Dollars. A summary of the allocation of purchase price
is as follows:
Current assets $17,290
Property and equipment 3,949
Goodwill 22,642
Trademarks 40,000
Other assets 181
Current liabilities (9,931)
Long term liabilities (15,896)
-------
$58,235
=======
-24-
<PAGE>
The land included in property and equipment was purchased from the
Sellers as part of a separate contract, therefore its specific purchase price
of $422 is included as its fair value in property and equipment. The building
was revalued based on management estimates resulting in a step up of $1,824 in
value. This amount is also included in property and equipment. For all other
property and equipment purchased, book value was assumed to approximate fair
value.
Based upon an independent appraisal obtained by the Company, the
Bolle(R) trademark was valued at $40,000. The remainder of the excess of
purchase price over book value of $22,642 was allocated to goodwill. The
trademark and goodwill are being amortized over 40 years (Note 5).
Management does not expect material changes to the purchase
accounting.
NOTE 4 -MERGER AND ACQUISITION INTEGRATION RELATED EXPENSES
Acquisition integration related expenses of $3.75 million in 1997
represent the following expenses incurred in connection with the integration
of Bolle France and creation of Bolle Inc.: (i) a reserve for the return of
product from the Company's owned and non-owned distributors in conjunction
with the redefining and streamlining of Bolle Inc.'s new product line, and
(ii) the legal, production and marketing expenses related to the set up of a
new logo for Bolle(R) worldwide and the creation of the first worldwide
catalog.
Merger related expenses in 1995 represent $3.1 million of transaction
costs associated with the pooling of interests between Lumen and Bolle America
discussed in Note 1.
NOTE 5 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. Investments in less than 50%
owned entities and certain greater than 50% owned entities are accounted for
by the equity method. Investments in less than 20% owned entities are
accounted for by the cost method (Note 9). All significant intercompany
transactions, profits and accounts are eliminated in consolidation.
Cash Equivalents
Cash equivalents include all temporary cash investments with original
maturities of three months or less. The carrying value is equal to market
value.
Revenue Recognition
The Company recognizes revenue at the time of shipment with estimates
provided for returns based on historical experience.
Concentration of Credit Risk and Major Customers
In the opinion of management, concentration of credit risk varies
significantly on a country-by-country basis. With the acquisition of Bolle
France, the Company now sells to customers throughout the world, with the
majority of sales to customers in the United States, Europe, Australia and
Canada.
Credit is generally extended based on an evaluation of the customer's
financial condition and its relationship with the Company, and collateral is
generally not required. Credit risk is affected by conditions or occurrences
in the local economies and relative strength of the local environment in each
of the countries where the Company's customers operate. The Company
establishes an allowance for doubtful accounts based on factors surrounding
the credit risk of specific customers, historical trends and other
information.
For the years ended December 31, 1996 and 1995, the Company had sales
to a specific customer located in
-25-
<PAGE>
the United States that represented 14% and 11% of net sales. For the year
ended December 31, 1997, no single customer contributed more than 10% of the
Company's net sales.
Foreign Currency Translation
For subsidiaries which operate in a local currency environment,
assets and liabilities are translated into U.S. dollars at year end exchange
rates in effect at the balance sheet date. Income and expense items are
translated at average rates prevailing during the year. Translation
adjustments for these subsidiaries are accumulated in a separate component of
equity.
Foreign Currency Transactions
Prior to July 1997, the Company had entered into a series of
agreements with Bolle France providing a series of fixed exchange rates on the
French franc/U.S. dollar exchange rate for inventory purchases from them. From
time to time, the Company may also enter into foreign currency forward
contracts to hedge against the effects of foreign currency fluctuations on
inventory purchases and the settlement of trade accounts payable. There were
no such contracts in effect subsequent to July 1, 1997. Foreign currency
transaction gains and losses are recorded in other income when the underlying
transactions are settled.
Inventories
Inventories, which consist primarily of raw materials and finished
goods held for resale, are stated at the lower of cost or market value. Costs
include materials, direct labor, and overhead. The Company determines inventory
value on an average cost basis.
Warranties
Certain sales are subject to warranty against defects in material and
workmanship. The Company provides for such potential future costs at the time
the sales are recorded based on historical experience.
Property and Equipment
Property and equipment are stated at cost. Additions and improvements
are capitalized. Maintenance and repairs are expensed as incurred.
Depreciation is computed on a straight line or accelerated basis for financial
reporting purposes, and on an accelerated basis for tax purposes, over the
estimated useful lives of the assets. Useful lives range from 3 to 7 years for
office equipment, fixtures and molds and up to 30 years for buildings. Asset
cost and accumulated depreciation amounts are removed for dispositions and
retirements, with resulting gains and losses reflected in earnings.
Trademark, Goodwill and Other Intangible Assets
Trademark represents the Bolle(Registered Trademark) brand. Goodwill
represents the excess cost over the fair value of net assets acquired in
business combinations accounted for under the purchase method. Other
intangible assets consist principally of a non-compete agreement.
Trademark, goodwill and other intangible assets are amortized on a
straight line basis over estimated useful lives which approximate 40 years for
the Bolle trademark, 40 years for goodwill and from 3-10 years for other
identifiable intangibles. At each balance sheet date, the Company evaluates
the realizability of trademark, goodwill and other intangible assets based upon
expectations of undiscounted cash flows of each subsidiary having a
significant trademark, goodwill or other intangible asset balance. Should this
review indicate that trademark, goodwill or other intangible assets will not
be recoverable, the Company's carrying value of the trademark, goodwill or
other intangible assets will be reduced by the estimated shortfall of
discounted cash flows. Based upon its most recent analysis, the Company
believes that no impairment of the trademark, goodwill or other intangible
assets exists.
Impairment of Long-Lived Assets
-26-
<PAGE>
At each balance sheet date, the Company evaluates the realizability
of long-lived assets based on expectations of undiscounted cash flows. Should
this review indicate that the cost of long-lived assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset would
be compared to the carrying amount of the asset to determine whether a
write-down to market value is required.
Income Taxes
Deferred income taxes are provided on the difference in basis of
assets and liabilities between financial reporting and tax returns using
enacted tax rates. A valuation allowance is recorded when realization of
deferred tax assets is not assured.
Earnings Per Share
Basic earnings per share is computed pursuant to SFAS No. 128
"Earnings Per Share," by dividing net earnings or loss available
to common stockholders by the weighted average number of outstanding
shares of common stock. Diluted earnings per share includes weighted average
common stock equivalents outstanding during each year in the denominators,
unless the effect is antidilutive. Common stock equivalents consist of the
dilutive effect of common shares which may be issued upon exercise of stock
options, warrants or conversion of debt. Bolle America was a public company
from January 1, 1995 to November 2, 1995 with 4,212,729 shares outstanding at
the date of acquisition by Lumen. Lumen cancelled all but 100 shares upon
acquisition. Such shares remained unchanged until the capitalization of Bolle
Inc. in February 1997 when 1,900 additional shares were issued. As a wholly
owned subsidiary, the Company had no common stock equivalents. The historical
actual shares issued are used to calculate weighted average shares outstanding
during 1995 and 1996. Since the Company has no dilutive securities outstanding
at December 31, 1997, basic earnings per share is equivalent to diluted
earnings per share.
In accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 98, the weighted average number of outstanding common
shares is calculated based on the historical timing of the common stock
transactions.
Pension and post retirement indemnity
The Employees of Bolle America currently participate in a 401(k)
Savings plan administered by Lumen. No pension, post-retirement or other
benefit arrangements have been established by Bolle, Inc.
A provision of $150 is recorded for the termination indemnity of the
legal employees of Bolle France and its subsidiaries. These indemnities are
due to employees who leave Bolle France or its subsidiaries at retirement age
(65) and depend upon the length of the employee's service and salary level.
The obligation, which is not funded, is calculated using an actuarial method
(discount rate of 6.19%, salary increase of 2.5%) and considers staff turnover
and mortality statistics until retirement age. There are no other pensions,
post-retirement or post-employment obligations to Bolle France as such
employee benefits are provided by the French Social Security System.
Reclassifications
Certain amounts in 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from these estimates.
Fair Value
-27-
<PAGE>
At December 31, 1997, the carrying value of financial instruments
such as trade receivables, accounts payable and short term debt approximated
their fair values based on the short term maturities of these instruments.
New Accounting Pronouncements
SFAS No. 129, "Disclosure of Information about Capital Structure"
reiterates the disclosure requirements set forth in existing pronouncements as
they relate to an entity's capital structure and contains no changes in
disclosure requirements other than making them applicable to all entities.
Because the Company complies with the disclosure requirements of existing
pronouncements, there was no impact of the adoption of SFAS No. 129 in the
Company's financial statements.
SFAS No. 130, "Reporting Comprehensive Income", establishes
guidelines for all items that are to be recognized under accounting standards
as components of comprehensive income to be reported in the financial
statements. The statement is effective for all periods beginning after
December 15, 1997 and reclassification of financial statements for earlier
periods presented will be required for comparative purposes. The Company has
adopted SFAS No. 130 in its financial statements for the year ended December
31, 1997.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", establishes standards for reporting of operating segment
information in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
statements issued to shareholders. The statement is effective for all periods
beginning after December 15, 1997. The Company presently reports as one
operating segment and two geographical segments, and expects to continue to do
so. The Company plans to adopt SFAS No. 131 in its financial statements for
the year ended December 31, 1998.
NOTE 6 -- INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Raw materials $ 1,362 $
Work in progress 2,595
Finished goods 9,595 8,635
Reserves (1,818) (247)
-------------- -------------
$ 11,734 $ 8,388
============== =============
NOTE 7 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
DECEMBER 31,
----------------------------
1997 1996
-------------- -------------
Land $ 417 $
Buildings 2,169 5
Machinery and equipment 2,197 369
Computer hardware and software 847 593
-28-
<PAGE>
DECEMBER 31,
----------------------------
1997 1996
-------------- -------------
Furniture and fixtures 202 98
-------------- -------------
5,832 1,065
Less: accumulated depreciation (1,145) (531)
-------------- -------------
$ 4,687 $ 534
============== =============
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and
1995 was $705, $216 and $172, respectively.
The minimum future rental expense for property and buildings under
operating lease is as follows:
1998 $146
1999 73
2000 73
2001 73
2002 73
Thereafter 20
-----
$458
=====
NOTE 8 -- TRADEMARK, GOODWILL AND OTHER INTANGIBLE ASSETS
Trademark, goodwill and other intangible assets and related accumulated
amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Goodwill $ 22,979 $
Non compete agreement 900 800
Other identifiable intangible assets 16 16
-------------- -------------
23,895 816
Less Accumulated amortization (448) (170)
-------------- -------------
$ 23,447 $ 646
========== ==========
Trademark $ 39,523 $
Less: Accumulated amortization (494)
-------------- -------------
$ 39,029 $
========== ==========
</TABLE>
The Company entered into a non-compete agreement with the former
president of Bolle America for the period November 2, 1995 through December
31, 2005. The Company paid $800 at November 2, 1995, $100 in 1997 and will pay
$100 per year from January 1, 1998 to 2005.
Amortization expense for the years ended December 31, 1997, 1996 and
1995 was $772, $170 and $82, respectively.
NOTE 9 -- EQUITY IN AFFILIATED COMPANIES
The Company sells its products to three related party distributors,
Bolle Sunglasses UK, Bolle Japan and Bolle Canada. All investments are
accounted for under the equity method of accounting. The Company's equity in
the net
-29-
<PAGE>
assets of these entities is approximately $75. No equity income or loss was
recognized during 1997. Subsequent to year end the Company has acquired 100%
of Bolle Canada and entered into a letter of intent to acquire 100% of Bolle
Sunglasses U.K.
NOTE 10 --CREDIT FACILITIES
During the years ended December 31, 1997, 1996 and 1995, the Company
was party to a revolving intercompany credit arrangement with Lumen whereby
interest was earned at a rate of 5% on excess cash and interest was charged at
a rate of 8% on outstanding borrowings. Since the acquisition of Bolle France,
the revolving intercompany credit arrangement was adjusted to allow for French
Franc denominated borrowings by Bolle France at a French market rate of 5.5%.
This rate will be reset annually. The debt incurred to finance the cash
portion of the consideration has been pushed down to Bolle Inc. under this
arrangement.
On March 11, 1998, in connection with the Spinoff described in Note
1, the Company entered into a $28 million credit facility (the "New
Agreement") with a syndicate of lenders led by NationsBank N.A. The New
Agreement provides for a $10 million Term Loan denominated in French Francs,
payments due quarterly over five years, and a revolving line of credit of $18
million, including a letter of credit subfacility of $5 million. The interest
rate applicable to the facilities will equal the Base Rate or the Eurodollar
Rate or the French Franc Libor Rate (each as defined in the New
Agreement), as the Company may from time to time elect. The Base rate will
generally be equal to the sum of (a) the greater of (i) the prime rate as
announced from time to time by NationsBank or (ii) the Federal Funds Rate plus
one-half percent (0.5%) and (b) a margin ranging form 0% to 1.0% depending on
the Company's satisfaction of certain financial criteria. The Eurodollar Rate
will generally be equal to the interbank offered rate, as adjusted, to give
effect to reserve requirements, plus a margin ranging from 1.0% to 2.5%,
depending upon the Company's satisfaction of certain financial criteria. The
terms of the New Agreement require the Company to maintain certain
financial ratios.
NOTE 11 -- INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes". SFAS No. 109 requires an asset and liability approach to
accounting for income taxes. The Company has reorganized the structure of
various entities comprising Bolle France so that Bolle France will file one
consolidated tax return for 1998 and subsequent thereto. Following the March
1998 Spinoff of the Company, Bolle Inc. will file its consolidated tax return
separate from Lumen.
Income(loss) before provision for income taxes consists of the
following for the periods ended:
DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- -------------- --------------
U.S. $ (4,713) $1,627 $(423)
Foreign 1,157
-------------- -------------- --------------
$ (3,556) $1,627 $(423)
============== ============== ==============
The provision for income taxes, prepared as if Bolle were a stand
alone company, consists of the following for the periods ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- -------------- --------------
UNITED STATES:
Current
<S> <C> <C> <C>
Federal $ $542 $616
State and local 81 103
Deferred 445 12 (355)
-------------- -------------- --------------
445 635 364
-------------- -------------- --------------
FOREIGN:
Current 1,803
-30-
<PAGE>
(continued)
Deferred (1,149)
-------------- -------------- --------------
654
-------------- -------------- --------------
Total provision for income taxes $ 1,099 $635 $364
============== ============== ==============
</TABLE>
The Company's effective tax rates differ from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Expected tax (benefit) at statutory rate (34.0%) 34.0% (34.0)%
State income taxes (benefit) (3.0%) 3.5% 16.1%
Non-deductible and merger related expenses 7.9% 104.0%
Valuation allowance 60.0%
Other, net 1.5%
------ ----- -----
30.9% 39.0% 86.1%
====== ===== =====
</TABLE>
Significant components of deferred income taxes are as follows for
the periods ended:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
--------------- --------------
Current deferred tax assets:
<S> <C> <C>
Net operating loss carry forward $ 828
Accounts receivable 61 $168
Non qualified stock options 54 54
Inventories 1,186 129
Accrued expenses 362 83
--------------- --------------
Total gross current deferred tax assets 2,491 434
Non-current deferred tax assets:
Intangibles 12
Accrued expenses 440
Fixed assets 23 6
--------------- --------------
Total non-current deferred tax assets 463 18
--------------- --------------
Gross deferred tax asset 2,954 452
Valuation allowance (2,132)
--------------- --------------
Deferred tax asset 822 452
--------------- --------------
Current deferred tax liability:
Other liabilities (155)
Non current deferred tax liability:
Intangibles (14,000)
--------------- --------------
Gross deferred tax liability (14,155)
--------------- --------------
Net deferred tax asset (liability) $ (13,333) $452
=============== ==============
</TABLE>
The Company recorded gross deferred tax assets of $2,954 and $452 for
the years ended December 31, 1997 and 1996, respectively. A valuation
allowance has been established for the entire net tax benefit associated with
substantially all carryforwards and temporary differences at December 31,
1997, for the domestic operations, as their realization was not assured. The
effect on the income tax provision related to the valuation allowance was a
charge of $2,132 for 1997. Net operating loss carryforwards amount to
approximately $2.2 million and $0 at December 31, 1997 and 1996, respectively.
The net operating loss carryforwards begin to expire in the year 2011.
NOTE 12 -- MANDATORILY REDEEMABLE PREFERRED STOCK
In connection with the acquisition of Bolle France described in Note
3, the Company issued 64,120 shares of Bolle Series A Preferred Stock with a
redemption value of $11,055. Shares of the Bolle Series A Preferred Stock will
be redeemed by the Company on the third anniversary of their issuance, subject
to the provisions of the New Agreement. Prior to that, the Company
may redeem any shares of Bolle Series A Preferred Stock at any time. Further,
-31-
<PAGE>
in the event that the Company's EBITDA exceeds $18,400 for the fiscal year
1998 or $24,700 for the fiscal year 1999, the Company will be obligated to
redeem any shares of the Bolle Series A Preferred Stock then outstanding,
provided that in each case the Company remains in compliance with the financial
covenants contained in any senior indebtedness in effect as of June 4, 1997 as
amended after giving effect to such redemption and $2,000 is available for
borrowing by the Company under the New Agreement. The carrying value of the
Bolle Series A Preferred Stock approximates its fair value.
NOTE 13 -- STOCK OPTION PLANS
Until the Spinoff, the Company participated in the Lumen stock
incentive plan. Such options were exercisable into common stock of Lumen.
Accordingly, Lumen disclosures for the Company employees included in the Lumen
stock incentive plan are shown below. All option information has been restated
to give effect to the May 3, 1996 and March 12, 1998 reverse stock splits.
Following the March 1998 Spinoff, the Company adopted its own separate stock
option and incentive plan similar to the Lumen plan.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans, which are described below. Accordingly,
no compensation cost has been recognized for its stock option plans. Had
compensation cost been determined based on the fair market value at the grant
dates for awards to Company employees under those plans consistent with the
method provided by SFAS No. 123, the Company's net income (loss) and net
income (loss) per share would have been as follows:
DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- -----------------------------
Net income (loss):
As reported $(4,655) $992 $(787)
Pro forma $(4,884) $706 $(1,398)
Basic and diluted
earnings (loss)
per share:
As reported $(2,586.11) $9,920.00 $(0.22)
Proforma $(2,713.33) $7,060.00 $(0.40)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for all grants:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 50% 64% 64%
Risk free rate of return 6.5% 5% 5%
Expected turnover 7% 7% 7%
Expected term 5 years 5 years 5 years
</TABLE>
The weighted average fair values of all Benson Eyecare Corporation
(Lumen's predecessor, "Benson") options granted during the years ended December
31, 1996 and 1995 were $10.24 and $9.60, respectively. The weighted average
fair value of all Lumen options granted during 1997 and 1996 was $8.98 and
$9.96, respectively.
Lumen may grant nonqualified stock options, incentive stock options
or stock appreciation rights to officers, directors, consultants and key
employees of Lumen.
As a result of a merger and asset sale on May 3, 1996, all Benson
options were canceled. Option holders received consideration (including new
Lumen options) for their Benson options. Accordingly, all options were issued
under the Lumen Stock Compensation Plan, on or after May 3, 1996.
A summary of the transactions for Benson options held by Company
employees is as follows:
-32-
<PAGE>
<TABLE>
<CAPTION>
OPTION PRICE RANGE PER BENSON NUMBER OF EXPIRATION DATE
SHARE BENSON SHARES
<S> <C> <C>
Outstanding at 12/31/94
Granted $12.26-$18.00 126
Exercised --
Cancelled $18.00-$18.00 (2)
----------------
Outstanding at 12/31/95 $12.26-$18.00 124 1996 - 2000
Granted --
Exercised -- --
Cancelled -- --
Cancelled in connection with merger and asset sale $12.26-$18.00 (124)
----------------
Outstanding at 12/31/96 --
================
</TABLE>
-33-
<PAGE>
A summary of the transactions for Lumen options held by Company
employees is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE
PRICE PER LUMEN NUMBER OF
SHARE LUMEN OPTIONS
---------------- -----------------
<S> <C> <C>
Outstanding at 12/31/95 --
Granted 9.96 99
Exercised --
Cancelled 9.96 (15)
-------------
Outstanding at 12/31/96 9.96 84
Granted 8.98 439
Exercised 10.34 (2)
Forfeited 10.12 (27)
-------------
Outstanding at 12/31/97 9.08 494
=============
</TABLE>
Options generally vest evenly over a three-or four-year period
beginning one year from the date of grant and expire seven years from the date
of grant. The 34 exercisable Lumen options held by Company employees at
December 31, 1997 had an option price range of $6.78 -- $10.25 and a weighted
average exercise price of $9.42 per Lumen share. The weighted average
remaining contractual life of the 494 Lumen options held by Company employees
outstanding at December 31, 1997 was approximately 6.2 years.
NOTE 14 -- RELATED PARTY TRANSACTIONS
On March 11, 1998, in conjunction with the Spinoff, (see Note 1) the
Company executed a Management Services Agreement with certain executives of
Lumen pursuant to which certain executives of Lumen will provide key management
services to the Company. The Management Services Agreement has an initial term
of three years. The agreement thereafter automatically renews for successive
one-year periods until terminated by either party upon at least ninety days
written notice. During the initial term of the Management Services Agreement,
the Company will pay Lumen $720 per year for such services.
With the acquisition of Bolle France, the Company has transactions
with related parties (Lumen, Bolle Sunglasses UK, Bolle Japan and Bolle
Canada), for which transactions and balances have been disclosed under the
captions "Trade receivables from related parties" and "Indebtedness to related
parties." Such transactions are realized at conditions equivalent to those
prevailing for unrelated parties.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to various litigation incidental to its
business. Irrespective of any indemnification that may be received, the
Company does not believe that exposure on any matter will result in a
significant impact on the financial position, results of operations or cash
flows of the Company.
-34-
<PAGE>
NOTE 16 -- GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment: the design,
manufacture and marketing of premium sunglasses, goggles and safety and
tactical eyewear. Products are manufactured by Bolle France in Oyonnax, France
and through subcontractors and sold to distributors or direct customers
primarily located in the United States, Europe, Australia and Canada. The
Company had no international sales until the acquisition of Bolle France in
the third quarter of 1997.
<TABLE>
<CAPTION>
Geographic information is as follows:
DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales to unaffiliated customers
North America $ 19,769 $24,425 $24,829
Europe 9,207
Other 3,184
------------- ------------- -------------
Total net sales $ 32,160 $24,425 $24,829
============= ============= =============
(Transfers between geographic areas eliminated
in consolidation)
North America $ 4,976
Europe 2,941
------------- ------------- -------------
Total transfers $ 7,917 -- --
============= ============= =============
Income (loss) before income taxes
North America $ 285 $921 $ 2,373
Europe 133
Other 46
Interest, merger and acquisition integration
related expenses and other income, net (4,020) 706 (2,796)
------------- ------------- -------------
Total income (loss) before income taxes $ (3,556) $ 1,627 $ (423)
============= ============= =============
Identifiable assets:
North America $ 12,049 $15,624 $16,309
Europe 82,648
Corporate assets
------------- ------------- -------------
Total identifiable assets $ 94,697 $15,624 $16,309
============= ============= =============
</TABLE>
Net sales to unaffiliated customers are classified based on the
location of the customers. Transfers between geographic areas are recorded at
amounts generally above cost and in accordance with the rules and regulations
of the respective governing tax authorities. Income (loss) before income taxes
consists of total net sales less operating expenses and does not include
merger and acquisition integration related expenses, interest and other
income, net. Identifiable assets of geographic areas are those assets used in
the Company's operations in each area.
-35-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with the Company's independent accountants on any
matter of accounting principles or practices, financial disclosure, or
auditing scope or procedure, which if not resolved to such accountants'
satisfaction would have caused them to make reference to the subject matter of
the disagreement in connection with their report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
executive officers and members of, and nominee for election to, the Company's
board of directors. Their respective backgrounds are described following the
table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Martin E. Franklin(1)(2) 33 Chairman of the Board of Directors
Gary A. Kiedaisch(1) 51 President, Chief Executive Officer and Director
Ian G. H. Ashken(1)(2) 37 Executive Vice President of Finance and Administration, Chief
Financial Officer, Assistant Secretary and Director
Nora A. Bailey(3)(4) 56 Director
Franck Bolle(1) 41 Director
Patricia Bolle Passaquay(1) 40 Director
David L. Moore(2)(3)(4) 40 Director
David S. Moross(3)(4) 38 Director
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Member of Executive Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
(4) Member of Compensation Committee
-36-
<PAGE>
Directors of the Company are elected annually at the annual meeting
of stockholders. The next annual meeting of stockholders is tentatively
scheduled for May 1998. All of the officers identified above serve at the
discretion of the Board of Directors of the Company. Other than Franck Bolle
and Patricia Bolle Passaquay, who are cousins, there are no family
relationships between any persons identified above.
The following are brief biographies of persons identified above.
Martin E. Franklin was elected Chairman of the Board of Directors of
the Company in February 1997. Mr. Franklin was elected Chairman of the Board
and Chief Executive Officer of Lumen in December 1995 and served as its Chief
Executive Officer from 1995 until March 1998. Mr. Franklin was Chairman of the
Board and Chief Executive officer of BEC's predecessor, Benson Eyecare
Corporation ("Benson") from October 1992 to May 1996 and President from
November 1993 to May 1996. Mr. Franklin has been the Chairman and Chief
Executive Officer of Pembridge Holdings, Inc. since 1990. From 1988 to 1990,
Mr. Franklin was Managing Director of Pembridge Associates, Inc. Both Pembridge
Associates, Inc. and Pembridge Holdings, Inc. specialized in merchant banking
and related services. Mr. Franklin has been Chairman and Chief Executive
Officer of Marlin Holdings, Inc., the general partner of Marlin Capital, L.P.,
since October 1996. Mr. Franklin is non-executive Chairman and a director of
Eyecare Products plc and also serves on the boards of Lumen Technologies, Inc.,
Specialty Catalog Corp. and certain private companies. Mr. Franklin received
his B.A. in Political Science from the University of Pennsylvania.
Gary A. Kiedaisch was appointed President, Chief Executive Officer and
a member of the Board of Directors of the Company and was appointed to its
Board of Directors in July 1997. From 1989 until his appointment as the Chief
Executive Officer of the Company, Mr. Kiedaisch had been President and Chief
Executive Officer of the Mt. Mansfield Company d/b/a Stowe Mountain Resort,
a wholly owned subsidiary of multi-national insurance and financial services
conglomerate American International Group. Prior to his tenure in Stowe, he
held executive positions with several high visibility companies in the winter
sports industry including AMF Head Ski Worldwide, Raichle Monitor USA,
Blizzard North America and Hart Ski Manufacturing Company, where he had
responsibility for worldwide marketing, coordinating and consolidating
distributor networks and unifying worldwide brand identification.
Ian G.H. Ashken, A.C.A. was elected Executive Vice President, Chief
Financial Officer, Assistant Secretary and a Director of the Company in
February 1997. Mr. Ashken was elected Executive Vice President, Chief
Financial Officer, Assistant Secretary and a Director of BEC in December 1995.
Mr. Ashken was Chief Financial Officer of Benson and a director of Benson from
October 1992 to May 1996. Mr. Ashken also served as Benson's Executive Vice
President from October 1994 to May 1996; Secretary from October 1992 to
December 1993; and, Assistant Secretary from December 1993 to May 1996. Mr.
Ashken has been the Executive Vice President and a director of Pembridge
Holdings, Inc. since 1990. Since October 1996, Mr. Ashken has been Vice
Chairman of Marlin Holdings, Inc., the general partner of Marlin Capital, L.P.
Mr. Ashken is a director of Eyecare Products plc. and Lumen Technologies, Inc.
Mr. Ashken received his B.A. (Hons) in Economics and Accounting from the
University of Newcastle in England.
Franck Bolle has been a member of the Board of Directors of the
Company since July 1997. Mr. Bolle was appointed President and Director of
International Operations of Bolle France in July 1997. Mr. Bolle has been a
member of the executive management of Bolle France since 1984 and as such has
shared responsibility with Ms. Passaquay for the day-to-day operations of
Bolle France. Prior to joining Bolle France, Mr. Bolle served as Sales Manager
of a home improvement supplies manufacturer. Mr. Bolle holds a degree in
business administration with a concentration in marketing from Ecole Libre des
Sciences Commerciales Appliquees of Paris, France.
Patricia Bolle Passaquay has been a member of the Board of Directors
of the Company and Director of Export Sales since July 1997. Ms. Passaquay has
been a member of the executive management of Bolle France since 1981 and as
such has shared responsibility with Mr. Franck Bolle for the day-to-day
operations of Bolle France. Ms. Passaquay holds a degree in business
administration with a concentration in marketing from Ecole Libre des Sciences
Commerciales Appliquees of Paris, France.
-37-
<PAGE>
David L. Moore became a member of the Bolle Board in March 1998. Mr.
Moore has been President and Chief Executive Officer of Century 21 Home
Improvements, and for more than fifteen years has been President and Chief
Executive Officer of Garden State Brickface, Inc., a leading New York
metropolitan area residential and commercial remodeling firm. Mr. Moore
received his B.A. in Economics from Amherst College and his M.B.A. from
Harvard University. Mr. Moore also is a director of Lumen Technoloties, Inc.
Nora A. Bailey, Esq. became a member of the Company's Board of
Directors in March 1996. Ms. Bailey is a federal income tax attorney with a
specialty in mergers and acquisitions and has many multinational clients. Ms.
Bailey and her firm from time to time have been engaged to provide legal
advice to the Company. Until 1993, she was a partner in Ivins, Phillips &
Barker in Washington D.C., which she joined in 1972. Ms. Bailey received her
J.D. from the University of Michigan Law School.. Ms. Bailey also is a
director of Lumen Technologies, Inc.
David S. Moross became a member of the Company's Board in March 1998.
Mr. Moross is presently active in the executive management of Whitehall
Financial Group, a holding company that invests throughout the world, and is
a member of its Board of Directors. Mr. Moross has also served as a consultant
and investment strategist to International Management Group. He serves on the
Board of American Phoenix Group of New York and served as President and Chief
Executive Officer of Kalvin-Miller International, Inc., a national insurance
broker. Mr. Moross received his B.A. in economics from the University of Texas
at Austin.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934, (the "Exchange
Act"" requires the Company's directors and executive officers, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission ("SEC") and
the stock exchange upon which the Company's stock is listed, initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities of the Company. Officers, directors and greater than
ten-percent shareholders are required to SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. The Company's securities did
not trade publicly until March 12, 1998; consequently, no persons described
above were subject to Section 16(a) reporting requirements, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent (10%) beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
For all of 1997, the executive officers of the Company, other than Gary A.
Kiedaisch, its Chief Executive Officer, were officers of Lumen, and the
compensation of such executive officers was paid by Lumen. Although such
compensation was in part for services rendered to the Company, the full
amounts thereof are provided below because, prior to the Spinoff, the Company
was a subsidiary of Lumen and no apportionment between Lumen and the Company
was made on an ongoing basis.
SUMMARY OF COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation earned by the Company's Chief Executive Officer and its other
executive officers in the fiscal year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
ANNUAL COMPENSATION(1) AWARDS
------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING
SALARY BONUS OPTION/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) SARS(3) COMPENSATION
- ---------------------------- ------ --------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Gary A. Kiedaisch
Chief Executive Officer ... 1997 103,846 37,500 166,667 0
Martin E. Franklin(2)
Executive Chairman ......... 1997 257,500 300,000 183,333 34,541(4)
Ian G. H. Ashken(2)
Executive Vice President of
Finance and
Administration,
Chief Financial Officer
and Assistant Secretary .. 1997 206,000 168,750 33,333 27,546(4)
</TABLE>
- ------------
(1) The compensation of the Company's executive officers was paid entirely
by Lumen in 1997.
(2) This information reflects the aggregate compensation paid by Lumen for
the services of Messrs. Franklin and Ashken as officers of both Lumen
and the Company. The part of this compensation relating to services
provided to the Company cannot be determined separately.
(3) All awards reflected in this column represent Bolle options currently
held by the Company's executive officers which were received, pursuant
to the Spinoff, in exchange for Lumen options granted in 1997.
(4) Includes (i) $5 million and $3 million "split dollar" life insurance
policies maintained by the Company for Messrs. Franklin and Ashken,
respectively, for which Messrs. Franklin and Ashken reported $28,877
and $21,882, respectively, as income in 1997 and (ii) employer matching
contributions under Lumen's 401(k) savings plan of $5,664 for each of
Messrs. Franklin and Ashken in 1997.
(5) The salary and bonus of each of Messrs. Franklin and Asken are
reflected as a $719,000 selling, general and administrative charge in
the Company's 1997 financial statements. See page F- .
-38-
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth information regarding Bolle options
currently held by the Company's executive officers which were received,
pursuant to the Spinoff, in exchange for Lumen options granted in 1997. In
accordance with the rules of the Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at
the end of their terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the options
were granted to the end of the option terms.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------- POTENTIAL REALIZABLE VALUE
AT
ASSUMED ANNUAL RATES OF
NUMBER OF STOCK PRICE APPRECIATION
SECURITIES PERCENT OF TOTAL FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM (2)(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED (1) FISCAL 1997 PER SHARE DATE 5% 10%
- ---- ----------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Gary A. Kiedaisch . 166,667 19% $0.76 July 7, 2004(4) $877,810 $2,045,671
Martin E. Franklin 183,333 21% 0.57 March 25, 2007(5) $951,597 $2,217,626
Ian G.H. Ashken ... 33,333 4% 0.57 March 25, 2007(5) $173,018 $ 403,205
</TABLE>
- ------------
(1) The options shown in the table were granted at fair market value.
(2) The assumed annual compound rates of stock price appreciation are
mandated by the rules of the Commission and do not represent the
Company's estimate or projection of future stock prices.
(3) Since there was no public market, and therefore no market price, for
the Company's Common Stock on December 31, 1997, and since the
Company's executive officers were granted only Lumen options in 1997,
the information provided in this column is based on the 500,000,
550,000 and 100,000 Lumen options granted to Messrs. Kiedaisch,
Franklin and Ashken, respectively, in 1997, with an exercise price
of $4.31, $4.25 and $4.25 per share respectively.
(4) 125,000 of Mr. Kiedaisch's options will vest on each of July 7, 1998,
1999, 2000, and 2001.
(5) These options will vest on the earlier of (a) the date on which the
Company's common stock has traded at an average closing bid price equal
to $8 per share for a twenty (20) consecutive trading day period or (b)
March 25, 2005.
BEC OPTIONS EXERCISED IN LAST FISCAL YEAR; FISCAL YEAR ENDED OPTION VALUES
The following table summarizes certain information regarding certain year
end option values of Bolle options currently held by the Company's executive
officers which were received pursuant to the Spinoff, in exchange for Lumen
options granted in 1997.
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT F-Y END
AT FY-END (1) ($)(1)
-------------- -------------------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---- -------------- -------------------------------
<S> <C> <C>
Gary A. Kiedaisch . 0/166,667 0/843,750(2)
Martin E. Franklin 45,833/320,833 1,131,656/1,352,844(3)
Ian G. H. Ashken .. 31,250/93,750 124,453/356,484(4)
</TABLE>
- ------------
(1) Since there was no public market, and therefore no market price, for
the Company's Common Stock on December 31, 1997, and since the
Company's executive officers held only Lumen options as of that date,
the information provided in this column is based on information
regarding such Lumen options and on the December 31, 1997 closing price
of Lumen common stock of $5.937 per share.
39
<PAGE>
(2) Based on a total of 0 exercisable and 500,000 unexercisable Lumen
options held by Mr. Kiedaisch on December 31, 1997 with an exercise
price of $4.25 per share.
(3) Based on a total of 137,500 exercisable and 962,500 unexercisable Lumen
options held by Mr. Franklin on December 31, 1997 with an average
exercise price of $4.98 and $4.56 per share for exercisable and
unexercisable options, respectively.
(4) Based on a total of 93,750 exercisable and 281,250 unexercisable Lumen
options held by Mr. Ashken on December 31, 1997 with an average
exercise price of $4.61 and $4.67 per share for exercisable and
unexercisable options, respectively.
DIRECTORS' COMPENSATION
Members of the Company's Board of Directors other than those who are
employees of the Company and the Chairman of the Board, will receive for 1998
an annual fee of $15,000 for their services as directors and as members of
any committees of the Company's Board of Directors on which they serve.
Thereafter, members of the Company's Board of Directors other than those who
are employees of the Company and the Chairman of the Board, will receive an
annual retainer fee in an amount to be determined. Non-employee directors
also receive automatic stock option grants under the Company's 1998 Stock
Incentive Plan. See "--Bolle 1998 Stock Incentive Plan" below. Mr. Kiedaisch
is compensated pursuant to an employment agreement with the Company. See
"--Employment Agreement" below.
EMPLOYMENT AGREEMENT
Mr. Kiedaisch is employed full time pursuant to an employment agreement
with the Company for a term ending on August 4, 2000, unless earlier
terminated by either party. At that time, the agreement will automatically
extend for additional one year terms unless either party gives six months
written notice prior to the end of the initial term or 90 days written notice
prior to the end of any renewal term. Mr. Kiedaisch's employment agreement
provides for annual base compensation of $250,000 and entitles Mr. Kiedaisch
to a bonus for the year 1997 and each full year thereafter which varies based
on the Company's annual earnings reaching certain milestones. Mr. Kiedaisch
also received a grant of Lumen options which were exchanged upon the
completion of the Spinoff for 166,667 options to purchase shares of Common
Stock. Pursuant to a separate Memorandum of Understanding, Mr. Kiedaisch will
be entitled to a cash payment from the Company if the value of the nominal
gains on the options (the "Nominal Gain") at the close of business on July 6,
2001 falls below certain levels as follows: if Mr. Kiedaisch is still
employed on July 6, 2001 or his employment has been terminated prior to that
date without cause, and the Nominal Gain is less than $500,000, the Company
shall pay to Mr. Kiedaisch the difference between $500,000 and the Nominal
Gain. If Mr. Kiedaisch's employment has been terminated prior to July 6, 2001
other than without cause, and the Nominal Gain is less than $338,000, the
Company shall pay to Mr. Kiedaisch the difference between $338,000 and the
Nominal Gain. The employment agreement restricts Mr. Kiedaisch from competing
against the Company and its affiliates in the United States or any other
territory where the Company does business or in which the Company's products
are marketed for a period of one year following the expiration of the
employment agreement and further contains certain anti-solicitation and
confidentiality provisions. The Company may terminate the employment
agreement without compensation in the event Mr. Kiedaisch commits a material
breach not cured after receiving notice thereof, is grossly or willfully
negligent or commits fraud or a misappropriation. The Company may terminate
the employment agreement without cause upon paying Mr. Kiedaisch a severance
indemnity equal to one year's base compensation or all remaining base
compensation due thereunder for the remainder of the term, whichever is
greater, plus the pro rata portion of his bonus for the then current year. In
the event of any termination without cause, all options granted to Mr.
Kiedaisch which are not then vested will vest automatically.
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<PAGE>
Mr. Bolle and Ms. Bolle Passaquay have entered into employment
agreements with Bolle France. See "Certain Relationships and Related
Transactions."
BOLLE 1998 STOCK INCENTIVE PLAN
In January 1998, the Company's Board of Directors adopted the 1998
Stock Incentive Plan (the "Plan"), under which 2,500,000 shares of Bolle
Common Stock are reserved for issuance pursuant to the grant of stock based
awards under the Plan. Pursuant to the Plan, employees, directors and
consultants of the Company and its subsidiaries and affiliates (other than
employees subject to a collective bargaining agreement) are eligible to be
selected by the Compensation Committee as participants to receive
discretionary awards of various forms of equity-based incentive compensation,
including stock options, stock appreciation rights, restricted stock awards,
performance share unit awards and phantom stock unit awards, and awards
consisting of combination of such incentives of stock options as set forth
below.
The Plan is administered by the full Board of Directors of the
Company or a committee thereof, including the Compensation Committee (the
entity administering the Plan, hereafter referred to as the "Committee"). The
Committee, in its sole discretion, will determine which eligible employees and
consultants of the Company and its subsidiaries may participate in the Plan
and the type, extent and terms of the equity-based awards to be granted to
them. Members of the Committee who are non-employee Directors will receive
automatic non-discretionary annual grants of stock options pursuant to the
Plan.
Each non-employee Director has been granted an option to purchase
3,333 shares of Bolle Common Stock in connection with the Spinoff. On the date
that a person first becomes a non-employee Director, he or she will
automatically be granted an option to purchase 3,333 shares of Bolle Common
Stock. Thereafter, beginning in 1999, on the date of each annual meeting of
stockholders of the Company, each non-employee Director will automatically be
granted an option to purchase 1,000 shares of Bolle Common Stock. All such
automatic grants to non-employee Directors are hereafter called "Director
Options." Each Director Option has an exercise price per share equal to the
fair market value of one share of Bolle Common Stock on the date of grant and
vests and becomes Exercisable over a four year period beginning on the first
anniversary of the date of grant at the rate of 25% of each Director Option on
each of the four years immediately following the date of grant. All Director
Options will be NQSO's (as defined below).
Stock options granted by the Committee under the Plan may be
"incentive stock options" ("ISOs"), within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or "non qualified stock options"
("NQSO's"). The exercise price of the options will be determined by the
Committee when the options are granted, subject to a minimum price of the fair
market value of the Bolle Common Stock on the date of grant in the case of
ISOs and the par value in the case of NQSOs. The option exercise price for all
options granted under the Plan may be paid in cash or in shares of Bolle
Common Stock having a fair market value on the date of exercise equal to the
exercise price or, in the discretion of the Committee, by delivery to the
Company of (i) other property having a fair
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<PAGE>
market value on the date of exercise equal to the option exercise price, or
(ii) a copy of irrevocable instructions to a stockbroker to deliver promptly
to the Company an amount of sale or loan proceeds sufficient to pay the
exercise price.
A SAR may be granted by the Committee as a supplement to a related
stock option or may be granted independent of any option. SARs granted in
connection with an option will become exercisable and lapse according to the
same vesting schedule and lapse rules that are established for the
corresponding option. SARs granted independent of any option will vest and
lapse according to the terms and conditions set by the Committee. A SAR will
entitle its holder to be paid an amount equal to the excess of the fair market
value of the Bolle Common Stock subject to the SAR on the date of exercise
over the exercise price of the related stock options, in the case of a SAR
granted in connection with an option, or the fair market value of Bolle Common
Stock on the date of grant in the case of a SAR granted independent of an
option.
Shares of Bolle Common Stock covered by a restricted stock award may,
in the discretion of the Committee, be issued to the recipient at the time the
award is granted or may be deposited with an escrow agent until the end of the
restricted period set by the Committee. During the restricted period,
restricted stock will be subject to transfer restrictions and forfeiture in
the event of termination of employment with the Company or a subsidiary and
other restrictions and conditions established by the Committee at the time the
award is granted.
A phantom stock unit award will provide for the future payment of
cash or the issuance of shares Bolle Common Stock to the recipient if
continued employment or other conditions established by the Committee at the
time of grant are attained.
A performance share unit award will provide for the future payment of
cash or the issuance of shares of the Bolle Common Stock to the recipient upon
the attainment of certain corporate performance goals established by the
Committee over performance award periods. At the end of each performance award
period, the Committee decides the extent to which the corporate performance
goals have been attained and the amount of cash or Bolle Common Stock to be
distributed to the participant.
OTHER
The Company does not maintain a pension plan or other actuarial
retirement plan for its named executive officers. The Company does not
maintain any long term incentive plans. The Company's named executive officers
are eligible to participate in benefit plans maintained by the Company which
are generally available to the Company's employees, including a 401(k) savings
plan and the health and life insurance programs.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock as of March 31, 1998 and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by (i) each
person known by the Company to own beneficially more than 5% of the
outstanding shares of the Common Stock, (ii) each director and executive
officer and (iii) all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF CLASS OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) BEFORE OFFERING/AFTER OFFERING
- ----------------------------------------- ----------------------------------------------------------------------------
SERIES A SERIES B SERIES A SERIES B
COMMON PREFERRED PREFERRED COMMON PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK STOCK
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Martin E. Franklin 702,704(2) 0 0 10.2/7.1% 0/0% 0/0%
555 Theodore Fremd Avenue
Suite B-302
Rye, New York 10580
Gary A. Kiedaisch 0 0 0 0/0 0/0 0/0
Ian G.H. Ashken 147,917 (3) 0 0 2.2/1.5 0/0 0/0
Nora A. Bailey 10,833 0 0 */* 0/0 0/0
Franck Bolle 55,706 12,614 1,975 */* 20/20 20/0
Patricia Bolle Passaquay 55,706 12,614 1,975 */* 20/20 20/0
David L. Moore 5,116 0 0 */* 0/0 0/0
David S. Moross 0 0 0 0/0 0/0 0/0
All Executive Officers and Directors as a 977,982 25,228 3,950 14.0/9.9 40/40 40/0
group (7 persons)
Millbrook Partners, L.P. 885,066(4) N/A N/A 13.3/9.0 N/A N/A
2102 Sawgrass Village Drive
Ponte Vedra Beach, Florida 32082
Marvin Schwartz(5) 463,157 N/A N/A 7.0/4.7 N/A N/A
605 Third Avenue
New York, New York 10158
Palisade Capital(6) 408,771 N/A N/A 6.2/4.1 N/A N/A
One Bridge Plaza
Suite 695
Fort Lee, New Jersey 07024
</TABLE>
- ------------
* Less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual to acquire them within sixty (60) days upon the
exercise of an option are treated as outstanding for purposes of
determining beneficial ownership and the percent beneficially owned by
such individual and for the executive officers and directors as a
group.
(2) Excludes 5,127 shares of Common Stock held in trust for Mr. Franklin's
minor children.
(3) Excludes 833 shares of Common Stock held in trust for Mr. Ashken's
minor children, as to which shares Mr. Ashken disclaims beneficial
ownership.
(4) Based on a Schedule 13D filing dated March 31, 1997, reporting
beneficial ownership of the Lumen shares on which these shares were
distributed pursuant to the Spinoff, 859,066 of these shares, or 8.7%
of the Common Stock outstanding after the Offering, are beneficially
held by Millbrook Partners, L.P. ("Millbrook"), and the remaining
26,000 shares are beneficially held by Millbrook's general partner,
Mark M. Mathes.
(5) In a Schedule 13D filing dated March 26, 1998, Marvin Schwartz, acting
in his personal capacity and not as a principal of Neuberger & Berman,
reported beneficial ownership of such shares.
(6) Based on a pre-Spinoff Schedule 13G, dated February 1, 1997, in which
Palisade Capital reported beneficial ownership of the Lumen shares on
which these shares were distributed pursuant to the Spinoff.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of
its directors, officers and certain executives, pursuant to which the Company
has agreed to indemnify each indemnitee to the fullest extent authorized by
law against any and all damages, judgments, settlements and fines ("losses")
in connection with any action, suit, arbitration or proceeding or any inquiry
or investigation, whether brought by or in the right of the Company or
otherwise, whether civil, criminal, administrative, investigative or other, or
any appeal therefrom, by reason of an indemnitee's serving as a director of
the Company. An indemnitee is not entitled to indemnification for any losses
that are (i) based or attributable to the indemnitee gaining in fact any
personal profit or advantage to which the indemnitee is not entitled, (ii) for
the return by the indemnitee of any remuneration paid to the indemnitee
without the previous approval of the Stockholders of the Company which is
illegal, (iii) for violations of Section 16 of the Securities Exchange Act of
1934 or similar provisions of state law, (iv) based upon knowingly fraudulent,
dishonest or willful misconduct and (v) not permitted to be covered by
applicable law. The agreements provide that the indemnification under the
agreement is not exclusive of any other rights the indemnitee may have under
the Company's Restated Certificate of Incorporation, Restated By-laws,
applicable Delaware corporate statutes or any agreement or vote of
stockholders.
MANAGEMENT SERVICES AGREEMENT
The Company has a Management Services Agreement with BEC, pursuant to
which certain executives of Lumen will provide certain management services to
the Company, including services relating to overall management and strategic
planning and direction, banking negotiations, treasury functions, investor
relations, securities regulatory compliance, employee and general business
insurance programs and asset acquisitions and sales. Pursuant to the
Management Services Agreement, Lumen will also make available to the Company
the services of Mr. Martin E. Franklin and Mr. Ian G. H. Ashken. As
compensation for its services, Lumen will be entitled to receive a monthly fee
of $60,000 and reimbursement for its identifiable reasonable out-of-pocket
expenses incurred in connection with the performance of services under the
Management Services Agreement. The Management Services Agreement, has an
initial term of three years, and will automatically renew for successive
one-year periods until terminated by either party upon 90 days written notice.
CONTRIBUTION AGREEMENT AND INDEMNIFICATION AGREEMENT
BEC has assigned to the Company all of BEC's assets other than those
related to BEC's ORC Business (as defined in a Bill of Assignment and
Assignment Agreement dated as of March 11, 1998, between BEC and the Company)
and certain other specified assets retained by BEC, and the Company has
assumed all of BEC's liabilities prior to the Spinoff other than those related
to the ORC Business. In addition, the Company will be required to indemnify
BEC against all of BEC's liabilities prior to the Spinoff other than
substantially all liabilities related to the ORC Business.
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<PAGE>
RELATIONSHIPS WITH DIRECTORS
Employment Agreements. Each of Mr. Franck Bolle and Ms. Patricia
Bolle Passaquay, both directors of the Company, is employed full-time by Bolle
France, as Director of International Operations and Director of Export Sales,
respectively, pursuant to employment agreements that are unlimited in
duration. Under each agreement, the Company is committed to pay basic annual
gross base remuneration in the French Francs equivalent of approximately
$280,000, to be increased by a minimum of 3% annually after the first year. In
addition, each of Mr. Franck Bolle and Ms. Patricia Bolle Passaquay is
entitled to bonuses for the years 1997, 1998 and 1999 of 25% to 50% of his or
her annual salary if Bolle France meets or exceeds its annual budgetary
objectives. If Bolle France terminates either agreement before July 9, 2000
for any reason other than gross or willful misconduct, the employee will be
entitled to compensation equal to the salary that he would have received from
the date of termination to July 9, 2000. Each agreement provides that if the
employee terminates his or her employment, he or she will be restricted from
competing against Bolle France for a period of up to three years following
such termination and will be entitled to an additional monthly compensation
equal to eight to ten percent of his or her last monthly salary during such
period. Mr. Kiedaisch, the Chief Executive Officer and a director of the
Company, is employed full time pursuant to an employment agreement with the
Company. See "Executive Employment Agreement."
Ms. Nora Bailey, a member of the Company's Board of Directors since
March 1998, is an attorney specializing in federal tax law. In her
professional capacity she has rendered legal advice and related services to
both the Company and its predecessor, Benson. Ms. Bailey has rendered such
services both prior to and subsequent to her appointment to the Company's
Board of Directors, and it is anticipated that she from time to time in the
future will be engaged to provide similar legal services to the Company. All
fees paid to Ms. Bailey in connection with such services have been agreed in
arms' length negotiations and are in accordance with Ms. Bailey's usual and
customary billing practices. Fees paid to Ms. Bailey by the Company in
connection with such services are not paid in consideration of her services as
a director.
BOLLE PREFERRED STOCK AND WARRANTS.
Each of Mr. Franck Bolle and Ms. Patricia Bolle Passaquay holds
12,614 shares of Bolle Series A Preferred Stock, 1,975 shares of Bolle
Series B Preferred Stock, and Bolle Warrants for the purchase of up to 132,771
shares of Bolle Common Stock. Mr. Bolle and Ms. Bolle Passaquay may not sell
their Bolle Series B Preferred Stock without the prior written consent of at
least 90% of the then outstanding shares of the Bolle Series B Preferred Stock
until the Company has redeemed all the shares of the Bolle Series B Preferred
Stock or the Subordinated Debt (as defined below).
CERTAIN TRANSACTIONS
On July 10, 1997, BEC acquired and contributed to the Company all of
the issued and outstanding share capital of Bolle France, pursuant to the
terms of a Share Purchase Agreement. Pursuant to the terms of the Share
Purchase Agreement, Bolle acquired from the Sellings shareholders (the
"Sellers") all of the issued and outstanding share capital of Bolle France,
Bolle Diffusion Sarl and the related land, in exchange for approximately
$54,700,000 consisting of the following not including transaction expenses of
approximately $3,600,000: (a) $31,000,000 in cash (the "Cash Consideration");
(b) Warrants to the Sellers to purchase an aggregate of up to 2,130,000 shares
of BEC common stock at an exercise price of $3.10 per share, subject to
certain adjustments; (c) Ten Thousand (10,000) shares of BEC Series A
Preferred Stock having an aggregate liquidation preference of approximately
$9,300,000 issued pursuant to the terms of the Certificate of Designations of
BEC Series A Preferred Stock; (d) One Hundred (100) shares of Bolle Common
Stock valued at approximately $3,300,000, being the minimum value of the Bolle
Common Stock to be issued to the Sellers pursuant to the Share Purchase
Agreement; and (e) Sixty-Four Thousand One Hundred Twenty (64,120) shares of
Bolle Series A Preferred Stock having an aggregate liquidation preference of
approximately $11,100,000 issued pursuant to the terms of the Certificate of
Designations of the Series A Preferred Stock of the Company. The Sellers
included Mr. Franck Bolle and Ms. Patricia Bolle Passaquay. On July 10, 1997,
BEC borrowed approximately $32,000,000, for the purpose of paying the Cash
Consideration and certain transaction expenses in connection with the purchase
of Bolle France, pursuant to the terms of the Credit Agreement (as defined
below).
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<PAGE>
The Share Purchase Agreement provides that none of the Sellers may
dispose of their shares of Bolle common stock until July 9, 2000. If, on that
date, the closing market price of the total number of shares then held by the
Sellers is less than $3,301,500 (the "Minimum Value"), the Company shall pay
on such date in cash or freely tradable stock the difference between the
actual value of the shares and the Minimum Value. In addition, pursuant to
letters dated July 9, 1997 and December 4, 1997 from Martin Franklin to the
Sellers, including Mr. Franck Bolle and Ms. Patricia Bolle Passaquay, Mr.
Franklin will refrain from selling any shares of Bolle Common Stock which he
received pursuant to the Spinoff for so long as the Bolle Series B Preferred
Stock shall not have been redeemed in full by the Company. In connection with
the Spinoff, the Sellers, including Mr. Franck Bolle and Ms. Patricia Bolle
Passaquay, were issued pursuant to a stock split in the form of a stock
dividend an aggregate of 278,430 additional shares of Bolle common stock.
Furhtermore, in connection with the Spinoff, the Sellers received Bolle Series
B Preferred Stock in exchange for their BEC Series A Preferred Stock and Bolle
warrants in exchange for their BEC warrants. All of the shares of Bolle common
stock received by the Sellers, including Mr. Franck Bolle and Ms. Patricia
Bolle Passaquay, pursuant to the Stock Purchase Agreement and this dividend
will bear the rights and obligations described above.
Under the Share Purchase Agreement, each of the Sellers on the one
hand, and the Company and BEC on the other hand, are liable to fully reimburse
and indemnify the other for any expense, damage, loss or liability arising
from any breach of the terms of the Share Purchase Agreement by the
indemnifying party, subject to certain minimum claim amounts which must be met
for the indemnification provisions to take effect. In connection with the
Spinoff, the Company agreed to assume all obligations and liabilities of BEC
to each Seller, including Mr. Franck Bolle and Ms. Patricia Bolle Passaquay,
incurred by BEC in connection with the purchase of Bolle France and BEC was
released from all such obligations and liabilities. As a result, the Company
became solely responsible for BEC's indemnification obligations for breach of
its representations and warranties made to the Sellers, including Mr. Franck
Bolle and Ms. Patricia Bolle Passaquay, in the Share Purchase Agreement.
During the years ended December 31, 1997, 1996 and 1995, Bolle
America was party to a revolving intercompany credit arrangement with BEC
whereby interest on outstanding balances was charged to Bolle America at a
rate of 8% per annum. Conversely, interest on cash sent to BEC was earned at a
rate of 5% per annum. In addition, in July 1997, BEC entered into a
$40,000,000 intercompany revolving credit agreement with the Company, for a
term of up to three years, pursuant to which the Company will pay interest to
BEC at a rate of 5.5% per annum. In conjunction with the Spinoff, the Company
entered into a separate credit facility with substantially the same terms as
the existing BEC credit facility and there are no intercompany credit
arrangements between BEC and the Company.
CONSULTING AND NON-COMPETE AGREEMENT
The Company has assumed BEC's duties and obligations pursuant to a
consulting and non-compete agreement entered into with Steve N. Haber, the
former Chairman of the Board, Chief Executive Officer and President of Bolle
America in November 1995. The following description refers to the parties'
respective duties giving effect to the assignment of the consulting agreement
to the Company. Pursuant to the agreement, as of January 1, 1997, Mr. Haber
became a consultant to the Company for annual compensation of $155,000 plus
health and life insurance benefits for a period ending on December 31, 2000,
extendible for an additional five years by mutual agreement of the parties. In
addition to employment as a consultant, Mr. Haber agreed, commencing on the
effective date of the consulting agreement and continuing through December 31,
2005, not to compete against the Company in the eyewear or optical, opthalmic
or optometric businesses in any geographic area in which the Company does
business. As compensation for this noncompete agreement, Mr. Haber received an
initial payment of $800,000 and will receive a payment of $100,000 per year
commencing January 1, 1997 through December 31, 2005. Mr. Haber furthermore
agreed not to disclose any of the Company's confidential information.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS: PAGE:
-----
<S> <C> <C>
Reports of Independent Accounts................................................ 16
Consolidated Balance Sheets at December 31, 1997 and 1996...................... 17
Consolidated Statements of Operations for the three years
ended December 31, 1997, 1996 and 1995...................................... 18
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1997, 1996 and 1995...................................... 20
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997, 1996 and 1995............................................ 21
Notes to Consolidated Financial Statements..................................... 23
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES:
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
3. EXHIBITS:
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 1 to the
Company's Registration Statement on Form 8-A, Commission File No. 000-23899.
3.2 Certificate of Designations of the Series B Preferred Stock. Incorporated by reference to Exhibit 2
to the Company's Registration Statement on Form 8-A, Commission
File No. 000-23899.
3.3 Amended and Restated Bylaws Incorporated by reference to Exhibit 3 to the Company's Registration
Statement on Form 8-A, Commission File No. 000-23899.
3.4 Amendment to Bylaws dated March 11, 1998.
4.1 Specimen of Stock Certificate. Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-A, Commission File No. 000-23899.
4.2 Amended and Restated Share Purchase Agreement dated July 9, 1997 among BEC Group, Inc.
("BEC")(renamed Lumen Technologies, Inc. on March 11, 1998) and Bolle Inc. (the "Company"), on the
one hand, and each of Robert Bolle, Maurice Bolle, Franck Bolle, Brigitte Bolle, Patricia Bolle
Passaquay and Christelle Roche (collectively, the "Sellers"). Incorporated by reference to Exhibit
10.1 of BEC's Current Report on Form 8-K, dated July 10, 1997 (Commission File No. 1-14360).
4.3 Letter Agreement dated July 9, 1997 by and among Martin E. Franklin and each of the Sellers.
Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1
(Registration No. 333-40279).
4.4 Letter Agreement dated December 15, 1997 by and among Martin E. Franklin and each of the Sellers.
Incorporated by reference to Exhibit 6 to the Company's Registration Statement on Form 8-A,
Commission File No. 000-23899.
4.5 Letter from the Company to the Sellers regarding the Series A Preferred Stock
4.6 Warrant Agreement among the Company and each of the Sellers
4.7 1998 Stock Incentive Plan
10.1 Employment Agreement and Memorandum of Understanding dated July 7, 1997 between the Company and Gary
Kiedaisch. Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form
S-1 (Registration No. 333-40279).
10.2 Employment Agreement dated July 9, 1997 between Societe Bolle SNC and Franck Bolle (English
translation). Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on
Form S-1 (Registration No. 333-40279).
10.3 Employment Agreement dated July 9, 1997 between Societe Bolle SNC and Patricia Bolle Passaquay
(English translation). Incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-40279).
10.4 Agreement dated September 20, 1995 between the Company and Steve N. Haber. Incorporated by reference
to Exhibit 10.4 to the Company's Registration Statement on Form S-1 (Registration No. 333-40279).
10.5 Management Services Agreement between the Company and BEC. Incorporated by reference to Exhibit 10.6
to BEC's Current Report on Form 8-K, date of event March 11, 1998.
10.6 Bill of Sale and Assignment Agreement between BEC and the Company. Incorporated by reference to
Exhibit 10.4 to BEC's Current Report on Form 8-K, date of event March 11, 1998.
10.7 Indemnification Agreement by and among BEC, BILC Acquisition Corp. and the Company. Incorporated by
reference to Exhibit 10.5 to BEC's Curent Report on Form 8-K, date of event March 11, 1998.
10.8 Exclusive Customer Agreement dated as of October 23, 1997 by and between the Company and Alyn
Corporation. Incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on
Form S-1 (Registration No. 333-40279).
10.9 Letter of Intent between the Company and Bill Bass Optical Pty Ltd. dated January 6, 1998.
Incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1
(Registration No. 333-40279).
10.10 Loan Agreement by and among BEC (as assignee) and First Interstate Bank of Texas, N.A., relating to
the real property located in Dallas, Texas. Incorporated by reference to Exhibit 10.24 to Benson
Eyecare Corporation's Annual Report on Form 10-K for the year ended December 31, 1995 (Commission
File No. 1-9435).
10.11 First Amendment to Loan Agreement (see Exhibit 10.8 above) and Other Loan Documents, dated May 3,
1996, by and among Foster Grant Group, L.P., BEC and First Interstate Bank of Texas, N.A.
Incorporated by reference to Exhibit 10.20 to Lumen's Annual Report on Form 10-K for the year ended
December 31, 1996 (Commission File No. 1-14360).
10.12 Second Amendment to Loan Agreement (see Exhibit 10.8 above) and Other Loan Documents, dated December
12, 1996, by and among Wells Fargo Bank (Texas), N.A. (as successor to First Interstate Bank of
Texas, N.A.), ORC Management Corporation, Foster Grant Group, L.P., and BEC. Incorporated by
reference to Exhibit 10.21 to BEC's Annual Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 1-14360).
10.13 Deed of Trust, Security Agreement and Financing Statement, dated March 31, 1995, relating to mortgage
of real property located in Dallas, Texas. Incorporated by reference to Exhibit 10.22 of BEC's Annual
Report on Form 10-K for the year ended December 31, 1996 (Commission File No. 1-14360).
10.14 Agreement and Plan of Merger, dated as of July 26, 1995, among Benson Eyecare Corporation, Benson
Acquisition Corp., and Bolle America, Inc. Incorporated by reference to Exhibit 10.1 to Benson
Eyecare Corporation's Current Report on Form 8-K, dated August 3, 1995 (Commission File No. 1-9435).
10.15 Agreement and Plan of Merger, dated as of February 11, 1996, between Essilor International, S.A.,
Essilor of America, Inc., Essilor Acquisition Corporation, Benson Eyecare Corporation, BEC and Omega
Opco, Inc. Incorporated by reference to Exhibit 10.1 to BEC's Registration Statement on Form S-1
(Registration No. 333-3186).
10.16 Indemnification Agreement, dated as of February 11, 1996, by and among Essilor International, S.A.,
Essilor of America, Inc., Essilor Acquisition Corporation, Benson Eyecare Corporation, and BEC.
Incorporated by reference to Exhibit 10.3 to BEC's Registration Statement on Form S-1 (Registration
No. 333-3186).
10.17 Asset Purchase Agreement, dated as of February 11, 1996, by and among Benson Eyecare Corporation, BEC
and Optical Radiation Corporation and Monsanto Company. Incorporated by reference to Exhibit 10.2 to
Benson Eyecare Corporation's Current Report on Form 8-K, dated February 12, 1996.
10.18 Stock Purchase Agreement, dated as of November 13, 1996, by and among BEC, Foster Grant Group, L.P.,
Foster Grant Holdings, L.P. and Accessories Associates, Inc. Schedules and other attachments to such
agreement are not filed herewith, but will be provided supplementally to the Commission upon request.
Incorporated by reference to Exhibit 2.1 to BEC's Quarterly Report on Form 10-Q/A for the period
ended September 30, 1996.
10.19 Merger Agreement, dated as of June 30, 1994, among BEC (as assignee), Benson Acquisition Company,
Inc. and Optical Radiation Corporation. Incorporated by reference to Exhibit 99.1 to Benson Eyecare
Corporation's Current Report on Form 8-K, dated of event June 30, 1994 (Commission File No. 1-9435).
10.20 Amendment No. 1 to Merger Agreement, dated as of July 6, 1994, among BEC (as assignee), Benson
Acquisition Company, Inc. and Optical Radiation Corporation. Incorporated by reference to Exhibit
99.2 to Benson Eyecare Corporation's Current Report on Form 8-K, date of event June 30, 1994
(Commission File No. 1-9435).
10.21 Amendment No. 2 to Merger Agreement, dated as of August 29, 1994, by and among BEC, Optical Radiation
Corporation and Benson Acquisition Corporation. Incorporated by reference to Annex E to Benson
Eyecare Corporation's Registration Statement on Form S-4, dated September 12, 1994 (Commission File
No. 1-9435).
10.22 Form of Indemnification Agreement between the Company and its officers and directors. Incorporated by
reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1 (Registration No.
333-40279).
10.23 Second Amended and Restated Credit Agreement, dated as of March 11, 1998, among the Company,
NationsBank, National Association and the other lenders party thereto. Filed together with this
Exhibit 10.23 are copies of the following ancillary agreements.
(a) Second Amended and Restated Guarantee Agreement, dated March 11, 1998.
(b) Second Amended and Restated Stock Pledge Agreement, dated as of March 11, 1998.
(c) LC Account Agreement, dated as of March 11, 1998.
(d) Cash Collateral Account Agreement, dated as of March 11, 1998.
(e) Second Amended and Restated Security Agreement, dated as of March 11, 1998.
(f) Second Amended and Restated Intellectual Property Security Agreement, dated as of March 11,
1998.
(g) Second Amended and Restated Assignment of Patents, Trademarks, Copyrights and Licenses, dated as
of March 11, 1998.
21.1 List of the subsidiaries of the Company. Incorporated by reference to Exhibit 21.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-40279).
27 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K IN THE FOURTH QUARTER OF 1996:
(i) The Company filed no Reports on Form 8-K in the fourth quarter of
1997.
-47-
<PAGE>
BOLLE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 24th day of April, 1998.
BOLLE, INC.
By: /s/ Martin E. Franklin
----------------------------------
Martin E. Franklin
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ Martin E. Franklin
- ------------------------------------ --------------------------------
Martin E. Franklin Gary A. Kiedaisch
Chairman Chief Executive Officer
Dated: April 24, 1998 Dated:
/s/ Ian G. H. Ashken
- ------------------------------------ --------------------------------
Ian G. H. Ashken David L. Moore
Chief Financial Officer, Director
Executive Vice President of Finance and
Administration; Dated
Dated: April 24, 1998
/s/ Nora A. Bailey
- ------------------------------------ --------------------------------
Nora A. Bailey Franck Bolle
Director Director
Dated: Dated:
- ------------------------------------ --------------------------------
Patricia Bolle Passaquay David S. Moross
Director Director
Dated: Dated:
</TABLE>
