<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-40279
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION DATED FEBRUARY 13, 1998
BOLLE INC.
UP TO 8,000,000 SHARES OF COMMON STOCK
This Prospectus is being furnished to stockholders (the "BEC
Stockholders") of BEC Group, Inc. ("BEC"), a Delaware corporation, in
connection with the Spinoff (as defined below) pursuant to which BEC
Stockholders will receive all of BEC's interest (96%) in Bolle Inc., a
Delaware corporation (the "Company" or "Bolle"), or up to 8,000,000 shares of
Bolle Common Stock (as defined below) in a pro rata distribution (the
"Spinoff"). The Spinoff is expected to become effective on or as soon as
practicable after the record date thereof (the "Effective Time"), which is
scheduled to be on March 11, 1998 (the "Record Date"), immediately following
the special meeting of the BEC Stockholders (the "BEC Special Meeting") to be
held to approve the proposed merger (the "Merger") of ILC Technologies, Inc.,
a California corporation ("ILC") with and into BILC Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of BEC ("Acquisition
Corp."), but prior to the closing of the Merger, which is expected to be as
soon as practicable after the BEC Special Meeting. The Spinoff does not
require approval by the BEC Stockholders and is not conditioned upon the
closing of the Merger. The Spinoff and the Merger are referred to herein as
the "Transactions."
As a result of the Spinoff, holders of the common stock, par value $.01
per share of BEC (the "BEC Common Stock") will receive, commencing the
business day after the Effective Time, one share of Bolle Common Stock for
every three shares of BEC Common Stock held on the Record Date and, as a
result, Bolle will become an independent publicly-held company. Cash will be
paid in lieu of fractional shares. Only BEC stockholders of record on the
Record Date (which is scheduled to be the day prior to the closing of the
Merger) will receive Bolle Common Stock pursuant to the Spinoff. The receipt
of the Bolle Common Stock (as defined below) by the BEC Stockholders will be
a taxable transaction for federal income tax purposes. See "THE
SPINOFF--Certain Federal Income Tax Consequences." The market value of the
Bolle Common Stock to be distributed to the BEC Stockholders pursuant to the
Spinoff cannot be determined prior to the Spinoff. As of February 12, 1998,
the most recent practicable date for which such information was available
prior to the date of this Prospectus, there were 17,619,184 shares of BEC
Common Stock outstanding and the per share closing price of such shares was
$5.875. On October 30, 1997, the last trading day before the public
announcement of the Spinoff and the proposed Merger, the last reported sale
price for BEC Common Stock was $5.625 per share.
The Merger will be effected pursuant to an Agreement and Plan of Merger
(the "Merger Agreement"). As consideration for the Merger, BEC will issue to
shareholders of ILC, after certain adjustments, 2.18 shares of BEC Common
Stock for each outstanding share of ILC's common stock (assuming conversion
of the principal amount of all of BEC's 8% convertible subordinated notes
(the "BEC Convertible Notes") and consummation of a one for two reverse stock
split of the BEC Common Stock). BEC has the right to terminate the Merger
Agreement if a majority of the BEC Stockholders fail to approve the Merger
Agreement and the related issuance of BEC Common Stock at the special meeting
of BEC Stockholders to be held after the Effective Time.
The Company is a wholly owned subsidiary of BEC. BEC is a holding company
for two businesses, ORC Technologies, Inc. ("ORC") which manufactures and
markets specialty lighting technology products, and the Company, which
manufactures and markets Bolle(Registered Trademark) premium sunglasses,
sport shields, goggles and safety and tactical eyewear. The Company was
organized on February 3, 1997 to effect the July 1997 acquisition by BEC of
Holding B.F., the French holding company that owned the Bolle(Registered
Trademark) design, manufacturing and certain distribution interests,
including the worldwide rights to the Bolle(Registered Trademark) brand for
the Company's products. The Company is also a holding company, the principal
subsidiaries of which are Bolle America, Inc., a Delaware corporation ("Bolle
America") and Bolle International S.A., a French corporation ("Bolle
France"). The purpose of the Spinoff is to permit the BEC Stockholders to
retain their interest in the Company while at the same time enabling BEC to
focus on its specialty lighting technology business. The Company expects
that, pursuant to a Bill of Sale and Assignment Agreement to be entered into
between BEC and the Company at the Effective Time (the "Contribution
Agreement"), (i) BEC will assign to the Company all of BEC's assets other
than assets related to the ORC Business (as defined in the Contribution
Agreement) and certain other specified assets retained by BEC; and (ii) the
Company will assume all of BEC's liabilities prior to the Spinoff other than
those related to the ORC Business. The assets assigned to, and the
liabilities assumed by, the Company pursuant to the Contribution Agreement
are referred to herein as the "Non-ORC Business." See "THE SPINOFF--Transfer
of the Non-ORC Business to the Company" and "RISK FACTORS--Risks Associated
with the Spinoff."
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The board of directors of BEC (the "BEC Board") has determined the record
date of the Spinoff (the "Record Date") to be March 11, 1998.
No additional consideration will be paid by the BEC Stockholders for the
shares of common stock par value $.01 per share of the Company (the "Bolle
Common Stock") to be received by them in the Spinoff and neither BEC nor
Bolle will receive any proceeds from the Spinoff. There is currently no
public trading market for the shares of Bolle Common Stock. The Bolle Common
Stock has been approved for quotation on the Nasdaq National Market
("Nasdaq") under the symbol "BEYE," subject to official notice of issuance.
See "THE SPINOFF."
The Spinoff is not conditioned upon the closing of the Merger. The Merger
is conditioned upon the consummation of the Spinoff and, among other things,
approval by the BEC Stockholders of the Merger Agreement and the transactions
contemplated thereby, as well as of the related issuance of BEC Common Stock,
which approval will be sought pursuant to the proxy materials which have been
distributed previously (the "Proxy Materials"). The Spinoff is expected to
become effective on the Record Date immediately after the Special Meeting,
but prior to the closing of the Merger.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR MATTERS THAT SHOULD BE
CONSIDERED WITH RESPECT TO THE SHARES OF BOLLE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
March , 1998.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1,
Commission File No. 333-40279, under the Securities Act with respect to the
shares of the Bolle Common Stock. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Bolle Common Stock,
reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or any other document to which reference is made are
necessarily summaries thereof, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects
by such reference. Any interested party may inspect the Registration
Statement, without charge, and copied at prescribed rates, at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. In addition, the Commission maintains a website that contains the
Registration Statement. This website can be accessed at www.sec.gov. Copies
of such material can also be obtained from the Company upon request by
contacting the Company at its principal executive office.
Following the Spinoff, the Company will be subject to the informational
requirements of the Exchange Act and, in accordance therewith, will file
reports, proxy statements and other information with the Commission. The
reports, proxy statements and other information which will be filed by the
Company with the Commission will be available for inspection and copying at
the Commission's public reference facilities referred to above. Copies of
such material will be obtainable by mail at prescribed rates by writing the
Public Reference Branch of the Commission at the address referred to above.
In addition, reports, proxy statements and other information concerning the
Company will be available for inspection at the offices of the Nasdaq located
at 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary ............................................................................. 3
Risk Factors ........................................................................ 11
The Company ......................................................................... 20
The Spinoff ......................................................................... 21
Selected Financial Data ............................................................. 27
Management's Discussion and Analysis of Financial Condition and Results of Operations 28
Business ............................................................................ 32
Management .......................................................................... 44
Executive Compensation .............................................................. 46
Certain Relationships and Related Transactions ...................................... 50
Security Ownership of Certain Beneficial Owners and Management ...................... 53
Description of Capital Stock ........................................................ 54
Validity of Shares .................................................................. 58
Experts ............................................................................. 58
Index to Financial Statements ....................................................... F-1
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this Prospectus Summary is
qualified in its entirety by, the more detailed information, including the
Consolidated Financial Statements and notes thereto, contained herein. Unless
the context otherwise requires, the term the "Company" or "Bolle" refers to
Bolle Inc., a Delaware corporation, and its consolidated subsidiaries; the
term "Bolle America" refers to Bolle America, Inc., a Delaware corporation
and wholly owned subsidiary of the Company; and the term "Bolle France"
refers to Bolle International S.A., a French corporation and wholly owned
subsidiary of the Company, and its consolidated subsidiaries. Unless
otherwise noted, the business description of the Company, the financial
statements and other financial information relating to the Company and data
and information as to the shares of Bolle Common Stock give effect to the
Spinoff.
THE COMPANY
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 recent creation of Bolle was completed to combine 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, which the Company believes
will allow it to expand its business and enhance its profitability. This
organization enables the Company to develop and execute a consistent and
unified marketing strategy targeted at promoting the Company's competitive
advantages. The Company believes that its competitive advantages include its
strong brand name, integrated design, production and marketing capabilities,
superior technology, specialized product offerings and established
international distributors in over 40 countries around the world. The Company
will seek to integrate these international distributors into a cohesive
worldwide network and add new distributors through acquisitions or
distributorship agreements. See "BUSINESS--Business Strategy."
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
leading to multiple purchases, increased health concerns and greater fashion
and image content. 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 long-standing
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:
Acquisition of Largest Independent Distributor. Consistent with the
Company's strategy of consolidating many of its distributors through
acquisitions or other arrangements, the Company has executed a letter of
intent to purchase Bill Bass Optical Pty Ltd. ("Bill Bass Optical"), the
largest independent distributor of the Company's products and the principal
distributor of the Company's products in Australia (the "Bill Bass Optical
Acquisition"), whose sales of Bolle(Registered Trademark) products in
Australia exceeded $10,000,000 in 1997.
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Supply Agreement for Metal Eyewear. Consistent with its traditional focus
on technological innovation, the Company has entered into a three-year
exclusive supply agreement dated as of October 23, 1997 (the "Alyn Supply
Agreement") with Alyn Corporation ("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.
As a result of the Spinoff, the Company will become at the Effective Time
an independent, publicly-held company. The executive officers and members of
the BEC Board generally will be executive officers and directors of the
Company after the Spinoff. See "MANAGEMENT." Together with the other
stockholders of Bolle, BEC has taken certain actions on behalf of Bolle prior
to the Spinoff including: (i) approval of the terms of the Spinoff; (ii) the
election of directors and ratification of the directors' election of
officers; and (iii) approval of an Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation"), increasing the number of
authorized shares of Bolle Common Stock and Bolle preferred stock to permit
the issuance of the shares to be delivered in connection with the Spinoff.
See "DESCRIPTION OF CAPITAL STOCK."
The Company is incorporated in Delaware. Its principal executive offices
are located at 555 Theodore Fremd Avenue, Rye, New York 10580, and its
telephone number if (914) 967-9400.
An investment in shares of Bolle Common Stock is subject to various risks.
See "RISK FACTORS."
THE TRANSACTIONS
As one of the conditions of closing of the Merger, BEC will transfer at
the Effective Time the Non-ORC Business to the Company and distribute all of
its shares of Bolle Common Stock, pro rata, to the BEC Stockholders. In the
Spinoff, each BEC Stockholder will receive one share of Bolle Common Stock
for every three shares of BEC Common Stock held of record by such Stockholder
on the Record Date. See "RISK FACTORS--Risks Associated with the Spinoff" and
"DESCRIPTION OF CAPITAL STOCK." The purpose of the Spinoff is to permit the
BEC Stockholders to retain their interest in the Company while at the same
time enabling BEC to focus on its specialty lighting technology business.
Pursuant to the Merger Agreement, BEC has agreed to acquire ILC by merging
ILC with and into Acquisition Corp. As consideration for the Merger, BEC will
issue to shareholders of ILC, after certain adjustments, 2.18 shares of BEC
Common Stock for each outstanding share of ILC common stock (assuming
conversion of all of BEC's Convertible Notes and consummation of a one for
two reverse stock split of the BEC Common Stock). BEC has the right to
terminate the Merger Agreement if a majority of the BEC Stockholders fail to
approve the Merger Agreement and the related issuance of BEC Common Stock at
the BEC Special Meeting. A complete description of the terms of the Merger
and the Merger Agreement is contained in the Proxy Materials previously
distributed.
Assumption by the Company of BEC's Liabilities Relating to the Acquisition
of Bolle France. In connection with the Spinoff, it is expected that the
Company will assume at or prior to the Effective Time all obligations and
liabilities of BEC to each of Maurice Bolle, Robert Bolle, Franck Bolle,
Patricia Bolle Passaquay, Brigitte Bolle and Christelle Roche (collectively,
the "Sellers," and each a "Seller") which BEC incurred in connection with the
purchase of Bolle France and BEC will then be released from all such
obligations or liabilities. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Certain Transactions." In addition, it is expected that, at or
prior to the Effective Time, each Seller will convey to the Company all
shares of Series A Preferred Stock of BEC (the "BEC Preferred Stock") held by
such Seller and the Company will issue in exchange to each Seller, an amount
of shares of its Series B Preferred Stock (the "Bolle Series B Preferred
Stock") equal to the number of shares of BEC Preferred Stock conveyed by such
Seller to the Company. No shares of Bolle Common Stock will be issued to the
holders of outstanding shares of BEC Preferred Stock or Bolle Series B
Preferred Stock pursuant to the Spinoff. BEC will cancel all warrants (the
"BEC Warrants") to purchase a total of 2,130,000 shares of BEC Common Stock
outstanding as of the Record Date and the Company will issue in exchange to
each holder of canceled BEC Warrants, warrants to purchase Bolle Common Stock
(the "Bolle Warrants") in
4
<PAGE>
proportion to the number of BEC Warrants held by such holder prior to the
cancellation, and representing in the aggregate 10% of the number of shares
of Bolle Common Stock to be distributed pursuant to the Spinoff, with an
exercise price per Warrant adjusted to reflect the ocurrence of the Spinoff.
No shares of Bolle Common Stock will be issued to holders of outstanding BEC
Warrants or Bolle Warrants pursuant to the Spinoff. See "THE
SPINOFF--Assumption by the Company of BEC's Liabilities Relating to the
Acquisition of Bolle France" and "DESCRIPTION OF CAPITAL STOCK--Preferred
Stock" and "--Warrants."
Treatment of BEC Options. Outstanding unexercised options and stock
appreciation rights (the "BEC Options") issued pursuant to the BEC 1996 Stock
Incentive Plan (the "BEC Option Plan") that are not exercisable on or prior
to the Effective Time will not become vested and exercisable solely by reason
of the consummation of the Spinoff. However, it is anticipated that, in
connection with the Spinoff, the committee administering the BEC Option Plan
will, pursuant to the provisions of the BEC Option Plan, make adjustments to
all BEC Options as follows: BEC Options outstanding with respect to employees
who will be employed by the Company after the Spinoff will be canceled in
exchange for options to purchase Bolle Common Stock on similar terms and
conditions and with an equivalent economic value to the canceled BEC Options.
BEC Options with respect to employees who will continue to be employed by BEC
after the Spinoff shall have the exercise price adjusted to reflect the
economic value of the Spinoff.
Treatment of BEC Convertible Notes. In May 1996, BEC issued $21,018,000
aggregate principal amount of 8% BEC Convertible Notes, due 2002. Assuming
the current conversion price of $5.75 per share of BEC Common Stock and the
conversion of all of, or 50% of, the BEC Convertible Notes, the BEC
Convertible Notes may convert into an aggregate of approximately 3,655,402
shares or 1,827,701 shares, respectively, of BEC Common Stock. Up to an
additional 500,000 shares of BEC Common Stock may be issued in payment of
accrued interest on the BEC Convertible Notes. A holder of BEC Convertible
Notes that converts such Notes into shares of BEC Common Stock prior to the
Record Date will receive one share of Bolle Common Stock for every three
shares of BEC Common Stock held following such conversion. Pursuant to the
terms of the indenture under which the BEC Convertible Notes were issued, the
Spinoff will result in an adjustment to the conversion price of the BEC
Convertible Notes, and the holders of the BEC Convertible Notes who do not
convert prior to the Record Date of the Spinoff will not receive shares of
Bolle Common Stock, but will retain their rights to convert into BEC Common
Stock at the adjusted conversion price. BEC has advised the Company that it
will use reasonable commercial efforts to effect the conversion of the BEC
Convertible Notes prior to the consummation of the Merger.
Spinoff Record Date. The BEC Board has determined the Record Date to be
March 11, 1998.
Other Agreements. At or prior to the Effective Time, the Company and BEC
will enter into a number of other ongoing arrangements, including a
Management Services Agreement (the "Management Services Agreement"), the
Contribution Agreement and an Indemnification Agreement (the "Indemnification
Agreement"). The Company will assume all of BEC's liabilities prior to the
Spinoff other than those related to the ORC Business (as defined in the
Contribution Agreement) and 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. See "THE SPINOFF--Transfer of the
Non-ORC Business to the Company" and "RISK FACTORS--Risks Associated with the
Spinoff."
5
<PAGE>
Conditions. Consummation of the Spinoff does not require BEC Stockholder
approval and is not conditioned upon the closing of the Merger and is
expected to become effective on or as soon as practicable after the Record
Date immediately after the Special Meeting, but prior to the closing of the
Merger. The closing of the Merger is conditioned upon the consummation of the
Spinoff, approval of the Merger Agreement and the transactions contemplated
thereby as well as of the related issuance of BEC Common Stock by BEC
Stockholders, and other customary closing conditions. See "THE
SPINOFF--Conditions."
Certain Federal Income Tax Consequences. The receipt of the Bolle Common
Stock by the BEC Stockholders will be a taxable transaction for Federal
income tax purposes. See "THE SPINOFF--Certain Federal Income Tax
Consequences" in this Prospectus.
Interests of Certain Persons in the Spinoff. The executive officers of
BEC, who currently are and will remain after the Spinoff executive officers
of Bolle, and Messrs. Martin E. Franklin, Ian G.H. Ashken and David L. Moore,
who are members of the BEC Board and currently are and will remain after the
Spinoff directors of the Company (the "Bolle Board"), may be deemed to have
interests in the Spinoff in addition to their interests as BEC Stockholders
generally which may cause conflicts of interest. These interests relate to
payments to be received by BEC pursuant to the Management Services Agreement,
the apportionment of BEC's liabilities between BEC and Bolle pursuant to the
Contribution Agreement and the Indemnification Agreement, in addition to
liabilities assumed by Bolle through the issuance of the Bolle Series B
Preferred Stock and certain Bolle Options and Warrants under the Warrant
Agreement. In each case, the Bolle Board and the holders of Bolle Common
Stock were aware of these interests and considered them in unanimously
approving the Spinoff and the transactions contemplated thereby. Following
the Spinoff, as a result of their respective positions in BEC and the
Company, each of Messrs. Franklin, Ashken and Moore may, in the course of
their duties, have potential conflicts of interest with respect to material
transactions involving BEC and the Company. Each will have regard to his
obligation to act in the best interest of the Company and will endeavor to
ensure that such conflicts are resolved fairly. See "THE SPINOFF--Interests
of Certain Persons in the Spinoff."
6
<PAGE>
THE SPINOFF
DISTRIBUTING COMPANY .......... BEC
SECURITIES TO BE DISTRIBUTED .. All of BEC's interest in Bolle Common Stock
(96%), or up to 8,000,000 shares of Bolle
Common Stock, on the basis of one share of
Bolle Common Stock for every three shares of
BEC Common Stock outstanding on the Record
Date. See "THE SPINOFF" and "DESCRIPTION OF
CAPITAL STOCK." Based on, solely for the
purpose of the following estimate, (i) the
2,280 shares of Bolle Common Stock expected
to be held by BEC on or prior to the Record
Date, (ii) the 17,749,076 shares of BEC
Common Stock outstanding (including 129,892
shares issuable upon request) as of February
12, 1998, the most recent practicable date
for which such information was available
prior to the date of this Prospectus, and
assuming (i) exercise of a maximum of
1,000,000 BEC Options to purchase shares of
BEC Common Stock which are or will be
exercisable on or prior to the Record Date,
(ii) conversion of all Convertible Notes and
accrued interest on or prior to the Record
Date into a maximum of 4,155,000 shares of
BEC Common Stock, (iii) consummation on or
prior to the Record Date of the Contribution
Agreement and all the other transactions
expected to occur in connection with the
Spinoff on the terms described in this
Prospectus and, after giving effect to a
3,347 for one stock split in the form of a
stock dividend on Bolle Common Stock
expected to be effective at or prior to the
Effective Time, a maximum of approximately
7,632,000 shares of Bolle Common Stock would
be distributed to the BEC Stockholders in
the Spinoff. The aggregate number of shares
of Bolle Common Stock that will actually be
distributed pursuant to the Spinoff may
vary.
SPINOFF RATIO ................. One share of Bolle Common Stock for every
three shares of BEC Common Stock outstanding
on the Record Date. See "THE
SPINOFF--Consummation of the Spinoff."
TIME OF SPINOFF ............... The Spinoff is expected to become effective
on or as soon as practicable after the
Record Date immediately after the Special
Meeting, but prior to the closing of the
Merger. When appropriate, share certificates
representing the Bolle Common Stock will be
mailed as soon as practicable after the
Effective Date. See "THE SPINOFF--Manner of
Effecting the Spinoff."
SPINOFF RECORD DATE ........... The BEC Board has determined the Record Date
to be March 11, 1998.
TRADING MARKET ................ The Bolle Common Stock has been approved for
quotation on Nasdaq under the symbol "BEYE,"
subject to official notice of issuance. See
"THE SPINOFF--Listing of the Bolle Common
Stock; Restrictions on Resale."
CONDITIONS TO SPINOFF ......... The consummation of the Spinoff does not
require BEC Stockholder approval and is not
conditioned upon the closing of the Merger.
See "THE SPINOFF--Conditions."
TRANSFER AGENT ................ National City Bank (the "Transfer Agent").
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TAX CONSEQUENCES .............. The receipt of the Bolle Common Stock will
be a taxable transaction to the BEC
Stockholders for Federal income tax
purposes. See "THE SPINOFF--Certain Federal
Income Tax Consequences."
DIVIDENDS AFTER THE SPINOFF ... The Company does not currently intend to
declare or pay any dividends on the shares
of Bolle Common Stock. The Company's ability
to pay dividends is restricted pursuant to
the Indemnification Agreement with BEC and
the terms of the Series B Preferred Stock of
the Company. The Company and BEC are
currently renegotiating a credit agreement
that also restricts the Company's ability to
pay cash dividends on shares of Bolle Common
Stock. The Company has received commitments
from various lenders party to BEC's existing
credit agreement pursuant to which such
lenders have agreed to provide financing to
the Company subject to certain conditions
and the execution by the Company of a
definitive credit agreement with such
lenders containing covenants usual and
customary for financings of this type. The
Company believes that this credit agreement,
which it expects to enter into at or prior
to the Effective Time, will contain
restrictions on the payment of dividends
similar to those contained in BEC's existing
credit agreement, and that any other bank
revolving credit facility or other
indebtedness, if any, that the Company may
incur would contain similar restrictions.
See "DESCRIPTION OF CAPITAL STOCK--Dividend
Policy."
ANTITAKEOVER EFFECT OF THE
INDEMNIFICATION AGREEMENT
AND THE COMPANY'S CHARTER .... Certain provisions of the Company's
Certificate of Incorporation and the terms
of the Indemnification Agreement may have
the effect of delaying or making more
difficult an acquisition of control of the
Company in a transaction not approved by the
Company's Board of Directors. See "RISK
FACTORS--Potential Antitakeover Effect of
the Indemnification Agreement and Certain
Charter Provisions."
RELATIONSHIP WITH BEC
AFTER THE SPINOFF ............ In connection with the Spinoff, BEC has
entered into various agreements that will
result in ongoing relationships between BEC
and Bolle. See "RISK FACTORS--Risks
Associated with the Spinoff."
RISK FACTORS .................. Stockholders should carefully consider the
matters discussed below under the caption
"RISK FACTORS."
8
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical and pro forma combined financial data
have been derived from audited and unaudited historical financial statements
and should be read in conjunction with the consolidated financial statements
of the Company and its significant subsidiaries included herein.
The Company was formed in 1997 to complete BEC's acquisition of Bolle
France and therefore has no historical activity or financial statements.
Bolle America was purchased by BEC 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.
The following unaudited Bolle Inc. pro forma combined statement of
operations data give effect to the acquisition of Bolle France under the
purchase method of accounting and reflect the Contribution Agreement and the
Indemnification Agreement. The following pro forma combined balance sheet
data only give effect to the Contribution Agreement and the Indemnification
Agreement as the effect of the acquisition is already included in the
Company's actual balance sheet as of September 30, 1997. The actual statement
of operations data presented include the results of Bolle France for the
three months ended September 30, 1997. The pro forma combined statement of
operations data presented include Bolle France as if the acquisition occurred
as of the beginning of the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- ----------------------
PRO PRO
ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL FORMA ACTUAL FORMA
1992 1993 1994(1) 1995(2) 1996(3) 1996 1997(4) 1997
--------- --------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................ $15,495 $18,377 $23,094 $24,829 $24,425 $60,297 $ 20,670 $36,266
Cost of sales ............................ 8,595 9,126 10,814 12,181 12,130 29,140 9,750 18,267
--------- --------- --------- --------- --------- --------- ----------- ---------
Gross profit ............................. 6,900 9,251 12,280 12,648 12,295 31,157 10,920 17,999
Selling, general and administrative
expenses (including advertising and
sponsoring expenses) .................... 6,808 7,384 8,871 10,275 11,374 23,813 10,593 16,310
Merger related expenses .................. -- -- -- 3,050 -- -- -- --
Interest expense (income)................. 488 336 316 (302) (256) 931 516 465
Other expense (income) ................... (81) (295) (104) 48 (450) (200) (803) (1,162)
--------- --------- --------- --------- --------- --------- ----------- ---------
Income (loss) before income taxes ....... (315) 1,826 3,197 (423) 1,627 6,613 614 2,386
Provision for (benefit from) income
taxes.................................... (120) 700 1,260 364 635 1,721 196 1,301
--------- --------- --------- --------- --------- --------- ----------- ---------
Net income (loss) ........................ $ (195) $ 1,126 $ 1,937 $ (787) $ 992 4,892 $ 418 1,085
========= ========= ========= ========= ========= ========= =========== =========
Preferred stock dividends ................ 511 383
--------- ---------
Net income attributable to common stock .. $ 4,381 $ 702
========= =========
Pro forma shares outstanding.............. 7,408 7,408
Pro forma earnings per share.............. $ 0.59 $ 0.09
French Franc per US Dollar exchange rate
used(5).................................. 5.1138 6.0832 5.9188
BALANCE SHEET DATA:
Working capital (deficiency).............. $ 31 $ 1,060 $12,781 $11,395 $ 8,535 $(16,528) $ 433
Total assets ............................. 8,164 9,629 17,549 16,309 15,624 82,513 99,370
Long term debt ........................... 350 49 57 -- -- -- 3,428
Mandatorily redeemable preferred stock ... -- -- -- -- -- 11,055 20,349
Stockholders' equity ..................... 279 1,584 13,433 12,770 9,743 24,460 44,256
French Franc per US Dollar exchange rate
used(5).................................. 5.1900 5.9125 5.9125
</TABLE>
- ------------
(1) In 1994, Bolle America paid a $50 dividend to its then current
shareholders.
9
<PAGE>
(2) 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.
(3) In 1996, the Company paid a dividend to BEC (its then current
stockholder) of $4,019.
(4) 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.
(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 pro forma results of operations for the year ended
December 31, 1996 represents the average exchange rate used to
translate the results of operations of Bolle France added to the
Company's actual results in the pro forma statement of operations. The
exchange rate shown for the actual results of operations for the nine
months ended September 30, 1997 represents the average exchange rate
for the three months ended September 30, 1997 used to translate the
results of operations of Bolle France included in the Company's actual
results. The exchange rate shown for the pro forma results of
operations for the nine months ended September 30, 1997 represents the
average exchange rate for the nine months ended September 30, 1997 used
to translate the results of operations of Bolle France added to the
Company's actual results in the pro forma statement of operations.
10
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
stockholders should consider carefully the risk factors set forth below.
Information Regarding Forward-Looking Statements
The statements contained in this Prospectus which are not historical facts
are "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. The Company wishes to caution the reader that these
forward-looking statements, such as the Company's plans to expand its product
line, brands and marketing activities and other statements contained herein
regarding matters that are not historical facts, are only predictions. No
assurance can be given that the future results will be achieved; actual
events or results may differ materially as a result of risks facing the
Company. Such risks include, but are not limited to, the Company's ability to
successfully market its products to current and new customers, identify,
finance and complete suitable acquisitions and design and manufacture new
products, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions that could cause actual results to differ materially
from the future results indicated, expressed or implied, in such
forward-looking statements.
RISKS ASSOCIATED WITH THE SPINOFF
Assumption of Liabilities and Indemnification of BEC by the Company
Under the terms of the Contribution Agreement and the Indemnification
Agreement, the Company will assume all of BEC's liabilities prior to the
Spinoff other than those related to the ORC Business and will agree to
indemnify BEC against all of BEC's liabilities prior to the Spinoff other
than substantially all liabilities related to the ORC Business. Potential
liabilities which the Company will assume and/or against which the Company
will indemnify BEC pursuant to the Contribution Agreement include, without
limitation, (a) potential liabilities arising in connection with the sale of
businesses previously owned by BEC or its predecessor, Benson Eyecare
Corporation ("Benson"), including: the merger of Essilor Acquisition
Corporation ("Essilor") with and into Benson; the sale of the Foster Grant
Group L.P. ("Foster Grant") by BEC; the sale of the Orolite division to
Monsanto Company ("Monsanto Company"), and (b) potential liabilities of BEC
under applicable environmental laws, including any such liabilities related
to the ORC Business to the extent such liabilities arose before the Spinoff.
For a detailed description of the potential liabilities of BEC assumed by the
Company and the Company's indemnification obligations to BEC under the
Contribution Agreement and the Indemnification Agreement, see "THE
SPINOFF--Transfer of the Non-ORC Business to the Company." Pursuant to the
Contribution Agreement and the Indemnification Agreement, the Company may
bear the burden of obligations and losses not directly related to the
business of the Company if the Company is called upon to discharge and pay
these obligations and liabilities.
At or prior to the Effective Time, the Company will also agree to assume
all obligations and liabilities of BEC to the Sellers incurred by BEC in
connection with the purchase of Bolle France and BEC shall then be released
from all such obligations and liabilities. In addition to BEC's
indemnification obligations under the Amended and Restated Share Purchase
Agreement dated July 9, 1997 among BEC, the Company and each Seller (the
"Share Purchase Agreement") which will become the sole responsibility of the
Company, the remainder of BEC's liabilities and obligations to the Sellers
will be assumed by the Company through the issuance of the Bolle Series B
Preferred Stock, Bolle Options and the exchange of the BEC Warrants for Bolle
Warrants. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Certain
Transactions." Should the Company be required to discharge its liabilities
pursuant to the foregoing arrangements, including the Contribution Agreement
and the Indemnification Agreement, or to redeem the shares of its Series A
Preferred Stock (the "Bolle Series A Preferred Stock") or Series B Preferred
Stock prior to maturity, such payments could have a material adverse effect
upon the Company.
11
<PAGE>
Reliance on Management Services Agreement
The Company expects to enter at the Effective Time into a Management
Services Agreement with BEC, pursuant to which BEC will provide key
management services to the Company. The Management Services Agreement will
have an initial term of three years, and will thereafter be automatically
renewed for successive one-year periods until terminated by either party upon
ninety days written notice. There is no assurance that BEC will not terminate
the Management Services Agreement before or after its initial term. The loss
of the services that will be provided under the Management Services Agreement
by BEC to the Company could have a material adverse effect on the Company's
operations.
Pursuant to the Management Services Agreement, BEC will also make
available to the Company the services of Martin E. Franklin, as Chairman of
the Board of Directors of the Company, and Mr. Ian G. H. Ashken, as Executive
Vice President of Finance and Administration, Chief Financial Officer and
Assistant Secretary. The loss of the services that will be provided by Mr.
Franklin or Mr. Ashken to the Company could have a material adverse effect on
the Company. There is no assurance that BEC or the Company will be able to
retain the services of Mr. Franklin or Mr. Ashken in the future.
Restricted Dividend Policy
The Company does not currently intend to declare or pay any dividends on
the Bolle Common Stock. The payment of cash dividends in the future will
depend on the Company's earnings, financial condition, capital needs and
other factors deemed relevant by the Company's Board of Directors including
corporate law restrictions on the availability of capital for the payment of
dividends, the rights of holders of any series of preferred stock that may
hereafter be issued and the limitations, if any, on the payment of dividends
under any then-existing credit facility or other indebtedness. The Company
and BEC are currently renegotiating a credit agreement that restricts the
Company's ability to pay cash dividends on the Bolle Common Stock. The
Company has received commitments from various lenders party to BEC's existing
credit agreement pursuant to which such lenders have agreed to provide
financing to the Company subject to certain conditions and the execution by
the Company of a definitive credit agreement with such lenders containing
covenants usual and customary for financings of this type. The Company
believes that this credit agreement, which it expects to enter into on or
prior to the Effective Time, will contain restrictions on the payment of
dividends similar to those contained in BEC's existing credit agreement and
that any other bank revolving credit facility or other indebtedness, if any,
that the Company may incur would contain similar restrictions. Pursuant to
the Indemnification Agreement, the Company could be further restricted from
paying dividends on shares of Bolle Common Stock unless certain minimum net
worth requirements are met until, at the latest, the end of the year 2003,
except that the Company may declare dividends payable solely in shares of
capital stock which does not carry mandatory redemption or other repayment
rights. Furthermore, for so long as shares of the Series B Preferred Stock
are outstanding, the Company may not, without the consent of the holders of
at least 90% of such shares, declare or pay a dividend or otherwise make a
distribution on any security issued by the Company which is junior to the
Bolle Series B Preferred Stock with respect to dividends or upon liquidation,
including the Bolle Series A Preferred Stock. See "DESCRIPTION OF CAPITAL
STOCK--Preferred Stock."
Interests of Certain Persons in the Spinoff
The executive officers of BEC, who currently are and will remain after the
Spinoff executive officers of Bolle, and Messrs. Franklin, Ashken and Moore,
who are members of the BEC Board and currently are and will remain after the
Spinoff directors of the Company, may be deemed to have interests in the
Spinoff in addition to their interests as BEC Stockholders generally which
may cause conflicts of interest. These interests relate to payments to be
received by BEC pursuant to the Management Services Agreement, the
apportionment of BEC's liabilities between BEC and Bolle pursuant to the
Contribution Agreement and the Indemnification Agreement, in addition to
liabilities assumed by Bolle through the issuance of the Bolle Series B
Preferred Stock and certain Bolle Options and Warrants under the Warrant
Agreement. Following the Spinoff, as a result of their respective positions
in BEC and the Company, each of Messrs. Franklin, Ashken and Moore may, in
the course of their duties, have potential conflicts of interest with respect
to material transactions including BEC and the Company.
12
<PAGE>
There is a risk that, as a result of these conflicts of interest, the
liabilities and obligations assumed by the Company pursuant to the Spinoff
could have a material impact on the future value of the Company's shares. See
"THE SPINOFF--Interests of Certain Persons in the Spinoff," "EXECUTIVE
COMPENSATION" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Management
Services Agreement" and "--Relationships with Directors."
Limited Operating History
The Company was formed on February 3, 1997. Although the financial
statements and pro forma financial statements of the Company include the
results of its subsidiaries Bolle America and Bolle France, which were
operated as separate companies for many years, the Company itself, as a
consolidated entity, has a limited operating history upon which potential
investors may base an evaluation of its performance. Limited actual
historical financial information upon which to base an evaluation of the
Company's performance and an investment in the Bolle Common Stock is
available.
Absence of Trading History, Market Prices
Because all of the Bolle Common Stock is currently held by BEC and other
private stockholders, there is no public trading market for the Bolle Common
Stock. Although the Bolle Common Stock has been approved for quotation on
Nasdaq, there can be no assurance that an active trading market will develop
after the Spinoff. As there has been no trading market for the Bolle Common
Stock, there can be no assurance as to the prices at which trading in the
Bolle Common Stock will occur after the Spinoff. Moreover, the stock of new
and relatively small issuers in immature or developing markets is frequently
subject to sharp increases and decreases in market value, and trading prices
of the Bolle Common Stock could vary significantly over relatively short
periods of time. The Bolle Common Stock may also experience volatility
immediately following the Spinoff until trading values have become
established. See "THE SPINOFF--Listing of the Bolle Common Stock;
Restrictions on Resale."
Volatility of Stock Price
The market price of the Bolle Common Stock may be subject to significant
fluctuations in response to variations in quarterly operating results and
other factors. In addition, the securities markets have experienced
significant price and volume fluctuations from time to time in recent years
that have often been unrelated or disproportionate to the operating
performance of particular companies. These broad fluctuations may adversely
affect the market price of the Bolle Common Stock. See "Absence of Trading
History, Market Prices" above.
Potential Antitakeover Effect of the Indemnification Agreement and Certain
Charter Provisions
Pursuant to the Indemnification Agreement, the Company and its
subsidiaries may not enter into certain business combinations, including a
consolidation or merger or transfer of all or substantially all of its
assets, unless the resulting entity is either the Company or a U.S.
corporation which expressly assumes all of the Company's obligations and
restrictions under the Indemnification Agreement. Furthermore, the resulting
entity must have a consolidated tangible net worth equal to or greater than
that of the Company prior to the combination. These limitations could remain
applicable until, at the latest, the end of the year 2003. In addition, the
Series B Preferred Stock is redeemable in full upon a change of control
resulting in the Company's payment in full of all payments due with respect
to the Company's senior indebtedness in effect at the Effective Time. These
restrictions could have the effect of deterring a potential acquirer.
The Company will have in excess of 15,000,000 and 125,000 shares of
authorized and unissued Bolle Common Stock and preferred stock, respectively
after the issuance of shares in connection with the Spinoff which could be
issued to a third party selected by management or used as the basis for a
stockholders' rights plan, which could have the effect of deterring a
potential acquiror. The ability of the Board of Directors of the Company to
establish the terms and provisions of different series of preferred stock
could discourage unsolicited takeover bids from third parties. See
"DESCRIPTION OF CAPITAL STOCK--Preferred Stock."
Shares Eligible for Future Sales; Futures Sales by Significant Stockholders
After the Spinoff, pursuant to which up to 8,000,000 shares of Bolle
Common Stock may be distributed by BEC pursuant to this Prospectus, the
Company intends to register up to 2,500,000 shares
13
<PAGE>
of Common Stock for issuance upon exercise of Bolle Options granted to its
employees under the 1998 Stock Incentive Plan. In addition, under the Warrant
Agreement, up to 800,000 shares of Bolle Common Stock issuable upon exercise
of the Bolle Warrants are subject to demand registration rights vesting on
the date a Warrant is first exercised, which may be as early as July, 1999.
The Company may issue additional stock, warrants and/or options to raise
capital in the future. During the terms of such options and warrants, the
holders thereof are given the opportunity to profit from a rise in the market
price of the Common Stock. The exercise of such options and warrants may have
an adverse effect on the market value of the Common Stock. The existence of
such options and warrants may adversely affect the terms on which the Company
can obtain additional equity financing. To the extent the exercise prices of
such options and warrants are less than the net tangible book value of the
Common Stock at the time such options are exercised, the Company's
stockholders will experience an immediate dilution in the net tangible book
value of their investment.
Pursuant to the Certificate of Designations of the Series B Preferred
Stock, the Company has agreed to use commercially reasonable efforts to
complete an equity financing, including a public offering by the end of 1998.
Following the expiration in July 2000 of the restriction on resale contained
in the Share Purchase Agreement, all the shares of Bolle Common Stock held by
the Sellers, or 4% of the Bolle Common Stock expected to be outstanding after
the Spinoff, will be eligible for sale by the Sellers pursuant to the
provisions of Rule 144 under the Securities Act. Upon the redemption in full
of all the shares outstanding of the Bolle Series B Preferred Stock, all the
shares of Bolle Common Stock received by Mr. Franklin pursuant to the
Spinoff, or up to approximately 6% of the total number of shares of Bolle
Common Stock expected to be outstanding after the Spinoff, will be eligible
for sale by Mr. Franklin in accordance with applicable law. No assurance can
be given that the Sellers or Mr. Franklin will not decide, based upon
prevailing market conditions, to dispose of all or a portion of their
investment in the Company after the expiration of applicable restrictions.
The future sale of a substantial number of shares of Common Stock may have an
adverse impact on the market price of the Bolle Common Stock. See "Volatility
of Stock Price."
SPECIFIC RISKS ASSOCIATED WITH THE COMPANY'S BUSINESS
Possible Inability to Sustain and Manage Growth
There are significant risks associated with the Company's growth. The
Company has expanded its operations significantly with the acquisition of
Bolle France in July 1997. The Company now intends to grow through brand
expansion and possibly strategic acquisitions, including acquisitions of
distributors of its products around the world. There can be no assurance that
the Company's efforts in managing its internal growth or pursuing those
acquisitions will be successful.
To manage growth effectively, the Company will be required to continue to
implement changes in various aspects of its business at a rapid pace, create
and develop continuously new or existing designs, expand its information
systems and operations and train and manage an increasing number of
management-level and other employees. If management is unable to anticipate
or manage these changes effectively, the Company's operating results could be
materially adversely affected.
To pursue external growth, the Company will need to identify acquisition
candidates the operations of which can be integrated effectively and
profitably into the Company on acceptable terms. There can be no assurance
that the Company will succeed in finding such candidates or obtaining such
terms. Future acquisitions by the Company could result in the incurrence of
debt, the potentially dilutive issuance of equity securities and the
incurrence of contingent liabilities and amortization expenses related to
goodwill and other intangible assets, which could materially adversely affect
the Company's business, operating results and financial condition.
The success of the Bolle France acquisition or of the proposed Bill Bass
Optical Acquisition or any other future acquisition by the Company depends on
its ability to integrate effectively the acquired businesses. The process of
integrating acquired businesses may involve numerous risks, including
difficulties in the assimilation of operations and products, the diversion of
management's attention from other business concerns, risks of entering
markets in which the Company has limited or no direct prior
14
<PAGE>
experience and the potential loss of key employees of the acquired
businesses. Additionally, there can be no assurance that any future
acquisitions will not have a material adverse effect on the Company's
operating results particularly during the period immediately following such
acquisitions. Historically, Bolle France has not been in compliance with
certain government-related requirements. The Company is currently in the
process of reorganizing Bolle France to improve administration and
compliance. Approximately $1,000,000 has been accrued on Bolle France's
Financial Statements to cover costs and expenses which the Company expects
to incur in connection with this reorganization. This financial exposure arises
in connection with the Company's transition from a private company to a
publicly-held company. The costs and expenses incurred in bringing Bolle
France or other future acquisitions into compliance with applicable regulatory
requirements may have a material adverse effect on the Company's business,
financial condition and results of operations. Except as disclosed herein, the
Company has no present understandings, commitments or agreements with respect
to any material acquisition.
Bill Bass Optical Acquisition
The Company has executed a non binding letter of intent to purchase the
business and operations of Bill Bass Optical, the principal distributor of
the Company's products in Australia, and certain of its affiliates. There is
no assurance that the Company will reach an agreement with the sellers
regarding the definitive terms of this acquisition, that the Company will
have sufficient financing available to pay the cash portion of the purchase
price of this acquisition (which the Company anticipates could be at least
$3,900,000), or that this acquisition will close, even if a definitive
agreement is reached prior to the closing of the Spinoff.
Accounting Treatment of Intangible Assets
On a pro forma basis, the Company's total goodwill and intangible assets
as of September 30, 1997 are estimated to be $48,979,000. On a pro forma
basis these assets are currently being amortized at a rate of approximately
$1,224,000 a year. This amortization expense will act to decrease the
Company's income over the life of the assets being amortized. The carrying
value of long lived assets will be reviewed regularly and there is no
guarantee that the Company will not suffer a significant charge in the future
from the impairment of long lived assets. The Company may acquire businesses
using purchase accounting which may create more intangible assets and
goodwill amortization. While the Company believes its accounting treatment
for goodwill and intangible assets has been and will continue to be
appropriate, there can be no assurance that additional goodwill and
intangible amortization or write-offs will not have a material adverse effect
on the Company's result of operations.
Dependence Upon New Product Introductions
The Company's historical success, including that of Bolle France, is
attributable, in substantial part, to its introduction of products which are
perceived to represent an improvement in performance over products available
in the market. The Company's future success will depend, in substantial part,
upon its continued ability to develop and introduce such innovative products
which are perceived to represent an improvement in performance over products
available in the market, and there can be no assurance as to the Company's
ability to do so. In recent years the Company has introduced a number of new
product offerings within existing product collections and a number of new
collections. The success of any product line is dependent upon various
factors, including product demand, production capacity and the availability
of raw materials and critical manufacturing equipment. In addition,
competitors may follow the Company's introduction of successful products with
similar product offerings. The uncertainty associated with all the above
factors, and any change in such factors from the Company's expectations,
could result in cost increases, delays or cancellation of such new products
or product lines and may also cause actual results to differ materially from
those projected.
Innovative designs are often not successful, and successful product
designs can be displaced by other product designs introduced by competitors
which shift market preferences in their favor. There is no assurance that the
Company will be able to create innovative products and designs which are also
popular with customers. In addition, although the Company seeks to protect
its products through patents and
15
<PAGE>
other proprietary rights, there can be no assurance that such protection will
prevent competitors from offering similar products. As a result of these and
other factors, there can be no assurance that the Company will successfully
maintain or increase its market share.
Risks Associated with Advertising Strategy
Although the Company will seek to increase its visibility in the premium
sunglass and sport eyewear world markets through significantly increased and
focused advertising campaigns, the Company's advertising strategy may be
unsuccessful at channeling consumer preferences toward the Company's
products, and the Company could be adversely affected by such a failure while
having incurred substantially increased advertising and marketing costs.
Dependence Upon Endorsement Contracts
As part of its marketing strategy, the Company has retained tennis
champion Martina Hingis for the purpose of promoting the Company's products
and intends to establish additional contacts with, and obtain endorsements
from, prominent athletes and public personalities. These endorsement
contracts generally have two to four year terms. The Company also expects to
furnish its products at a reduced cost or without charge to selected athletes
and personalities who would wear Bolle(Registered Trademark) products without
any formal arrangement. There can be no assurance that the Company will be
able to attract and retain athletes or personalities to wear or endorse its
products. If the Company were to lose the benefit of its existing
endorsements arrangements or were unable to arrange additional endorsements
of its products by athletes and/or public personalities on terms it deems
reasonable, it could be required to modify its marketing plans and could be
forced to rely more heavily on other forms of advertising and promotion,
which might not prove to be as effective as endorsements.
Reliance on Suppliers, Subcontractors and Distributors
The Company relies on a variety of subcontractors in France for the supply
of several components of its products and part of its manufacturing process.
Although to date the Company has not experienced any significant difficulty
in obtaining these components, there can be no assurance that shortages will
not arise in the future. The effect of the loss of any such sources or of a
disruption in their business will depend primarily upon the availability of,
and access to, suitable alternative sources. The failure by the Company to
meet the minimum purchase requirements set forth in the Alyn Supply Agreement
would result in the loss of the Company's exclusive supply of
Boralyn(Registered Trademark) metal frames. The loss of the Company's sources
for lens blanks or metal frames (for instance, as a result of the termination
of the Alyn Supply Agreement), or any disruption in such sources' business or
failure by them to meet the Company's product needs on a timely basis could
cause, at a minimum, temporary shortages in needed materials and could have a
material adverse effect on the Company's results of operations. There can be
no assurance that precautions taken by the Company will be adequate or that,
if it should become necessary, an alternative source of supply could be
identified in a timely manner. See "BUSINESS--Design and Production" and
"--Suppliers."
The Company relies for a significant part of its business on third parties
to ensure the worldwide marketing and distribution of its products. Although
to date the Company has not experienced any significant difficulty in the
distribution of its products, there can be no assurance that such independent
distributors will meet the Company's sales expectations or that the Company
will be able to continue to maintain or expand its existing distribution
network. See "BUSINESS--Sales and Distribution."
Dependence on Key Personnel
The Company's success depends, in substantial part, on the efforts and
abilities of Martin E. Franklin, the Company's Chairman of the Board, Gary
Kiedaisch, the Company's Chief Executive Officer, and Ian G. H. Ashken, the
Company's Executive Vice President of Finance and Administration, Chief
Financial Officer and Assistant Secretary. The loss of the service of either
of the foregoing key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. Mr.
16
<PAGE>
Kiedaisch has entered into an employment agreement with the Company which
continues until August 2000 unless earlier terminated by either party with or
without cause. There is no assurance that, if Mr. Kiedaisch's employment with
the Company were terminated, the Company would be able to retain the services
of a person qualified to fill his position. Messrs. Franklin and Ashken also
hold senior executive positions at BEC and will therefore devote such time
and efforts to the business of the Company as may be reasonably requested by
the Company under the Management Services Agreement. The Company believes
that its future success will depend in large part on its ability to attract
and retain directly or through the Management Services Agreement the services
of highly skilled and qualified personnel. Although the Company to date has
been successful in attracting and retaining qualified personnel, there can be
no assurance that the Company will not experience a shortage of qualified
personnel in the future.
Uncertain Protection of Proprietary Rights
The Company relies in part on patent, trade secret, unfair competition,
trade dress, trademark and copyright law to protect its rights to certain
aspects of its products, including product designs, proprietary manufacturing
processes and technologies, product research and concepts and recognized
trademarks, all of which the Company believes are important to the success of
its products and its competitive position. There can be no assurance that any
pending trademark or patent application will result in the issuance of a
registered trademark or patent, or that any trademark or patent granted will
be effective in thwarting competition or be held valid if subsequently
challenged. In addition, there can be no assurance that the actions taken by
the Company to protect its proprietary rights will be adequate to prevent
imitation of its products, that the Company's proprietary information will
not become known to competitors, that the Company can meaningfully protect
its rights to unpatented proprietary information or that others will not
independently develop substantially equivalent or better products that do not
infringe on the Company's intellectual property rights. No assurance can be
given that others will not assert rights in, and ownership of, the patents
and other proprietary rights of the Company. In addition, the laws of certain
foreign countries do not protect proprietary rights to the same extent as the
laws of the United States. See "BUSINESS--Intellectual Property."
The Company's strategy is to vigorously assert its intellectual property
rights, and, if required to, devote reasonable efforts and resources to the
processing of trademark applications, the enforcement of patents issued and
trademark registrations granted to the Company, to the protection of trade
secrets, trade dress or other intellectual property rights owned by the
Company and to the determination of the scope of validity of the proprietary
rights of others that might be asserted against the Company. A substantial
increase in the level of potentially infringing activities by others could
require the Company to increase significantly above past levels the resources
devoted to such efforts. In addition, an adverse determination in any future
litigation could subject the Company to the loss of its rights to a
particular patent, trademark, copyright or trade secret, could require the
Company to grant licenses to third parties, could prevent the Company from
manufacturing, selling or using certain aspects of its products or could
subject the Company to substantial liability, any of which could have a
material adverse effect on the Company's results of operations.
Product Liability
The Company may be subject to product liability claims which generally
would seek damages for personal injuries allegedly sustained as a result of
defects in the Company's products. A successful product liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition. This risk,
which is faced by any manufacturer of eyewear products, may be greater for
the Company as a result of its focus on eyewear products used in activities
associated with greater physical risks, such as activities requiring the use
of safety eyewear, sports and other activities involving special or extreme
situations. Although the Company has not been subject to a significant
product liability claim to date, the growth of the Company's business in the
United States or elsewhere may result in greater exposure to such risk.
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GENERAL RISKS ASSOCIATED WITH THE COMPANY'S BUSINESS
Susceptibility to Changing Consumer Preferences
The eyewear industry is subject to changing consumer preferences. The
Company's sunglasses, particularly its recreational sunglasses, are
susceptible to fashion trends. Unanticipated shifts in consumer preferences
may adversely affect the Company's sales and it may be faced with resulting
excess inventory and underutilized manufacturing capacity. While the Company
has a limited ability to modify slow-moving models to better satisfy consumer
preferences and otherwise utilize excess inventory and manufacturing
capacity, the Company cannot ensure that any such actions will be sufficient
to redress a market misjudgment. Accordingly, an unanticipated change in
consumer preferences could adversely affect the Company's results of
operations and financial condition.
Highly-Competitive Market
Both the sunglass and personal safety eyewear markets are highly
competitive. Certain companies that engage in these markets have
significantly greater financial, distribution and marketing resources than
the Company, and certain of the Company's competitors have significantly
greater brand awareness than the Company in certain important markets. See
"BUSINESS--Competition."
Within various niches of the sports segment of the premium eyewear market,
the Company competes with mostly smaller sunglass and goggle companies and a
limited number of larger competitors. In order to retain its market share,
the Company must continue to be competitive in the areas of quality,
technology, method of distribution, style, brand image, intellectual property
protection and customer service. The purchasing decisions of athletes, sports
enthusiasts and recreational wearers with respect to high performance eyewear
often reflect highly subjective preferences which can be influenced by many
factors, including advertising, media, product endorsements, product
improvements and changing styles. The Company could therefore face
competition from existing or new competitors that introduce and promote
eyewear which is perceived by consumers to offer performance advantages over,
or greater aesthetic appeal than, the Company's products. These competitors
include established branded consumer products companies that have greater
financial and other resources than the Company. No assurance exists that new
developments by the Company's competitors will not render some or all of the
Company's potential products obsolete or non-competitive, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company also competes in the broader, recreational segment of the
premium sunglass market. This segment is fragmented and highly competitive
and is generally more fashion-oriented. A number of established companies
compete in this wider market, several of which have greater financial and
other resources than the Company. In certain geographic markets, such as the
United States, certain of the Company's competitors have achieved greater
brand awareness among consumers than the Company.
The personal safety eyewear market is also highly fragmented. Competitors
range from small manufacturers offering single product lines to a limited
number of large competitors offering multiple product lines, some of which
have greater financial or other resources than the Company. There can be no
assurance that the Company will be able to compete successfully against
current and future competitors or that the competitive pressures faced by the
Company will not adversely affect its financial performance. See
"BUSINESS--Competition."
Market Cycles and Recent Declines in Sales Growth in the Sunglass Market
The world market for premium sunglasses experienced declining sales growth
and excess inventory in the last quarter of 1996 and the first nine months of
1997. The results of several competitors of the Company were affected by this
market trend and the operating difficulties (including excess inventory)
experienced throughout the year by a large sunglass specialty retail chain
the sales of which account for approximately 15% of total market sales. While
the Company expects sales to continue to grow for the remainder of 1997 and
the first six months of 1998, there can be no assurance that the Company will
be able to maintain or increase its sales, and should it fail to do so, the
Company's financial condition and results of operations could be adversely
affected.
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Risks Relating to International Sales
Sales outside the United States accounted for approximately 59% and 59% of
the Company's pro forma net sales for the year ended December 31, 1996 and
the nine months ended September 30, 1997, respectively. While the Company
expects international sales to continue to account for a significant portion
of its sales, there can be no assurance that the Company will be able to
maintain or increase its international sales. The Company's international
business may be adversely affected by changing economic conditions in foreign
countries and fluctuations in currency exchange rates. The Company's
international sales are also subject to risks associated with tariff
regulations, "local content" laws requiring that certain products contain a
specified minimum percentage of domestically-produced components, political
instability and trade restrictions. In addition, there can be no assurance
that the Company's brands and products will be popular in the various
countries in which the Company's products are or will be offered, or that the
Company will be successful in preventing competitors from producing eyewear
products for sale using the same or substantially similar design and
manufacturing process as the Company.
Specific Risks Associated with the Company's Safety and Tactical Eyewear
Business
The Company's safety and tactical eyewear business, which represented more
than 50% of the Company's total unit sales in 1996, is subject to specific
risks in addition to all the risks described herein. The primary users of the
Company's safety eyewear products are industrial workers. As a result,
decreases in general employment levels of industrial workers may have an
adverse effect on the Company's sales. The Company's sales may also be
adversely affected by changes in safety regulations covering industrial
workers and in the level of enforcement of such regulations. Changes in
regulations could reduce the need for and the utility of certain products
manufactured by the Company. A substantial portion of the sales of tactical
eyewear products by the Company is made pursuant to procurement contracts
with the defense forces of various countries. Such contracts typically
include specific termination and modification provisions and are subject to
laws and regulations pursuant to which the governmental party is granted
significantly greater rights than under regular commercial supply contracts.
Quarterly Fluctuations of Results; Seasonality of Business
The Company's business is affected by economic factors and seasonal
consumer buying patterns. The Company's quarterly results of operations have
fluctuated and may continue to fluctuate as a result of a number of factors,
including the timing of the introduction of new products, the mix of product
sales and weather patterns. Historically, the Company's sales, in the
aggregate, generally have been higher in the period from March to September.
Unpredictability of Discretionary Consumer Spending
The success of the Company's business depends to a significant extent upon
a number of factors relating to discretionary consumer spending, including
general economic conditions affecting disposable consumer income, such as
employment, business conditions, interest rates and taxation. Any significant
decline in such general economic conditions or uncertainties regarding future
economic prospects that adversely affect discretionary consumer spending
generally, or purchasers of discretionary optical products specifically,
could have a material adverse effect on the Company's results of operations.
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THE COMPANY
Bolle Inc. is a subsidiary of BEC. BEC is a holding company for two
businesses, ORC, which manufactures and markets specialty lighting technology
products, and the Company, which manufactures and markets Bolle(Registered
Trademark) premium sunglasses and sport shields, goggles and safety and
tactical eyewear. BEC was formed in May 1996 as a spinoff from Benson.
Following the spinoff, BEC sold Foster Grant, a distributor of value-priced
sunglasses and non-prescription reading glasses, in December 1996, leaving it
with two core businesses, Bolle America and ORC. Bolle America and ORC were
both public companies prior to their acquisition by Benson in November 1995
and October 1994, respectively. The Company was organized on February 3, 1997
in connection with the July 1997 acquisition by BEC of Holding B.F., the
French holding company that owned the Bolle(Registered Trademark) design and
manufacturing operation and certain distribution interests, including the
worldwide rights to the Bolle(Registered Trademark) brand. Bolle Inc. is a
holding company, the principal subsidiaries of which are Bolle America and
Bolle France. The purpose of the Spinoff is to permit the BEC Stockholders to
retain their interest in the Company while at the same time enabling BEC to
focus on its specialty lighting technology business.
The principal executive offices of the Company are located at 555 Theodore
Fremd Avenue, Suite B-302, Rye, New York, 10580. The telephone number is
(914) 967-9400.
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THE SPINOFF
REASONS FOR THE SPINOFF
The BEC Board of Directors believes that the Spinoff is fair to and in the
best interests of BEC and its stockholders for a number of reasons,
including, without limitation, that the Spinoff: (i) will maximize value in
the premium sunglass, sport shields, goggles and safety and tactical eyewear
segment of BEC's operations; (ii) should enable the Company to achieve a
valuation which, when seen in combination with its residual assets, is above
its current value as a wholly owned subsidiary of BEC; (iii) allows BEC
Stockholders to continue to participate in BEC's existing premium sunglass,
sport shields, goggles and safety and tactical eyewear business through the
direct ownership of the Bolle Common Stock; and (iv) will enable BEC to focus
on its specialty lighting technology business. A complete description of the
Merger and the reasons therefore is contained in the Proxy Materials.
TRANSFER OF THE NON-ORC BUSINESS TO THE COMPANY
The Company expects that, pursuant to the Contribution Agreement, BEC will
assign to the Company all of BEC's assets other than assets related to the
ORC Business (as defined in the Contribution Agreement) and certain other
specified assets retained by BEC, and the Company will assume all of BEC's
liabilities prior to the Spinoff other than those related to the ORC
Business. Pursuant to the terms of the Contribution Agreement, the Company
will assume and pay when and as due and discharge all debts, liabilities,
obligations and taxes in respect of these assets and liabilities. In return
for the net assets contributed to Bolle pursuant to the Contribution
Agreement, the Company expects to issue, at or prior to the Effective Time,
380 shares of Bolle Common Stock to BEC, as a result of which BEC will own
96% of the total number of shares of Bolle Common Stock outstanding. In
addition to the Contribution Agreement, BEC and the Company will enter into
an Indemnification Agreement (described below) and Management Services
Agreement. The terms of the Management Services Agreement are described under
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Management Services
Agreement." See also "RISK FACTORS--Risks Associated with the Spinoff."
Pursuant to the terms of the Contribution Agreement, BEC will retain the
ORC Business which consists of (i) all of the outstanding capital stock of
ORC and certain subsidiaries of ORC (the "ORC Group"), including BEC's
investment in Voltarc Technologies, Inc., and all the business, assets and
liabilities of or directly related to such entities, and (ii) all assets and
liabilities included in BEC's pro forma balance sheet to be attached as an
exhibit to the Contribution Agreement. Except as noted below, all other
assets of BEC will be assigned to, and all of BEC's liabilities prior to the
Spinoff, other than related to the ORC Business, will be assumed by the
Company. Assigned assets and assumed liabilities include without limitation
all interests, rights, duties and obligations of BEC relating to Accessories
Associates, Inc. (which purchased Foster Grant) and to Superior Vision
Services, Inc.; certain assets, rights, and obligations relating to Sterling
Vision, Inc.; the Management Agreement between BEC and Eyecare Products, plc.
("Eyecare Products"), as well as all of BEC's right, title and interest in
and to shares of stock of Eyecare Products; and all rights and interests in
and to rental payments received by BEC (as assignee) pursuant to an
Industrial Lease by and between Bartley Optical Sales, Inc. and ORC dated as
of December 8, 1995 and a Lease Agreement, dated as of May 3, 1996, between
Monsanto Company and ORC.
Under the terms of the Contribution Agreement and the Indemnification
Agreement, BEC will retain rights in, but the Company will assume liability
for and will indemnify BEC against, the following potential liabilities,
which do not involve any material present claims or known liabilities, in
connection with BEC's indemnification obligations under the following: a
guaranty of the minimum display purchase requirements of Foster Grant from
HMG World-Wide Corporation and its subsidiary Intermark Corp., a Foster Grant
supplier; certain agreements and obligations under a $3.6 million mortgage
with Wells Fargo Bank (Texas) and BEC as successor to Foster Grant; any
remaining BEC or Benson obligations relating and pursuant to (i) the
Agreement and Plan of Merger dated July 26, 1995, among Benson, BEC
Acquisition Corp. and Bolle America, (ii) the Asset Purchase Agreement dated
May 3, 1996, among Benson, BEC, and Monsanto Company, and (iii) the merger of
Essilor into Benson, effective May 3, 1996; certain immaterial pending
litigation; and the Stock Purchase Agreement between BEC and Lantis Eyewear
Corporation, dated November 14, 1996, as amended relating to shares
transferred to the Company pursuant to the Contribution Agreement. See "RISK
FACTORS--Risks Associated with the Spinoff."
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In addition, pursuant to the terms of the Contribution Agreement, Bolle
agreed that to the extent Bolle exchanges all, but not less than all, of its
shares of Foster Grant Holdings, Inc. Series A Preferred Stock (the "FGH
Preferred Stock") for shares of common stock ("AAi Common Stock") of
Accessories Associates, Inc. ("AAi"), Bolle shall deliver to BEC 35.71% (such
portion of the shares of AAi Common Stock is hereinafter referred to as the
"AAi Shares") of all of such exchanged shares of AAi Common Stock received by
Bolle, together with any rights attaching thereto. However, the Contribution
Agreement provides that in the event that Bolle does not obtain the AAi
Shares, Bolle agrees to pay to BEC the first $2.5 million received by Bolle
from proceeds (the "Proceeds") relating to (i) the sale by Bolle of the FGH
Preferred Stock or (ii) the redemption by Foster Grant Holdings, Inc. of the
FGH Preferred Stock. In the event that BEC does not receive either the AAi
Shares or $2.5 million from Bolle, as described above, on or before the date
that is five years after the effective date of BEC's merger with ILC, Bolle
shall promptly pay to BEC, an amount equal to $2.5 million less any amount
previously paid to BEC by Bolle from the Proceeds.
In addition, the Indemnification Agreement, which is in effect until June
30, 2000, except for liabilities under environmental laws, for which the term
is seven years, and tax liabilities, for which the term is the applicable
statute of limitations, provides that the Company will indemnify BEC against
any and all liabilities incurred or suffered by BEC related to the following:
(i) BEC and its subsidiaries, excluding the ORC Business, prior to or in
connection with the Spinoff, (ii) the Company and its subsidiaries subsequent
to the Spinoff, (iii) any environmental laws in connection with the business
operations of BEC or its subsidiaries or their predecessors (including the
ORC Business) prior to the date of the Spinoff and the current, past or
future business operations of the Company and its subsidiaries or any of
their predecessors, (iv) any claims by Monsanto Company for indemnification
in connection with the Asset Purchase Agreement among Benson, BEC and
Monsanto Company dated February 11, 1996, (v) the enforcement by BEC of its
rights under the Indemnification Agreement and (vi) any untrue statement or
omission of a material fact in this Prospectus, and that BEC will indemnify
the Company against all losses that are suffered by Bolle related to: (i)
BEC's business after the Spinoff; (ii) the ORC Business before the Spinoff
(other than environmental liabilities); or (iii) enforcing the Company's
rights under the Indemnification Agreement. In addition, the Indemnification
Agreement will set forth each party's rights and obligations with respect to
payments and refunds relating to certain taxes and related matters such as
the filing of tax returns and the conduct of audits or other proceedings
involving claims made by taxing authorities. In general, Bolle will agree to
indemnify BEC for taxes relating to the business of BEC (excluding the ORC
Business) and for taxes attributable to the Spinoff and certain other
transactions, and BEC will agree to indemnify Bolle for taxes relating to the
ORC Business. In addition, the Indemnification Agreement will set forth each
party's rights and obligations with respect to payments and refunds relating
to certain taxes and related matters such as the filing of tax returns and
the conduct of audits or other proceedings involving claims made by taxing
authorities. In general, the Company will agree to indemnify BEC for taxes
relating to the business of BEC (excluding the ORC Business) and for taxes
attributable to the Spinoff and certain other transactions, and BEC will
agree to indemnify the Company for taxes relating to the ORC Business. See
"RISK FACTORS--Risks Associated with the Spinoff."
CONSUMMATION OF THE SPINOFF
The Spinoff is expected to become effective on or as soon as practicable
after the Record Date immediately after the Special Meeting, but prior to the
closing of the Merger. The Spinoff does not require BEC Stockholder approval
and is not conditioned upon the closing of the Merger. The Spinoff will be
made to the holders of BEC Common Stock on the Record Date. The BEC Board has
determined the Record Date to be March 11, 1998.
In the Spinoff, BEC will distribute pro rata to its stockholders all of
BEC's equity interest in the Company, or up to 8,000,000 shares of Bolle
Common Stock. As a result of the Spinoff, each holder of BEC Common Stock
will receive, commencing the business day after the Effective Time, a
distribution of one share of Bolle Common Stock for every three shares of BEC
Common Stock owned of record by such holder on the Record Date, and, as a
result, Bolle will become an independent publicly-held company. Cash will be
paid in lieu of fractional shares. Based on, solely for the purpose of the
following
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estimate, (i) the 2,280 shares of Bolle Common Stock expected to be held by
BEC on or prior to the Record Date, (ii) the 17,749,076 shares of BEC Common
Stock outstanding as of February 2, 1998, the most recent date for which such
information is available prior to the date of this Propectus, and assuming
(i) exercise of a maximum of 1,000,000 BEC Options to purchase shares of BEC
Common Stock which are or will be exercisable on or prior to the Record Date,
(ii) conversion of all Convertible Notes and accrued interest on or prior to
the Record Date into a maximum of 4,155,000 shares of BEC Common Stock, (iii)
consummation on or prior to the Record Date of the Contribution Agreement and
all the other transactions expected to occur in connection with the Spinoff
on the terms described in this Prospectus and, after giving effect to a 3,347
for one stock split in the form of a stock dividend on Bolle Common Stock
expected to be effective at or prior to the Effective Time, a maximum of
approximately 7,632,000 shares of Bolle Common Stock would be distributed to
the BEC Stockholders in the Spinoff. The stock dividend described above will
be consummated immediately prior to the Effective Time to provide BEC with a
sufficient number of shares of Bolle Common Stock to effect the distribution
of the number of such shares which shall correspond to the number of shares
of BEC Common Stock outstanding as of the Record Date on the basis of (1)
share of Bolle Common Stock for (3) shares of BEC Common Stock outstanding as
of the Record Date. The Sellers will receive shares of Bolle Common Stock
pursuant to this dividend but their shares will not be distributed to the
public pursuant to the Spinoff and this Prospectus. Because the computation
of the dividend ratio depends on the number of shares of BEC Common Stock
that will be outstanding on the Record Date, the exact dividend ratio will
not be available to the Company until the close of business on the Record
Date. The aggregate number of shares of Bolle Common Stock that will actually
be distributed pursuant to the Spinoff may therefore vary.
MANNER OF EFFECTING THE SPINOFF
It is expected that upon formal declaration thereof by the BEC Board, the
Spinoff will be made as of the Record Date to stockholders of record of the
BEC Common Stock. The Record Date will be March 11, 1998. The Merger is
expected to take place promptly thereafter following the satisfaction of
certain conditions set forth in the Merger Agreement. Following the Record
Date, BEC will deliver to the Transfer Agent, upon issuance of the same by
the Company pursuant to a stock dividend to be consummated immediately prior
to the Spinoff, one or more share certificates representing all the shares of
Bolle Common Stock corresponding to the number of shares of BEC Common Stock
outstanding as of the Record Date, on the basis of one (1) share of Bolle
Common stock for every three (3) shares of BEC Common Stock held on the
Record Date. As soon as practicable thereafter, the Transfer Agent will make
appropriate entries in the accounts of, or, when applicable, deliver
certificates for the Bolle Common Stock to, holders of record of the BEC
Common Stock as of the close of business on the Record Date on the basis of
one (1) share of Bolle Common Stock for every three (3) shares of BEC Common
Stock held on the Record Date. No certificates or scrips representing
fractional shares of Bolle Common Stock will be issued to BEC Stockholders as
part of the Spinoff. The Transfer Agent will, as soon as practicable,
aggregate and sell all fractional interests of Bolle Common Stock on Nasdaq
or otherwise at the then prevailing market prices and remit the net proceeds
(after deduction of brokerage fees) to stockholders entitled to fractional
shares. BEC has been informed by the New York Stock Exchange that, beginning
two business days before the Record Date, and up to and including the earlier
of (i) the closing of the Merger, or (ii) the date on which certificates
representing the shares of Bolle Common Stock distributed pursuant to the
Spinoff are mailed to BEC stockholders of record as of the Record Date, the
shares of BEC Common Stock will trade with due bills attached which entitle a
purchaser of three shares of BEC Common Stock during such period to receive
from the seller of BEC Common Stock one share of Bolle Common Stock, or, in
the case of a purchase of less than three shares of BEC Common Stock, the
cash equivalent to the fraction of a share of Bolle Common Stock
corresponding to the BEC Common Stock purchased. The Bolle Common Stock
issued in the Spinoff will be fully paid and nonassessable and the holders
thereof will not be entitled to preemptive rights. See "DESCRIPTION OF
CAPITAL STOCK." Following the Spinoff, the Company will operate as an
independent public company.
No holder of BEC Common Stock will be required to pay any cash or other
consideration for the Bolle Common Stock received in the Spinoff and neither
BEC nor Bolle will receive any proceeds from the Spinoff. The purpose of the
Spinoff is to permit the BEC Stockholders to retain their interest in the
Company while at the same time enabling BEC to focus on its specialty
lighting technology business.
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TREATMENT OF BEC CONVERTIBLE NOTES.
In May 1996, BEC issued $21,018,000 aggregate principal amount of 8% BEC
Convertible Notes, due 2002. Assuming the current conversion price of $5.75
per share of BEC Common Stock and the conversion of all of, or 50% of, the
BEC Convertible Notes, the BEC Convertible Notes may convert into an
aggregate of approximately 3,655,402 shares or 1,827,701 shares,
respectively, of BEC Common Stock. Up to an additional 500,000 shares of BEC
Common Stock may be issued in payment of accrued interest on the BEC
Convertible Notes. A holder of BEC Convertible Notes that converts such Notes
into shares of BEC Common Stock prior to the Record Date will receive one
share of Bolle Common Stock for every three shares of BEC Common Stock held
following such conversion. Pursuant to the terms of the indenture under which
the BEC Convertible Notes were issued, the Spinoff will result in an
adjustment to the conversion price of the BEC Convertible Notes, and the
holders of the BEC Convertible Notes who do not convert prior to the Record
Date of the Spinoff will not receive shares of Bolle Common Stock, but will
retain their rights to convert into BEC Common Stock at the adjusted
conversion price. BEC has advised the Company that it will use reasonable
commercial efforts to effect the conversion of the BEC Convertible Notes
prior to the consummation of the Merger
ASSUMPTION BY THE COMPANY OF BEC'S LIABILITIES RELATING TO THE ACQUISITION OF
BOLLE FRANCE
In connection with the Spinoff, the Company will assume at or prior to the
Effective Time all obligations and liabilities of BEC to the Sellers incurred
by BEC in connection with the purchase of Bolle France and BEC shall then be
released from all such obligations and liabilities. In addition to BEC's
indemnification obligations for breach of its representations and warranties
made to the Sellers in the Share Purchase Agreement, which will become the
sole responsibility of the Company, the remainder of BEC's liabilities and
obligations to the Sellers will be assumed by the Company through the
issuance of the Bolle Series B Preferred Stock, Bolle Options and the
conversion of the BEC Warrants into Bolle Warrants, all on substantially the
same terms as those applicable to BEC. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Certain Transactions."
At or prior to the Effective Time, each Seller will contribute all of its
shares of BEC Series A Preferred Stock to the Company in return for the
issuance and delivery by the Company of an equal number of shares of Bolle
Series B Preferred Stock to such Seller. No shares of Bolle Common Stock will
be issued to the holders of outstanding shares of BEC Preferred Stock or
Bolle Series B Preferred Stock pursuant to the Spinoff. The Company expects
to contribute all the shares of BEC Series A Preferred Stock to BEC in return
for the cancellation of certain indebtedness of the Company to BEC. In
addition, the Sellers will agree to the termination of their existing warrant
agreement with BEC and the cancellation of their BEC Warrants to purchase
2,130,000 shares of BEC Common Stock issued pursuant thereto, in return for
the execution and delivery by the Company of the Warrant Agreement and,
pursuant to the Warrant Agreement, the issuance and delivery by the Company
to the Sellers of new warrants to purchase shares of Bolle Common Stock in
proportion to the number of BEC Warrants held by each Seller prior to the
cancellation, and representing in the aggregate 10% of the number of shares
of Bolle Common Stock to be issued pursuant to the Spinoff, with an exercise
price per Warrant adjusted to reflect the occurence of the Spinoff. No shares
of Bolle Common Stock will be issued to the holders of outstanding BEC
Warrants or Bolle Warrants pursuant to the Spinoff. See "DESCRIPTION OF
CAPITAL STOCK--Preferred Stock" and "--Warrants."
BOLLE PREFERRED STOCK
In connection with the acquisition of Bolle France, the Company issued in
July 1997 an aggregate of 64,120 shares of Bolle Series A Preferred Stock.
The Bolle Series A Preferred Stock is not convertible into Bolle Common Stock
pursuant to the Spinoff. In connection with the Spinoff, the holders of all
outstanding shares of Bolle Series A Preferred Stock have approved the making
of the Bolle Series A Preferred Stock subordinate to the Bolle Series B
Preferred Stock in respect of liquidation preference and redemption and other
modifications which may be required in connection with the Spinoff. See
"DESCRIPTION OF CAPITAL STOCK--Preferred Stock."
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TREATMENT OF STOCK OPTIONS
BEC Options that are not exercisable on or prior to the Effective Time
will not become vested and exercisable solely by reason of the consummation
of the Spinoff. However, it is anticipated that in connection with the
Spinoff, the committee administering the BEC Option Plan will, pursuant to
the provisions of the BEC Option Plan, make adjustments to all BEC Options as
follows: BEC Options outstanding with respect to employees who will be
employed by the Company after the Spinoff will be canceled in exchange for
options to purchase Bolle Common Stock with similar terms and conditions and
with an equivalent economic value to the canceled BEC Options. BEC Options
with respect to employees who will continue to be employed by BEC after the
Spinoff shall have the exercise price adjusted to reflect the economic value
of the Spinoff. A detailed description of the treatment of outstanding BEC
Options in connection with the Merger is provided in the Proxy Materials
distributed previously.
LISTING OF THE BOLLE COMMON STOCK; RESTRICTIONS ON RESALE
The Bolle Common Stock has been approved for quotation on Nasdaq under the
symbol "BEYE," subject to official notice of issuance. A "when as, and if
issued" trading market for the Bolle Common Stock is expected to develop on
or about the first trading day following the Effective Time until the date on
which certificates representing shares of Bolle Common Stock distributed
pursuant to the Spinoff are mailed to BEC stockholders of record as of the
Record Date. Based on the number of BEC stockholders of record as of February
12, 1998, the Company's management believes that the Company will have
approximately 580 stockholders of record following the Spinoff. The prices at
which the Bolle Common Stock will trade, if at all, cannot be predicted. Such
prices will be determined by the marketplace after the Spinoff and may be
influenced by many factors, including, without limitation, investor
perception of the Company and general economic and market conditions. The
Bolle Common Stock received pursuant to the Spinoff will be freely
transferable under the Securities Act, except for shares of such Bolle Common
Stock received by any person who may be deemed to be an "affiliate" of the
Company within the meaning of Rule 144 under the Securities Act. Persons who
may be deemed to be affiliates of the Company, after the Spinoff generally
include individuals or entities that control, are controlled by, or are under
common control with the Company, and will include the directors and executive
officers of the Company who will own approximately up to 9% of the total
number of shares expected to be outstanding after the Spinoff, as well as any
principal stockholder of the Company. Persons who are affiliates of the
Company will be permitted to sell their Bolle Common Stock received pursuant
to the Spinoff only pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption therefrom, such as the exemptions
afforded by Section 4(l) of the Securities Act and Rule 144 thereunder. This
Prospectus will not cover resales of the Bolle Common Stock by affiliates of
the Company. See "RISK FACTORS--Shares Eligible for Future Sale" and
"DESCRIPTION OF CAPITAL STOCK."
INTERESTS OF CERTAIN PERSONS IN THE SPINOFF
The executive officers of BEC, who currently are and will remain after the
Spinoff executive officers of Bolle, and Messrs. Franklin, Ashken and Moore,
who are members of the BEC Board and currently are and will remain after the
Spinoff directors of the Company, may be deemed to have interests in the
Spinoff in addition to their interests as BEC Stockholders generally which
may cause conflicts of interest. These interests relate to payments to be
received by BEC pursuant to the Management Services Agreement, the
apportionment of BEC's liabilities between BEC and Bolle pursuant to the
Contribution Agreement and the Indemnification Agreement, in addition to
liabilities assumed by Bolle through the issuance of the Bolle Series B
Preferred Stock and certain Bolle Options and Warrants under the Warrant
Agreement. In each case, the Bolle Board and the holders of Bolle Common
Stock were aware of these interests and considered them in unanimously
approving the Spinoff and the transactions contemplated thereby. Following
the Spinoff, as a result of their respective positions in BEC and the
Company, each of Messrs. Franklin, Ashken and Moore may, in the course of
their duties, have potential conflicts of interest with respect to material
transactions involving BEC and the Company. Each will have regard to his
25
<PAGE>
obligation to act in the best interest of the Company and will endeavor to
ensure that such conflicts are resolved fairly. See "MANAGEMENT," "EXECUTIVE
COMPENSATION" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Management
Services Agreement" and "--Relationships with Directors."
EXPENSES
Expenses associated with the Spinoff, which are expected to be
approximately $850,000 in the aggregate, will be paid either directly or
indirectly by the Company.
CONDITIONS
The consummation of the Spinoff does not require the approval of the BEC
Stockholders and is not contingent upon the closing of the Merger or other
conditions, except the effectiveness of the Registration Statement containing
this Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of the Bolle Common Stock will be a taxable transaction for
Federal income tax purposes. Gain recognized on the distribution will be
treated either as capital gain or as dividend income. The distribution should
be considered governed by Internal Revenue Code (the "Code") Section 301.
This section requires that the portion of the distribution (valued on the
basis of the Bolle Common Stock's fair market value on the distribution and
any cash distributed in lieu of fractional shares) equal to the pro rata of
BEC's current year and accumulated earnings and profits which for federal
income tax purposes is allocable to the BEC Common Stock with respect to
which the distribution is made be treated as a dividend for federal income
tax purposes. Any portion of the distribution in excess of earnings and
profits allocable to the BEC Common Stock with respect to which the Bolle
Common Stock is distributed is treated as a return of capital by applying it
against, and reducing the adjusted tax basis in, the BEC Common Stock with
respect to which the Bolle Common Stock was distributed. Any amount of the
distribution which is not a dividend, to the extent it exceeds the adjusted
basis of the BEC stock to which it relates, is treated as gain from the sale
or exchange of property. Based on current facts, it is not anticipated that
BEC will have any current or accumulated earnings and profits at the time of
the distribution, and it also is not anticipated that the value of the
distribution will exceed any stockholder's tax basis in the BEC Common Stock
with respect to which each Bolle share (and any cash for fractional shares)
is distributed. If such anticipated circumstances exist at the time of the
distribution, no BEC Stockholder will have any gain by reason of the
distribution. The effect of treating a portion or all of the distribution as
a return of capital will be to reduce the BEC stockholders' tax basis in the
BEC Common Stock held after the distribution.
Any portion of the distribution which is treated as an exchange will be
taxable as long-term capital gain if the BEC Common Stock has been held for
more than one year on the date of the distribution; otherwise any gain will
be short-term capital gain. The federal income tax rate on long-term capital
gain will depend upon the length of time a stockholder has owned the BEC
Common Stock with respect to which the distribution is made. Gain taxable as
dividend income may be eligible for a dividends received deduction for
corporate stockholders. In addition, Section 1059 of the Code, which requires
corporate stockholders to reduce basis of shares in the case of certain
extraordinary dividends, may be applicable to corporate stockholders that
receive distributions which are taxable as dividend income. Finally, any
portion of the distribution which is treated as a dividend will be subject to
withholding tax for foreign stockholders.
Each holder's initial adjusted basis for the Bolle Common Stock received
in the Spinoff will be the fair market value of such stock at the time of the
distribution and the holding period for such stock will commence upon the day
of the distribution.
EACH BEC STOCKHOLDER IS ADVISED TO CONSULT HIS HER OR ITS OWN ADVISER AS
TO THE SPECIFIC TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE PROPOSED SPINOFF,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
26
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following selected historical and pro forma combined financial data
have been derived from audited and unaudited historical financial statements
and should be read in conjunction with the consolidated financial statements
of the Company and its significant subsidiaries included herein.
The Company was formed in 1997 to complete BEC's acquisition of Bolle
France and therefore has no historical activity or financial statements.
Bolle America was purchased by BEC 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.
The following unaudited Bolle Inc. pro forma combined statement of
operations data give effect to the acquisition of Bolle France under the
purchase method of accounting and reflect the Contribution Agreement and the
Indemnification Agreement. The following pro forma combined balance sheet
data only give effect to the Contribution Agreement and the Indemnification
Agreement as the effect of the acquisition is already included in the
Company's actual balance sheet as of September 30, 1997. The actual statement
of operations data presented include the results of Bolle France for the
three months ended September 30, 1997. The pro forma combined statement of
operations data presented include Bolle France as if the acquisition occurred
as of the beginning of the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- ----------------------
PRO PRO
ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL FORMA ACTUAL FORMA
1992 1993 1994(1) 1995(2) 1996(3) 1996 1997(4) 1997
--------- --------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................ $15,495 $18,377 $23,094 $24,829 $24,425 $60,297 $ 20,670 $36,266
Cost of sales ............................ 8,595 9,126 10,814 12,181 12,130 29,140 9,750 18,267
--------- --------- --------- --------- --------- --------- ----------- ---------
Gross profit ............................. 6,900 9,251 12,280 12,648 12,295 31,157 10,920 17,999
Selling, general and administrative
expenses (including advertising and
sponsoring expenses) .................... 6,808 7,384 8,871 10,275 11,374 23,813 10,593 16,310
Merger related expenses .................. -- -- -- 3,050 -- -- -- --
Interest expense (income)................. 488 336 316 (302) (256) 931 516 465
Other expense (income) ................... (81) (295) (104) 48 (450) (200) (803) (1,162)
--------- --------- --------- --------- --------- --------- ----------- ---------
Income (loss) before income taxes ....... (315) 1,826 3,197 (423) 1,627 6,613 614 2,386
Provision for (benefit from) income
taxes.................................... (120) 700 1,260 364 635 1,721 196 1,301
--------- --------- --------- --------- --------- --------- ----------- ---------
Net income (loss) ........................ $ (195) $ 1,126 $ 1,937 $ (787) $ 992 4,892 $ 418 1,085
========= ========= ========= ========= ========= ========= =========== =========
Preferred stock dividends ................ 511 383
--------- ---------
Net income attributable to common stock .. $ 4,381 $ 702
========= =========
Pro forma shares outstanding.............. 7,408 7,408
Pro forma earnings per share.............. $ 0.59 $ 0.09
French Franc per US Dollar exchange rate
used (5)................................. 5.1138 6.0832 5.9188
BALANCE SHEET DATA:
Working capital (deficiency).............. $ 31 $ 1,060 $12,781 $11,395 $ 8,535 $(16,528) $ 433
Total assets ............................. 8,164 9,629 17,549 16,309 15,624 82,513 99,370
Long term debt ........................... 350 49 57 -- -- -- 3,428
Mandatorily redeemable preferred stock ... -- -- -- -- -- 11,055 20,349
Stockholders' equity ..................... 279 1,584 13,433 12,770 9,743 24,460 44,256
French Franc per US Dollar exchange rate
used (5)................................. 5.1900 5.9125 5.9125
</TABLE>
- ------------
(1) In 1994, Bolle America paid a $50 dividend to its then current
shareholders.
(2) In November 1995, BEC acquired Bolle America in a transaction accounted
for as a pooling of interests. Accordingly, Bolle America, Inc. is
included in all periods presented.
(3) In 1996, the Company paid a dividend to BEC (its then current
stockholder) of $4,019.
(4) 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.
(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 pro forma results of operations for the year ended
December 31, 1996 represents the average exchange rate used to
translate the results of operations of Bolle France added to the
Company's actual results in the pro forma statement of operations. The
exchange rate shown for the actual results of operations for the nine
months ended September 30, 1997 represents the average exchange rate
for the three months ended September 30, 1997 used to translate the
results of operations of Bolle France included in the Company's actual
results. The exchange rate shown for the pro forma results of
operations for the nine months ended September 30, 1997 represents the
average exchange rate for the nine months ended September 30, 1997 used
to translate the results of operations of Bolle France added to the
Company's actual results in the pro forma statement of operations.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Due to the acquisition of Bolle France on July 10, 1997, only three months
of results of operations of Bolle France are included in the results of
operations for the nine months ended September 30, 1997. Therefore, trends
due to the acquisition will be extrapolated accordingly when Bolle France is
included for the entire period presented.
In conjunction with the acquisition of Bolle France and following the
planned Spinoff, it is anticipated the Company will be subject to interest on
approximately $17 million of senior indebtedness at an average current rate
of approximately 5%. Although this represents significantly less than the
intercompany indebtedness currently outstanding, it is nevertheless higher
than indebtedness has 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 has been operated as a separate segment of
BEC's business and will continue to receive management and administrative
services from BEC on similar terms to those reflected in the historical
financial statements under the Management Services Agreement.
Pro forma results of operations
For the nine months ended September 30, 1997, on a pro forma combined
basis, US sales represented 41% of total net sales while French sales
represented 59%. On a pro forma basis the year ended December 31, 1996 was
similar in geographic distribution with US sales representing 40% and French
sales representing 60% of pro forma combined net sales.
In US Dollars, for the nine months ended September 30, 1997, net sales of
Bolle France were $18,656 or 38% of $48,827, the net sales for the year ended
December 31, 1996. On the other hand, in thousands of French Francs, for the
nine months ended September 30, 1997, net sales of Bolle France were FF
158,617 or 64% of FF 249,693, the net sales for the year ended December 31,
1996. The relative difference between 38% and 64% is due to the substantial
increase in the French Franc to US Dollar exchange rate from 1996 to 1997.
The decrease in sales not due to the change in exchange rates is due to
the same factors discussed in the comparisons of actual results below. Bolle
America represented 16.4% and 26.5% of total Bolle France sales for the nine
months ended September 30, 1997 and the year ended December 31, 1996,
respectively. The reduction in Bolle America's sales significantly impacted
Bolle America's purchases from Bolle France.
As indicated by the pro forma combined gross margins of 50% and 52% for
the nine months ended September 30, 1997 and the year ended December 31,
1996, respectively, the gross margin which can be expected going forward is
slightly higher than that which has been experienced in actual historical
margins as a result of applying the manufacturing costs directly to the owned
distributors' sales prices. The gross margin for Bolle France in the third
quarter of 1997 was lower than in other quarters due to the annual plant
shutdown during the third quarter.
In accordance with the decrease in sales from 1996 to 1997, due to
exchange rate changes and reduced sales at Bolle America, net income also
decreased substantially in 1997. Pro forma combined interest expense
represents an estimate of the interest expense expected after the Spinoff.
Selling general and administrative expenses included $2.6 million of
depreciation and amortization on a pro forma combined basis for the year
ended December 31, 1996.
28
<PAGE>
Historically, Bolle France has not been in compliance with certain
government-related requirements. The Company is currently in the process of
reorganizing Bolle France to improve administration and compliance.
Approximately $1,000,000 has been accrued on Bolle France's Financial
Statements to cover costs and expenses which the Company expects to incur in
connection with this reorganization.
Prior to July 10, 1997, Bolle France consisted of a number of
unconsolidated privately held entities which filed separate tax returns.
Bolle America filed tax returns as part of BEC's consolidated United States
return. Since July 1997, the Company has revised the structure of Bolle
France to make it one consolidated tax group for French tax purposes.
Following the Spinoff, the Company will file a consolidated United States tax
return for its domestic businesses (including Bolle America) and the foreign
operations will file tax returns in the appropriate countries as required by
local law. The Company does not anticipate a significant change to the pro
forma combined tax provisions in future periods arising from the post-Spinoff
tax structure of Bolle Inc.
Nine months ended September 30, 1997 compared to nine months ended September
30, 1996
Net sales of $20.7 million for the nine months ended September 30, 1997
increased from $19.8 million for the comparable period in 1996 despite a $4.9
million decrease in sales in the United States, resulting from the
acquisition of Bolle France on July 10, 1997. For the nine months ended
September 30, 1997, US sales represented 72% of net sales with French sales
representing the remaining 28%. Soft conditions in the market for premium
sunglasses contributed to the decrease in sales in the United States. 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 17% of Bolle America
sales for the nine months ended September 30, 1996 and less than 5% of Bolle
America sales for the nine months ended September 30, 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 51.5% for the nine months ended September 30,
1996 to 52.8% for the nine months ended September 30, 1997, reflecting the
trend of increasing gross margins as the Company is now a combined
manufacturer and distributor following the Acquisition instead of solely a
distributor.
Advertising and sponsoring expenses did not increase significantly except
for the addition of Bolle France for the nine months ended September 30, 1997
compared to the nine months ended September 30, 1996.
For the nine months ended September 30, 1997, selling, general and
administrative expenses of $7.7 million increased from $6.3 million in the
comparable period in 1996 reflecting the addition of Bolle France costs.
Interest expense of $0.5 million for the nine months ended September 30,
1997 primarily reflects the interest expense on Bolle France acquisition
debt. In the comparable period in 1996, however, Bolle America's cash on hand
generated interest income of $0.2 million.
Other income consists of allocated equity income and management fee income
from BEC's investment in Eyecare Products of $0.6 million for the nine months
ended September 30, 1997 and $0.9 million for the nine months ended September
30, 1996. This income was allocated to the Company by BEC. For the nine
months ended September 30, 1997 other income also included $0.2 million of
foreign exchange transaction gains compared to none in the prior period.
The provision for income taxes of approximately $0.2 million or 32% of
income before income taxes for the nine months ended September 30, 1997
represents the anticipated effective tax rate of the Company in its present
structure. The tax provision of $1.0 million for the nine months ended
September 30, 1996 represented the Company's 39% effective tax rate for 1996
in its then present structure. The acquisition of Bolle France has had a
significant effect on the overall effective tax rate and provision
calculations due to the higher statutory tax rate in France and the
significant non-deductible amortization and depreciation expenses resulting
from purchase accounting.
29
<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 impacted
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 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
stockholder's general and administrative expenses in 1996. In 1995, because
the Company was acquired by its stockholder in November, no allocations were
effected.
In November 1995, the Company was acquired by its stockholder 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 benefit reflects the significant effect of the
merger related expenses.
Year ended December 31, 1995 compared to year ended December 31, 1994
The increase in net sales of 7.5% from 1994 to 1995 reflects the Company's
participation in premium sunglass market growth as it strengthened its brand
image and competitive advantages, selling more units at market-justified
higher price points. For the years ended December 31, 1995 and 1994, the
Company's sales were substantially all in the United States.
The decrease in gross margin from 53% to 51% reflects price increases from
the Company's main supplier, Bolle France, not passed on to the customers.
This increase was partially offset by a volume-related decrease.
Advertising and sponsoring expenses increased from $1.9 million in 1994 to
$2.7 million in 1995 due to continued implementation of more aggressive
marketing and advertising campaigns.
The 8.9% increase in selling, general and administrative expense from $7.0
million to $7.6 million reflects the increase in net sales and additional
administrative expenses associated with the Company's public offering
completed in December 1994.
Prior to the Company's public offering in December 1994, the Company's
average debt balances resulted in interest expense of $0.3 million for the
year ended December 31, 1994. Substantially all of the Company's debt was
repaid following the public offering resulting in interest income of $0.3
million for the year ended December 31, 1995.
Other income in both 1994 and 1995 represented foreign exchange gains and
losses resulting from currency movements between the United States Dollar and
the French Franc.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities during the nine months ended
September 30, 1997 of $1.8 million represents the net income with the
negative effect of decreased accounts payable and increased other assets.
These cash uses were offset by decreased accounts receivable and non-cash
expenses. Depreciation and amortization for the nine months ended September
30, 1997 was $0.9 million compared to $0.3 million for the same period last
year, 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 $0.4 million were also increased due to
the acquisition. These operating and investing activities were financed
through proceeds from indebtedness to stockholder which is the Company's
current source of capital outside of operating cash flows. Under the
intercompany credit arrangement, the Company borrows US Dollars from BEC at a
rate of 8% and French Francs at a rate of 5.5%. In conjunction with the
Spinoff, it is anticipated that the Company will enter into a separate credit
facility with substantially the same terms as the BEC facility and that there
will be no intercompany credit arrangements between BEC and the Company. The
Company will lend cash to its subsidiaries in substantially the same manner
as BEC 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 payed to its stockholder 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.
Net cash provided by operating activities in 1994 of $0.3 million
consisted of net income offset by increases in working capital to support the
growing business. The cash provided by operations along with proceeds from
long term debt was sufficient to fund the Company's investing activities. A
substantial portion of the public offering proceeds was used to repay
indebtedness.
In connection with the Contribution Agreement to be entered into between
BEC and the Company, approximately $18 million of indebtedness to related
parties incurred to finance the acquisition of Bolle France will be
capitalized. This reduction in the Company's debt will improve 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.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"), which revises the
calculation and presentation provisions of Accounting Principles Board
Opinion 15 and related interpretations. SFAS 128 is effective for the
Company's fiscal year ending December 31, 1997, and retroactive application
is required. The Company does not expect the implementation of SFAS 128 to
have a material effect on earnings per share amounts previously reported.
31
<PAGE>
BUSINESS
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 recent creation of Bolle Inc. was completed to combine 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, which the Company believes
will allow it to expand its business and enhance its profitability. This
organization enables the Company to develop and execute a consistent and
unified marketing strategy targeted at promoting the Company's competitive
advantages. The Company believes that its competitive advantages include its
strong brand name, integrated design, production and marketing capabilities,
superior technology, specialized product offerings and established
international distributors in over 40 countries around the world. The Company
will seek to integrate these international distributors into a cohesive
worldwide network and add new distributors through acquisitions or
distributorship agreements. See "Business--Business Strategy."
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. 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
leading to multiple purchases, increased health concerns and greater fashion
and image content. 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 contribute to the
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 long-standing 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:
Acquisition of Largest Independent Distributor. Consistent with the
Company's strategy of consolidating certain of its distributors through
acquisitions or other arrangements, the Company has executed a non-binding
letter of intent to purchase Bill Bass Optical, the largest independent
distributor of the Company's products and the principal distributor of the
Company's products in Australia, which had sales of Bolle(Registered
Trademark) products in Australia in excess of $10 million in 1997. The
Company has offered to purchase 75% of the outstanding shares of Bill Bass
Optical and an affiliate thereof, 100% of the outstanding shares of Bolle
Asia (the distributor of the Company's sunglasses in Southeast Asia), and the
49% of the shares of Bolle Sunglass Ltd. (the distributor of the Company's
sunglasses in the U.K.) that the Company does not already hold for an
aggregate price of approximately $6,250,000, consisting of $3,900,000 in cash
and $2,350,000 in Bolle Common Stock. It is contemplated that the transaction
will be completed following the closing of the Spinoff, 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.
Alyn Supply Agreement. Consistent with its traditional focus on
technological innovation, the Company has entered into a three-year exclusive
Supply Agreement with Alyn, a manufacturer of specialized metal frames, to
create premium sunglass frames using Boralyn(Registered Trademark), a special
patented metal
32
<PAGE>
matrix providing greater strength and stiffness to weight ratios than
titanium, which is currently considered the leading metal for advanced metal
eyewear.
Martina Hingis Endorsement Contract. 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. It is expected that Ms. Hingis will also appear in the Company's
first-ever worldwide brochure, a combination magazine/catalogue, in early
1998.
INDUSTRY OVERVIEW
The Premium Sunglass Market
The premium sunglass market consists of two main segments, premium and
value-priced. The premium market is defined by products with retail price
points over $30 and the value-priced segment is defined by products with
retail price points below $30. The Company competes in the premium, and not
the value-priced, sunglass market. The Company's premium sunglass business
accounts for approximately half of the Company's aggregate unit sales and 70%
of the Company's total sales. The Company's main competitors are Bausch &
Lomb Incorporated ("Bausch & Lomb"), the marketer of the Ray Ban, Killer
Loop, Arnette and Revo brands, Luxottica, and Oakley, Inc. ("Oakley"), which
together control approximately 60% of the premium market segment and several
other companies with smaller market shares. The Company focuses on the $60 to
$90 price point range, which the Company believes differentiates it from its
major competitors in the sport segment whose average price is in excess of
$100. Approximately 19 million pair of premium sunglasses were sold in 1996
for a total value of $1.7 billion. Based on available industry data, the
Company believes that sales of premium sunglasses grew from $825 million in
1989 to $1.7 billion in 1996.
The key factors contributing to the continuing growth in the premium
sunglass market include the following:
Advancements in Product Technology. New products and technologies are
continually being introduced in the industry to improve the quality and
durability of frames and lenses. Advances include (i) lightweight, virtually
unbreakable, polycarbonate lenses for better comfort and safety; (ii)
interchangeable lenses offering multiple styles and functions for a
particular frame; (iii) scratch resistant coatings for longer lasting lenses;
and (iv) anti-reflective coatings to reduce glare and eyestrain, improve
visual clarity and cosmetic appeal. These innovations are increasing the
overall range of products in the market as well as, in many cases, profit
margins.
Growing Demand for Specialized Sunglasses Leading to Multiple
Purchases. In addition to consumer concern for quality eye protection and the
growing importance of sunglasses as a fashion accessory, demand for
specialized sunglasses to be used as equipment in different sports and
activities has grown. This additional customer demand has resulted in more
product offerings and greater frequency of purchases by consumers and
increased brand awareness.
Increased Health Concerns. Consumer awareness of the harmful effects of
ultraviolet rays on the eyes and the overall importance of health concerns
have increased. This has resulted in greater willingness by consumers to pay
more for premium sunglasses believed to provide greater eye protection. In
addition, as the proportion of the population who require corrective eyewear
increases, the demand for prescription sunglasses is expected to rise.
Increased Fashion and Image Content. Sunglasses are increasingly being
used as fashion accessories for dress, casual and recreational activities. A
number of leading designers, such as Giorgio Armani, Calvin Klein, Guess,
Nautica and Polo Ralph Lauren, among others, are leveraging the appeal of
their brand names by offering lines of sunglasses. As the emphasis shifts to
include function and fashion, the offerings of shapes and colors has been
expanded, creating more sunglass choices and resulting in more frequent
purchases by customers.
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The Safety and Tactical Eyewear Market
Safety and tactical eyewear products may be designed for general or
special purpose. General purpose safety and tactical eyewear products provide
undifferentiated protection against hazards such as flying objects, glare and
liquid. Special purpose safety and tactical eyewear products are designed to
fit the needs of a particular category of customers in addition to providing
the same protection features as general purpose safety and tactical eyewear
products. The Company competes in the special purpose segment of the safety
and tactical eyewear market. The Company's main competitors are Bacou USA,
Inc., the marketer of Titmus(Registered Trademark) and Uvex(Registered
Trademark) products, WGM Safety Corp. (a subsidiary of French manufacturer
Christian Dalloz S.A.) which distributes its products under the Willson
Safety Products trade name, and Crews, Inc., which distributes its products
under the Crews Safety Products trade name. The Company's safety and tactical
business accounts for approximately half of the Company's aggregate unit
sales and 30% of the Company's total sales. The Company focuses on the $3 to
$25 price point range.
The key factors which may contribute to the potential growth of the safety
and tactical eyewear market include the following:
Increased Regulation of Safety Eyewear. Demand for safety eyewear products
is driven by government regulations promulgated by agencies such as the
Occupational Safety and Health Administration, the Mine Safety and Health
Administration and the National Institute of Occupational Safety and Health
mandating the use of personal protective eyewear for certain job
classifications and work-site environment. Other factors creating
requirements for personal safety eyewear products at the workplace include
the rising cost of insurance, costs and liabilities relating to worker injury
and increased safety awareness.
New Special Purpose Applications. Demand for laser eye protection
equipment has risen as a result of the generalization of the use of laser in
manufacturing processes, military operations and for medical treatment. Other
special purpose applications which have developed in recent years include
protective eyewear for firefighters, sky divers and paratroopers.
Advancements in Product Technology. Technological trends in the industry
include a move toward lighter-weight and thinner polycarbonate lenses,
special applications lenses, such as infrared lenses, and increased use of
coatings, such as scratch resistant and anti-fog coatings. Consumer
preferences include lighter and more sophisticated products as more demand
for protective eyewear products arises from service industries, schools and
hospitals. In 1989, the American National Standards Institute (ANSI) changed
the standard pertaining to eye and face protection products. Under the new
standard, the evaluation of safety and tactical eyewear products shifted from
design to performance based criteria. As a result, producers moved to
incorporate more technology in their manufacturing processes to improve
product performance.
Demand for Style-Oriented Products. Style and comfort have led to better
user acceptance and even desirability. Product users prefer fashionable and
comfortable safety and tactical eyewear products. Therefore, the Company
believes that industrial purchasers are inclined to select functional
products which combine the characteristics of fashion and comfort whenever
available because product users are more likely to wear such products
regularly, thereby increasing regulatory compliance and reducing the risk of
injury. As a result, more spectacles and wrap around styles are being
developed, as opposed to heavier and bulkier goggles and face shields. Rising
demand for a broader variety of lens options, styles and colors is also
expected.
BUSINESS STRATEGY
Building on its technological heritage and its other competitive
advantages, the Company intends to leverage its established international
distributors in over 40 countries through a worldwide marketing initiative to
expand the Bolle(Registered Trademark) brand aggressively. The Company
believes that it is uniquely positioned, through its competitive advantages,
to implement successfully this growth strategy and achieve its brand
expansion objective.
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Competitive Advantages
The Company believes that it has the following competitive advantages
which contribute to differentiate it from its competitors:
Strong Brand Name. Bolle(Registered Trademark) products enjoy a strong
reputation for high performance and style. This reputation is based on the
superior technical characteristics of the Bolle(Registered Trademark) frames
and lenses. Because famous brand names are known to trigger instant appeal
among consumers, the Company continuously seeks to strengthen consumer
perception of the Bolle(Registered Trademark) brand name as that of high
quality, technologically advanced and fashionable eyewear products. The
Company believes that the Bolle(Registered Trademark) brand ranks among the
five best known brands in the premium sport sunglass market and is especially
strong among consumers having an active lifestyle, such as skiers, cyclists,
surfers and other sports enthusiasts. As a result, the Company has the
ability to lead the market for certain of its products. For example,
Bolle(Registered Trademark) ski goggles collections such as Chrono and Future
have been recognized as setting standards for quality products in their
market by numerous ski champions. The Company will continue to pursue its
constant search for superior lens technology as well as improved frame
quality and design with the objective of achieving increased brand
recognition and greater differentiation from its competitors.
Integrated Design, Production and Marketing. As a result of its July 1997
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 organization enables the Company to
develop and execute a consistent and unified worldwide marketing and
distribution strategy focused on expanding the Bolle(Registered Trademark)
brand with consistency of brand image and design innovation. The Company's
design team, which is supervised by Mr. Maurice Bolle, oversees the entire
design process from mold creation to the final lens development stage. The
Company enjoys flexible manufacturing in Oyonnax, France through the use of
local subcontractors, while retaining control over manufacturing and all its
proprietary processes.
Superior Technology. Bolle(Registered Trademark) eyewear products
incorporate several unique technological features, thus enabling the Company
to better differentiate itself from its competitors. In addition, unlike most
of its competitors, the Company manufactures its own polycarbonate lenses.
The Company's primary lens material is polycarbonate, a lighter and more
impact resistant material than glass which provides 100% protection from
damaging ultraviolet light. Bolle(Registered Trademark) proprietary lenses
provide each eye with a separate optical center of focus, which permits the
use of wraparound designs with wide coverage without sacrificing overall
optical clarity or introducing distortion. Other materials used in the
manufacturing of Bolle(Registered Trademark) products include 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. Frames
made out of such material return to their original shape after a
mistreatment, which significantly improves product life. The Company also
offers an interchangeable lens system (marketed under the
Breakaway(Trademark) brand), which enables consumers to customize the look
and function of certain Bolle(Registered Trademark) products by offering
different lenses in the same frame. Consistent with its traditional focus on
technological innovation, the Company has entered into a six-year exclusive
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. As a result of its superior technological
characteristics, Bolle(Registered Trademark) eyewear is known for its
durability, resiliency and light weight, all characteristics that are
important to customers engaged in sports and leisure activities. It is the
Company's objective to continue to develop, manufacture and sell products
with these superior quality and durability characteristics.
Specialized Product Offerings. The Company is currently 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. The
Company intends to market its products based on the type of sport for which
they are designed, in an attempt to respond to a growing consumer preference
for sport-specific eyewear. The Company has a long-standing tradition of
designing and manufacturing in cooperation with its sponsored athletes high
performance eyewear products featuring sport-specific characteristics. For
example, the Company has worked with French Olympic Ski Champions Jean-Claude
Killy and, more recently, Luc
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Alphand to design and continuously improve its ski goggles. The Company also
worked closely with U.S. Cycling Champion Greg LeMond, a three time winner of
the Tour de France, to design its current line of cycling glasses, including
the signature Greg LeMond Attack(Trademark) line. In 1992, the Company was
the first to introduce sunglasses with features specifically designed for
golf, such as distortion free vision and wraparound design to prevent wind
and glare interference. Other examples of lines of sport glasses include
Aquashield for water sports and Varsity for squash and racquetball. 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.
Established International Distributors. The Company has established
international distributors in over 40 countries around the world. The largest
independent distributor of Bolle(Registered Trademark) sunglasses and safety
eyewear products is Bill Bass Optical, which has exclusive rights to
distribute Bolle(Registered Trademark) products in Australia. Bill Bass
Optical became the distributor of Bolle(Registered Trademark) products in
Australia in 1982 and was able to develop sales of Bolle(Registered
Trademark) products in Australia to over $10,000,000 in 1997. The remainder
of the Company's distribution capabilities in addition to affiliated
distributors consists of distributorship arrangements with well established
providers of eyewear products which are familiar with their local market. As
a result of this structure, the Company's distribution business has become to
a large extent multi cultural, yet with a single brand name and well
differentiated products. The Company expects that this will enhance the
implementation of its international marketing and distribution strategy.
Growth Strategy Targeted at Expanding Aggressively the Bolle(Registered
Trademark) Brand
Worldwide Marketing Initiative. The Company intends to enhance and unify
its marketing efforts with the objective of achieving increased recognition
of the Bolle(Registered Trademark) brand name around the world. The Company's
worldwide marketing initiative includes a unified brochure for distributors
worldwide, coordinated advertising campaigns in major international and local
media and at retail locations, more focused sponsoring of athletes attracting
international interest and the unification of the Company's sport celebrities
endorsement program. The Company's marketing initiative will seek to
emphasize through a unified sport-specific approach the technological
characteristics and long standing proven reputation for style and performance
of Bolle(Registered Trademark) products. The Company's marketing strategy
also includes training retail salespersons to fully understand the
specificities of Bolle(Registered Trademark) products and in-store education
highlighting the Bolle(Registered Trademark) style and technical features.
The Company expects to coordinate with its international distributors future
introductions of new Bolle(Registered Trademark) products, such as a new
motorsports line, 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 also expects that the impact of its
worldwide marketing initiative will be maximized by its parallel efforts to
build a cohesive distribution network.
Create and Leverage a Cohesive Distribution Network. The Company will seek
to ascertain greater control over the distribution of its products by
creating and expanding an integrated network of Bolle(Registered Trademark)
distributors around the world through acquisitions and distributorship
agreements. The Company has entered into a non binding letter of intent to
purchase Bill Bass Optical, its largest independent distributor, and certain
of its affiliates, including Bolle Sunglasses and Bolle Asia, the distributor
of the Company's sunglasses in the U.K. and Southeast Asia, respectively. The
Company expects the integration and expansion of its distribution channels to
result in new accounts and a larger customer base. In addition, the Company
expects the improved efficiencies that could result from this strategy to
lead to excess distribution capacity, which, when combined with actual
increased production, could also contribute to increased sales.
Increased Use of Flexible Manufacturing. The Company enjoys flexible
manufacturing in Oyonnax, France through the use of local subcontractors,
while retaining control over manufacturing and all proprietary processes. The
use of a number of small local subcontractors enables the Company to maintain
a variable cost structure and minimal inventory levels, as well as to respond
quickly to shifting trends in the industry. The Company will seek to improve
the efficiency of this flexible manufacturing process by reducing lead time
from design to distribution. The Company expects improved efficiency to
result in increased manufacturing capacity and faster product launches.
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Develop Product Line Extensions. The Company has plans to develop product
line extensions bearing the Bolle(Registered Trademark) brand. Once the
reputation of the Bolle(Registered Trademark) brand as a worldwide leader is
established in a particular sport and active lifestyle market, brand
extensions have been successful, as shown by the Company's experience with
Bill Bass Optical in Australia, which has developed and carries a successful
line of Bolle(Registered Trademark) golf and ski clothing.
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.
Superior Technological Characteristics and Proven High Performances
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 so-called
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 and pass tests adopted by the U.S. Food and
Drugs Administration for impact resistance and offer scratch resistance
through quartz coating. Cr 39(Registered Trademark) plastic lenses are
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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. Light smoke,
dark smoke and light brown polarization is available. Multilayer coatings
include blue, violet, green, red, gun and infrared.
Bolle(Registered Trademark) Frames. The 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. Frames
made out of such material 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 fluo 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.
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.
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
organization enables the Company to create and execute a consistent and
unified worldwide marketing and distribution strategy. This strategy is
focused on leveraging the Bolle(Registered Trademark) superior technology and
established distributors in over 40 countries to aggressively expand the
Bolle(Registered Trademark) brand with consistency of brand image and design
innovation. The Company's worldwide marketing initiative includes a unified
catalog for distributors worldwide, coordinated advertising campaigns in
major international and local media and at retail locations, increased
sponsoring of significant sport competitions and athletes attracting
international interest and the unification of the Company's sport celebrities
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, with its international distributors 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
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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 while demonstrating 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 located in the immediate
vicinity of the Company's facilities in Oyonnax, France and the manufacturing
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
these 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 has agreed to
exclusively provide the Company with sunglass frames using Boralyn(Registered
Trademark), a special proprietary metal matrix providing greater
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strength and stiffness to weight ratios than titanium, 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 will extend 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 sunglasses 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 name may enjoy recognition which exceeds that of the Bolle(Registered
Trademark) brand name. 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.
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 polices complicate the different 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 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
optometrist, ophthalmologists and opticians, is important to its competitive
position.
The Company believes that 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 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
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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
period ended September 30, 1997 is set forth in Note 15 to the Company's
Consolidated Financial Statements attached to this Prospectus. 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, 1996, 1995 and 1994, which is provided in note 6 to the Company's
Consolidated Financial Statements, is only attributable to Bolle America's
U.S. operations. During 1996, 42% of total sales were to North American
distributors, 36% of sales were in Europe, 14% of sales were in Australia and
Asia and 8% of sales were made to distributors in the rest of the world.
Among affiliated distributors, Bolle America is the largest and
distributes Bolle(Registered Trademark) products in the United States, Mexico
and Costa Rica. The Company is in the process of consolidating the
distribution operations of Bolle America with the manufacturing and
distribution operations of Bolle France. The remainder of the Company's
distribution capabilities consist of distributorship arrangements with well
established providers of eyewear products, among which Bill Bass Optical in
Australia is the largest. In the United States, the Company sells its
products through a nationwide network of approximately 50 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.
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. Under its agreement
with the Company, if Howard Leight fails to maintain specified minimum
periodic purchase levels, the Company has the right to hire additional
distributors for the products and the territories covered by the Agreement.
These minimum periodic purchase levels begin at $6,500,000 for 1998 and
increase annually through 2003, at which time future minimum levels must be
agreed between the Company and Howard Leight. 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. In January 1998, Bacou USA, one of the main
competitors of the Company, has announced that it has reached an agreement
for the purchase of Howard Leight. Although the Company believes it would be
entitled to continue its agreement with Howard Leight notwithstanding the
completion of this acquisition, it does not expect its relationship with
Howard Leight to develop significantly in the near future.
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 Bill Bass
Optical, the largest independent distributor of the Company's products and
the principal distributor of the Company's products in Australasia, 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.
41
<PAGE>
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 to manufacture sunglasses,
sport products and industrial protection products as well as laser protection
products and eyewear produced for specific military orders. The Company
believes it is certified to sell its eyewear products in every country of the
world.
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 January 30, 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.
FACILITIES
As of January 30, 1998, the locations of the Company's principal
facilities are as follows:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE/USER(S)
-------- ---------------------
<S> <C>
Oyonnax, France Manufacturing plant, design center, warehouse and
office space
Denver, Colorado Warehouse and office space for Bolle America
</TABLE>
The Company's main manufacturing facility in France is approximately
90,000 square feet, located just outside Oyonnax, France. This facility
houses the majority of the manufacturing activities of the Company as well as
the quality control aspects, management, accounting and design.
The Company owns all of its manufacturing facilities in France and leases
its Denver facilities.
42
<PAGE>
In addition, the Company 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
principal amount of approximately $3.6 million which Bolle will agree to
assume pursuant to the Contribution Agreement. See "THE SPINOFF--Transfer of
the Non-ORC Business to the Company."
ENVIRONMENTAL REGULATION
Manufacturing operations managed by corporations in which the Company has
an interest are subject to regulation by various federal, state and local
agencies concerned with environmental control. The Company believes that
these facilities are in substantial compliance with all existing federal,
state and local U.S. and non U.S. environmental regulations.
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, it is expected that the Company will
agree to indemnify BEC against liabilities which may arise from certain
pending litigation. See "The SPINOFF--Transfer of the Non-ORC Business to the
Company." The Company does not believe that any of such pending litigation
constitutes material legal proceedings for the Company.
43
<PAGE>
MANAGEMENT
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 ......... 33 Chairman of the Board of Directors
Gary A. Kiedaisch .......... 51 President, Chief Executive Officer and Director
Ian G. H. Ashken ........... 37 Executive Vice President of Finance and
Administration, Chief Financial Officer, Assistant
Secretary and Director
Franck Bolle ............... 41 Director
Patricia Bolle Passaquay .. 40 Director
David Moore ................ 40 Director
</TABLE>
Directors of the Company are elected annually at the annual meeting of
stockholders. The next annual meeting of stockholders is 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. In connection with the listing of the Bolle Common
Stock on Nasdaq, the Company intends to nominate three additional individuals
as independent directors. David Moore has agreed to be named as one of these
three independent Directors prior to the Effective Time.
The Company expects to form (i) an Audit Committee which will review the
services provided by the Company's independent auditors, consult with the
independent auditors on audits and proposed audits of the Company and review
the need for internal auditing procedures and the adequacy of internal
controls; (ii) a Compensation Committee which will determine executive
compensation and stock option awards; and (iii) an Executive Committee which
will exercise, to the maximum extent permitted by law, all powers of the
Board of Directors between board meetings, except those functions assigned to
specific committees. The Board of Directors may establish additional
committees from time to time.
The following are brief biographies of persons identified above.
Martin E. Franklin was elected Chairman of the Board of the Company in
February 1997. Mr. Franklin was elected Chairman of the Board and Chief
Executive Officer of BEC in December 1995. Mr. Franklin was Chairman of the
Board and Chief Executive officer of BEC's predecessor, 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 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 Chief Executive Officer of the Company 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 dba 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.
44
<PAGE>
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. 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.
David L. Moore became a member of the Bolle Board in January 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.
45
<PAGE>
EXECUTIVE COMPENSATION
Prior to the Spinoff, the executive officers of the Company, other than
Gary A. Kiedaisch, its Chief Executive Officer, were officers of BEC. As a
result, pursuant to interpretations of the rules of the Securities and
Exchange Commission, information with respect to the compensation paid by the
Company to each of the four most highly compensated executive officers other
than Mr. Kiedaisch is not presented in this Prospectus. Such information is
available in the periodic reports of BEC and will be provided by the Company
in connection with the fiscal year ending December 31, 1998.
SUMMARY OF COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation earned by Mr. Kiedaisch in the fiscal year ended December 31,
1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION ALL OTHER
----------------------------------- ------------------------------------- COMPENSATION
AWARDS PAYOUTS ($)
-------------------------- --------- ------------
NUMBER OF
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTION/ LTIP
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS
POSITION YEAR ($) ($) ($) ($) (#) ($)
- -------------------------- ------ --------- -------- -------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary A. Kiedaisch (1)
Chief Executive Officer .. 1997 103,846 37,500 0 0 500,000 0 0
</TABLE>
- ------------
(1) Mr. Kiedaisch's compensation was paid entirely by BEC in 1997.
OPTION GRANTS IN FISCAL 1997
The following table sets forth information regarding option grants to Mr.
Kiedaisch during fiscal 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 seven-year 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.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1997
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES OF
STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION FOR
SECURITIES TOTAL OPTIONS OPTION
UNDERLYING GRANTED TO TERM (4)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ------------------------
NAME GRANTED (2) FISCAL 1997 PER SHARE DATE 5% 10%
- --------------------- ------------ --------------- -------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gary A. Kiedaisch
(1).................. 500,000 13%(3) $4.25 July 7, 2004 $865,088 $2,016,024
</TABLE>
- ------------
(1) All options granted to Mr. Kiedaisch in 1997 were BEC Options granted
pursuant to the BEC Option Plan and, in connection with the Spinoff,
will be exchanged for options to purchase Bolle Common Stock.
(2) The options shown in the table were granted at fair market value.
(3) Based on the total number of BEC Options granted in fiscal 1997. The
BEC Options granted to Mr. Kiedaisch in 1997 represent 19% of the Bolle
options for which BEC Options held by the Company's employees will be
exchanged pursuant to the Spinoff, as described under "THE
SPINOFF--Treatment of Stock Options."
(4) The assumed annual compound rates of stock price appreciation are
mandated by the rules of the Commission and do not represent the
Company's estimate or projection of future stock prices.
46
<PAGE>
BEC OPTIONS EXERCISED IN LAST FISCAL YEAR; FISCAL YEAR ENDED OPTION VALUES
The following table summarizes certain information regarding options
exercised during 1997 by Mr. Kiedaisch and certain year end option values. In
connection with the Spinoff, each holder of BEC Options who will be employed
by the Company following the Spinoff will receive Bolle Options as described
under "THE SPINOFF--Treatment of Stock Options."
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT F-Y END
AT FY-END (1) ($)(2)
SHARES VALUE --------------- -------------------------------
ACQUIRED OF REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------ ------------- ---------- --------------- -------------------------------
<S> <C> <C> <C> <C>
GARY A. KIEDAISCH 0 0 0/500,000 0/843,750
</TABLE>
- ------------
(1) Represents the total number of BEC shares subject to stock options held
by Mr. Kiedaisch. These options were granted on July 7, 1997. 125,000
of these options will become exercisable on each of July 7, 1998, 1999,
2000, and 2001. All of these options expire on July 7, 2004.
(2) Assumes that the fair market value of the options as of the end of the
fiscal year was $5.9375 per share, based upon the closing price of BEC
Common Stock on the New York Stock Exchange on December 31, 1997, and
the exercise price of $4.25 per share.
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 1997 Stock
Incentive Plan. See "Bolle 1997 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 options to purchase 500,000 shares of BEC Common
Stock, which are exchangeable upon the completion of the Spinoff for options
to purchase shares of Bolle 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
47
<PAGE>
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.
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 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.
48
<PAGE>
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 BEC which are generally available
to the Company's employees, including a 401(k) savings plan and the health
and life insurance programs.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Certificate of Incorporation contains provisions permitted
under the Delaware General Corporation Law (the "DGCL") relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty as a director, except for
liability in certain circumstances involving wrongful acts, such as the
breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. Further, the Company's
Certificate of Incorporation and Bylaws contain provisions to indemnify the
Company's directors and officers to the fullest extent permitted by the DGCL
including payment in advance of a final disposition of a director's or
officer's expenses and attorneys' fees incurred in defending any action, suit
or proceeding.
The Company will enter into indemnification agreements with each of its
directors and officers. These indemnification agreements will also provide
for the indemnification by the Company of such directors and officers for
liability for acts and omissions as directors and executive officers of the
Company.
The Company believes that its Certificate of Incorporation and Bylaws
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers.
Following the Spinoff, the Company will have in effect an executive
liability insurance policy which will provide coverage for its directors and
officers similar to the coverage provided with respect to BEC's directors and
officers. Under this policy, the insurer will agree to pay, subject to
certain exclusions (including violations of securities laws), for any claim
made against a director or officer of the Company for a wrongful act buy such
director or officer, but only if and to the extent such director or officer
becomes legally obligated to pay such claim or the Company is required to
indemnify the director or officer for such claim.
49
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT SERVICES AGREEMENT
The Company expects to enter into, at or prior to the Effective Time, a
Management Services Agreement with BEC, pursuant to which BEC 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, BEC
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, BEC 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, which will be entered into at the time of the
Spinoff, will have an initial term of three years, and will thereafter be
automatically renewed for successive one-year periods until terminated by
either party upon 90 days written notice.
CONTRIBUTION AGREEMENT AND INDEMNIFICATION AGREEMENT
It is expected that, at or prior to the Effective Time, BEC will assign to
the Company all of BEC's assets other than those related to the ORC Business
(as defined in the Contribution Agreement) and certain other specified assets
retained by BEC, and the Company will assume 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. The Company expects to issue 380 shares of Bolle Common Stock
to BEC in exchange for the net assets contributed by BEC pursuant to the
Spinoff. See "THE SPINOFF--Transfer of the Non-ORC Business to the Company."
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 Societe
Bolle SNC ("Bolle SNC"), an indirectly wholly owned subsidiary of the
Company, 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 SNC meets or exceeds its annual budgetary
objectives. If Bolle SNC 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 SNC 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 COMPENSATION--Employment Agreement."
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. In connection with the Spinoff, it is anticipated that Mr. Bolle and
Ms. Bolle Passaquay will receive 1,975 shares of Bolle Series B Preferred
Stock, and Bolle Warrants for the purchase of up to 145,000 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). For a description of the rights and
preferences of the Bolle Series A and Series B Preferred Stock and a
description of the Bolle Warrants, see "DESCRIPTION OF CAPITAL
STOCK--Preferred Stock" and "--Warrants".
CERTAIN TRANSACTIONS
Bolle France Acquisition. 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 the Share Purchase
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Agreement. Pursuant to the terms of the Share Purchase Agreement, Bolle
acquired from 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. 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).
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
will receive 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 and effective on or prior to the Effective Time,
each Seller, including Mr. Franck Bolle and Ms. Patricia Bolle Passaquay,
will be issued pursuant to a stock split in the form of a stock dividend up
to 67,000 shares of Bolle Common Stock (assuming consummation of all the
transactions expected to occur in connection with the Spinoff on the terms
described in this Prospectus). 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 will agree at or prior to the Effective Time 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 shall then be released from all such
obligations and liabilities. As a result, the Company will become 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.
Intercompany Financings. During the years ended December 31, 1995, 1996
and the nine months ended September 30, 1996 and 1997, 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, it is anticipated that
the Company will enter into a separate credit facility with substantially the
same terms as the existing BEC credit facility and that there will be no
intercompany credit arrangements between BEC and the Company. Following the
Spinoff, the Company expects to enter into credit arrangements with its
subsidiaries similar to the arrangements it had with BEC prior to the
Spinoff. In addition, the Company has pushed down its acquisition
indebtedness to Bolle France and charges interest on existing balances at 5%
per annum. This intragroup loan will
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remain outstanding after the Spinoff. It is expected that, at or prior to the
Effective Time, BEC will repurchase all the shares of BEC Preferred Stock
held by the Company in exchange for the cancellation of an equivalent amount
in intercompany debt owed by the Company to BEC.
Consulting and Non-Compete Agreement. As of the Effective Time, pursuant
to the transfers made from BEC to the Company under the Contribution
Agreement, the Company will become party to the 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 was hired as 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>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Prior to the Spinoff, 96% of the outstanding shares of Bolle Common Stock
will be held of record by BEC. However, following the Spinoff, BEC will own
no Bolle Common Stock, and these shares will be held, pro rata, by the
holders of record of BEC Common Stock on the Record Date. Based on, solely
for the purpose of the following estimate, (i) the 2,280 shares of Bolle
Common Stock expected to be held by BEC on or prior to the Record Date, (ii)
the 17,749,076 shares of BEC Common Stock outstanding or reserved for
issuance upon request as of February 12, 1998, the most recent practical date
for which such information was available prior to the date of this
Prospectus, and assuming (i) exercise of a maximum of 1,000,000 BEC Options
to purchase shares of BEC Common Stock which are or will be exercisable on or
prior to the Record Date, (ii) conversion of all Convertible Notes and
accrued interest on or prior to the Record Date into a maximum of 4,155,000
shares of BEC Common Stock, (iii) consummation on or prior to the Record Date
of the Contribution Agreement and all the other transactions expected to
occur in connection with the Spinoff on the terms described in this
Prospectus and, after giving effect to (i) a 3,347 for one stock split in the
form of a stock dividend on Bolle Common Stock, and (ii) a dividend of one
share of Bolle Common Stock for three shares of BEC Common Stock outstanding
on the Record Date expected to be effective at or prior to the Effective
Time, a maximum of approximately 7,632,000 shares of Bolle Common Stock would
be distributed to the BEC Stockholders in the Spinoff and a maximum of
334,754 shares of Bolle Common Stock would be issued to the Sellers,
resulting in a total of 7,967,166 shares of Bolle Common Stock outstanding.
The following table sets forth, on a pro forma basis, the "beneficial
ownership" (as that term is defined in the rules of the Commission) of Bolle
Common Stock immediately after the Spinoff based on the foregoing assumptions
of (i) each Director and Nominee for election as a Director of the Company;
(ii) all officers and directors of the Company as a group; and (iii) each
person who owned of record, or is known by the Company to beneficially own,
individually or with his associates, more than 5% of the outstanding shares
of Bolle Common Stock. Except as otherwise indicated, the BEC stockholders
(Bolle stockholders following the Spinoff) listed in the table have or will
have sole voting and investment powers with respect to the Bolle Common Stock
owned or to be owned by them. The Convertible Notes are held primarily by a
small number of institutional investors, none of whom upon conversion of
their holdings of Convertible Notes, both individually and as a group, would
become a beneficial owner of more than five percent of the BEC Common Stock
or of the Bolle Common Stock after the Spinoff.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
- ------------------------------------ ------------------------------------------------------------------------
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.................. 477,688(2) 0 0 6% 0% 0%
555 Theodore Fremd Avenue
Suite B-302
Rye, New York
Gary A. Kiedaisch................... 0 0 0 0 0 0
Ian G.H. Ashken..................... 97,916(3) 0 0 1 0 0
Franck Bolle........................ 66,950 12,614 1,975 * 20 20
Patricia Bolle Passaquay............ 66,950 12,614 1,975 * 20 20
David Moore......................... 5,949 0 0 * 0 0
All Executive Officers and Directors 715,453 25,228 3,950 9 40 40
as a group
(5 persons)........................
Millbrook Partners, L.P. 885,066(4) N/A N/A 11 N/A N/A
NationsBank Corporate Center
Charlotte, NC 28202
Marvin Schwartz 527,033 N/A N/A 7 N/A N/A
605 Third Avenue
New York, NY 10158
Palisade Capital 471,071 N/A N/A 6 N/A N/A
One Bridge Plaza
Suite 695
Fort Lee, NJ 07024
</TABLE>
- ------------
* Less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of an individual to acquire them prior to the Record Date 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.
<PAGE>
(2) Excludes 5,127 shares of Bolle Common Stock held in trust for Mr.
Franklin's minor children.
(3) Excludes 833 shares of Bolle Common Stock held in trust for Mr.
Ashken's minor children, as to which shares Mr. Ashken disclaims
beneficial ownership.
(4) 859,066 of these shares, or 10.8% of the Bolle Common Stock outstanding
after the Spinoff, 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.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, $.01 par value per share, and 200,000 shares of preferred
stock, $.01 par value per share, including 64,120 shares of Bolle Series A
Preferred Stock and 10,000 shares of Bolle Series B Preferred Stock.
Based on, solely for the purpose of this estimate, (i) the 2,280 shares of
Bolle Common Stock expected to be held by BEC on or prior to the Record Date,
(ii) the 17,749,076 shares of BEC Common Stock outstanding (including 129,892
shares issuable upon request) as of February 12, 1998, the most recent
practicable date for which such information was available prior to the date
of this Prospectus, and assuming (i) exercise of a maximum of 1,000,000 BEC
Options to purchase shares of BEC Common Stock which are or will be
exercisable on or prior to the Record Date, (ii) conversion of all
Convertible Notes and accrued interest on or prior to the Record Date into a
maximum of 4,155,000 shares of BEC Common Stock, (iii) consummation on or
prior to the Record Date of the Contribution Agreement and all the other
transactions expected to occur in connection with the Spinoff on the terms
described in this Prospectus and, after giving effect to (i) a 3,347 for one
stock split in the form of a stock dividend on Bolle Common Stock (ii) a
dividend on BEC Common Stock of one share of Bolle Common Stock for every
three shares of BEC Common Stock outstanding on the Record Date, both
expected to be effective at or prior to the Effective Time, a maximum of
approximately 7,632,000 shares of Bolle Common Stock would be distributed to
the BEC Stockholders in the Spinoff. The aggregate number of shares of Bolle
Common Stock that will actually be distributed pursuant to the Spinoff may
vary. All of the shares of Bolle Common Stock to be distributed to BEC
stockholders in the Spinoff will be fully paid and nonassessable. On February
12, 1998, there were approximately 580 holders of record of BEC Common Stock.
Pursuant to the terms of the Spinoff and in addition to the shares of Bolle
Common Stock which will be held in the aggregate by the Sellers (which shall
represent a 4% interest in the outstanding Bolle Common Stock), there will be
approximately the same number of record holders and one-third as many shares
of Bolle Common Stock outstanding following the Spinoff as there are record
holders and shares of BEC Common Stock outstanding immediately prior to the
Spinoff.
The following summary of certain terms of the Company's capital stock
describes material provisions of, but is not necessarily a summary and is
subject to, and qualified in its entirety by, the Company's Certificate of
Incorporation, the Company's Bylaws, and applicable provisions of Delaware
corporate law (including but not limited to the DGCL.)
BOLLE COMMON STOCK
Holders of Bolle Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Bolle
Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of Bolle Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and after provision has
been made for the payment of the liquidation preference on the Series A
Preferred Stock, the liquidation preference and any accrued dividends on the
Series B Preferred Stock and the payment obligations on any other outstanding
shares of preferred stock of the Company. Holders of the Bolle Common Stock
have no preemptive, subscription, redemption or conversion rights. All the
outstanding shares of Bolle Common Stock are, and the shares of Bolle Common
Stock to be issued pursuant to the Spinoff when issued and paid for will be,
fully paid and non-assessable. The rights, preferences and privileges of
holders of Bolle Common Stock are subject to, and may be adversely affected
by, the rights of the holders of shares of any series of Preferred Stock that
the Company may designate and issue in the future.
PREFERRED STOCK
General.
Under the terms of the Company's Certificate of Incorporation, the Bolle
Board is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue up to 200,000 shares
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of preferred stock in one or more series. Each such series of preferred stock
shall have such rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption privileges and
liquidation privileges, as shall be determined by the Board of Directors.
The purpose of authorizing the board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company.
Series A Preferred Stock.
Holders of the Bolle 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 Bolle 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 Bolle
Series A Preferred Stock. After payment of the full amount of the liquidation
distributions to which they are entitled, the holders of the Bolle 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 Bolle Series A Preferred Stock, then the holders of the
Bolle 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 Bolle Series A Preferred Stock
is not convertible or exchangeable for any other securities of the Company.
Shares of the Bolle 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 (the "Senior Indebtedness"). Prior to that, the
Company may redeem any shares of Bolle 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 Bolle Series A Preferred Stock then outstanding,
provided in each case that BEC 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 BEC under
such senior indebtedness.
Generally, the shares of Bolle Series A Preferred Stock have no voting
rights. In the event the Company fails to give notice of a redemption within
3 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 Bolle 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 Bolle Series A Preferred Stock
with respect to dividend, redemption or liquidation rights. Shares of Bolle
Series A Preferred Stock may only be transferred to persons who are already
holders of such shares and in accordance with applicable law.
Series B Preferred Stock.
Under the terms of the Bolle Series B Preferred Stock, holders of Bolle
Series B Preferred Stock will be entitled to accrue cumulative cash
dividends, whether or not declared by the Company's Board of Directors,
payable semi-annually at a rate of 5% of the Liquidation Preference, as
described below, for 1997 and increasing annually up to 10% of the
Liquidation Preference beginning on January 1, 2000 and
55
<PAGE>
continuing until the Series B preferred stock has been redeemed. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of Bolle Series B 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 5,500 French Francs ($930 at
the July 10, 1997 exchange rate of 5.9197 used to convert into U.S. dollars
all amounts denominated in French Francs paid by BEC in connection with the
acquisition of Bolle France) per share of Bolle Series B Preferred Stock (the
"Liquidation Preference") plus any accumulated and unpaid dividends thereon.
After payment of the full amount of the liquidation distributions to which
they are entitled, the holders of Bolle Series B 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 Bolle
Series B Preferred Stock, then the holders of Bolle Series B 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 Bolle Series B Preferred Stock will not be convertible or
exchangeable for any other securities of the Company.
The Company may redeem the shares of Bolle Series B Preferred Stock, in
whole or in part, for cash or, beginning on January 1, 1998, by issuing to
the holders of the Series B Preferred Shares a subordinated debt instrument
(the "Subordinated Debt") with substantially the same powers, designations,
preferences and relative, participating, or other rights, and qualifications,
limitations and restrictions as the Bolle Series B Preferred Stock, upon 10
days prior written notice. In addition, the Company must, upon 10 days prior
written notice, redeem, out of funds legally available therefor, the Bolle
Series B Preferred Stock (if not previously redeemed), upon the earlier
occurrence of (i) the earlier of (A) the third anniversary date from the
issuance of the Bolle Series B Preferred Stock, if redemption is then
permitted under the terms and conditions of the Company's Senior
Indebtedness, (B) such later date as redemption is first permitted under the
terms of the Company's Senior Indebtedness; (ii) the closing of any equity
financing by the Company, but only to the extent of the net cash proceeds of
such financing by the Company and no more than the redemption price of the
then outstanding shares of Bolle Series B Preferred Stock, and provided
further, that such redemption would not violate any of the terms and
conditions of the Company's Senior Indebtedness; or (iii) a change of control
resulting in the Company's payment in full of all amounts due with respect to
its Senior Indebtedness. The Company shall furthermore use its best efforts
to close an equity financing, including a public offering during 1998.
Generally, the shares of Bolle Series B Preferred Stock have no voting
rights. So long as any shares of Bolle Series B Preferred Stock are
outstanding, the Company shall not, without the consent of holders of the
holders of at least 90% of such shares, (i) alter or change the rights,
preferences or privileges of such shares; (ii) declare or pay a dividend or
otherwise make a distribution on any security issued by the Company which is
junior to the Bolle Series B Preferred Stock with respect to dividends or
upon liquidation, including the Series A Preferred Stock; (iii) enter into
any agreements that prohibit the Company from declaring or paying dividends
on the Bolle Series B Preferred Stock or redeeming the Bolle Series B
Preferred Stock or Subordinated Debt, as the case may be; or (iv) issue any
class or series of Preferred Stock ranking senior or pari passu with the
Bolle Series B Preferred Stock with respect to dividend, redemption or
liquidation rights. Shares of Bolle Series B Preferred Stock may only be
transferred in strict accordance with applicable law.
The consummation of the Spinoff and the related transactions will not
require the consent of the holders of the outstanding shares of Bolle Series
B Preferred Stock.
WARRANTS
Pursuant to the terms of the Warrant Agreement between the Company and
each of the Sellers, the Company expects to issue Bolle Warrants for the
purchase of up to 800,000 shares of Bolle Common Stock. The Bolle Warrants
will be exercisable between July 9, 1999 and July 9, 2001 (the "Exercise
Period") at an exercise price per share adjusted to reflect the occurrence of
the Spinoff, subject to certain
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other adjustments (the "Exercise Price"). The Bolle Warrants may only be
transferred during the Exercise Period, and may not be transferred in the
absence of registration of the Bolle Warrants under the Securities Act of
1933 and state securities laws, or an exemption therefrom.
The Bolle Warrants may only be exercised for the purchase of a minimum of
17,000 shares of Bolle Common Stock or for the remaining amount of shares
that the warrantholder is then able to purchase upon exercise thereof. Upon
the surrender of a Bolle Warrant and payment of the Exercise Price, the
Company shall issue, no later than 10 business days from the date of such
surrender and payment, certificates for the number of shares so purchased
together with cash for any fractional shares.
In addition, at any time during the Exercise Period, any number of Bolle
Warrants may be exchanged without payment of the Exercise Price into a number
of shares of Bolle Common Stock having a value equal to that of the number of
shares which would be issued by the Company upon receipt of the Exercise
Price, less the Exercise Price.
The Company must at all times keep reserved, so long as the Bolle Warrants
remain outstanding, sufficient shares of its Common Stock to cover the
exercise of the Bolle Warrants. Furthermore, the Company must notify the
holders of the Bolle Warrants no less than 20 days prior to the date on which
the Company (i) shall pay any dividend upon its Common Stock or make any
distribution to the holders of its Common Stock; (ii) offers pro rata
subscription rights to the holders of its Common Stock; (iii) offers any
other rights to the holders of its Common Stock; (iv) engages in any capital
reorganization, reclassification, consolidation, merger, or disposition of
all or substantially all of the Company's assets; or (v) engages in a
voluntary or involuntary dissolution, liquidation or winding up of the
Company.
At any time during the Exercise Period, the holders of at least a majority
of the shares issued or issuable pursuant to the exercise of the Bolle
Warrants and any securities issued or issuable with respect to those shares
("Registrable Securities") may cause the Company to register those shares
under the Securities Act within a commercially reasonable time. If such
registration is requested, the holders of the Bolle Warrants must pay all
registration expenses, whether or not the registration is ever deemed
effective. Furthermore, if at any time after July 9, 1999 the Company intends
to file a registration statement for the registration of an offering of
equity securities with the Securities and Exchange Commission, the holders of
Registrable Securities must be given at least 30 days prior notice and may
have their Registrable Securities included in such registration statement. In
such case, the Company shall pay all registration expenses.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Bolle Common Stock,
although Bolle America, the Company's predecessor for accounting purposes,
declared and paid dividends in 1994 and 1996. See "Summary--Summary
Historical Consolidated Financial and Operating Data", "Selected Financial
Data" and the respective notes thereto. The Company intends to retain future
earnings, if any, to finance the development and expansion of its businesses
and, therefore, does not anticipate paying any dividends on the Bolle Common
Stock in the foreseeable future. The payment of cash dividends in the future
will depend on the Company's earnings, financial condition, capital needs and
other factors deemed relevant by the Company Board, including corporate law
restrictions on the availability of capital for the payment of dividends, the
rights of holders of any series of Preferred Stock that may hereafter be
issued and the limitations, if any, on the payment of dividends under any
then-existing credit facility or other indebtedness. The Company and BEC are
currently renegotiating a credit agreement that restricts the Company's
ability to pay cash dividends on shares of Bolle Common Stock. The Company
has received commitments from various lenders party to BEC's existing credit
agreement pursuant to which such lenders have agreed to provide financing to
the Company subject to certain conditions and the execution by the Company of
a definitive credit agreement with such lenders containing covenants usual
and customary for financings of this type. The Company believes that this new
credit agreement, which is expected to be entered into at or prior to the
Effective Time, will contain restrictions on the payment of dividends and
that any other bank revolving credit facility or other indebtedness, if any,
that the Company may incur would contain similar restrictions. Pursuant to
the Indemnification Agreement, the Company is further restricted from paying
dividends on shares of Bolle Common Stock, unless certain minimum net
57
<PAGE>
worth requirements are met, until at the latest the end of the year 2003,
except that the Company may declare dividends payable in stock which does not
carry mandatory redemption or other repayment rights. Furthermore, for so
long as shares of the Series B Preferred Stock are outstanding, the Company
may not, without the consent of the holders of at least 90% of such shares
declare or pay a dividend or otherwise make a distribution on any security
issued by the Company which is junior to the Bolle Series B Preferred Stock
with respect to dividends or upon liquidation, including the Series A
Preferred Stock.
DIRECTOR AND OFFICER INDEMNIFICATION
The Certificate of Incorporation contains certain provisions permitted
under the DGCL relating to the liability of directors. The provisions
eliminate a director's liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such
as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. Further, the
Certificate of Incorporation and the Company's By-Laws contain provisions to
indemnify the Company's directors and officers to the fullest extent
permitted by the DGCL, including payment inadvance of a final disposition of
a director's or officer's expenses and attorneys' fees incurred in defending
any action, suit or proceeding. The company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors. See "EXECUTIVE COMPENSATION--Director and Officer
Indemnification and Limitation of Liability."
LISTING
The Bolle Common Stock has been approved for quotation on Nasdaq under the
symbol "BEYE," subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Bolle Common Stock is National
City Bank.
VALIDITY OF SHARES
Certain legal matters with respect to the validity of the Bolle Common
Stock to be distributed in the Spinoff will be passed upon for the Company by
Willkie Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1995 and 1996 and
the years then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The statements of operations, stockholders equity and cash flows of Bolle
America, Inc. for the year ended December 31, 1994 have been included herein
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Bolle Inc.
Unaudited Pro Forma Combined Financial Data
Unaudited Pro Forma Balance Sheet as of September 30, 1997 .......................... F-3
Unaudited Pro Forma Statement of Operations for the nine months ended
September 30, 1997 ................................................................. F-4
Unaudited Pro Forma Statement of Operations for the year ended December 31, 1996 .... F-5
Notes to Unaudited Pro Forma Financial Statements ................................... F-6
Annual and Interim Financial Statements
Report of Independent Accountants ................................................... F-8
Independent Auditors' Report ........................................................ F-9
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited) ........................................................................ F-10
Consolidated Statements of Operations for the years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1996 (unaudited) and 1997
(unaudited) ........................................................................ F-11
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1997 (unaudited) ....... F-12
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1996 (unaudited) and 1997
(unaudited) ........................................................................ F-13
Notes to Consolidated Financial Statements .......................................... F-15
Holding B.F. SA
Annual and Interim Financial Statements
Report of Independent Accountants ................................................... F-27
Combined Balance Sheets as of December 31, 1996, June 30, 1997 and September 30, 1997 F-28
Combined Statement of Operations for the year ended December 31, 1996, the six months
ended June 30, 1997 and the three months ended September 30, 1997 .................. F-29
Combined Statement of Stockholders' Equity for the year ended December 31, 1996, the
six months ended June 30, 1997 and the three months ended September 30, 1997 ....... F-30
Combined Statement of Cash Flows for the year ended December 31, 1996, the six months
ended June 30, 1997 and the three months ended September 30, 1997 .................. F-31
Notes to Combined Financial Statements .............................................. F-32
</TABLE>
F-1
<PAGE>
BOLLE INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined statements of operations give
effect to the July 10, 1997 acquisition of Holding BF SA and related assets
(the "Acquisition" of "Bolle France") under the purchase method of accounting
and reflect the Bill of Sale and Assignment Agreement (the "Contribution
Agreement") and the Indemnification Agreement between the Company and its
stockholder BEC Group, Inc. ("BEC") described below. The unaudited pro forma
combined balance sheet only gives effect to the Contribution Agreement and
Indemnification Agreement as the effect of Acquisition is included in the
Company's historical balance sheet as of September 30, 1997.
In connection with the spinoff of Bolle Inc. to the stockholders of BEC
(the "Spinoff"), which will occur prior to the closing of the proposed merger
of ILC Technologies, Inc. and BILC Acquisition Corp., (the "Merger") a
wholly-owned subsidiary of BEC, the Company expects that BEC will transfer
certain assets and liabilities to the Company pursuant to the Contribution
Agreement. The spinoff does not require stockholder approval and is not
conditioned upon the closing of the proposed Merger.
Prior to and in connection with the Merger, BEC will use its reasonable
commercial efforts to convert the 8% Convertible Notes due 2002. Accordingly,
on the face of the pro forma statement of operations, 100% conversion has
been assumed to calculate pro forma earnings per share. In note (k) the
calculation of pro forma weighted average shares outstanding is also shown
assuming 50% and 0% conversion.
In accordance with the Contribution Agreement (i) BEC will assign to the
Company all of BEC's assets other than the assets related to the ORC Business
(as defined in the Contribution Agreement) and certain other specified assets
retained by BEC; and (ii) the Company will assume all of BEC's liabilities
prior to the Spinoff other than those related to the ORC Business. In
addition, approximately $18 million of the Company's indebtedness to related
parties will be contributed to the capital of the Company.
The accompanying pro forma combined statements of operations give effect
to the Contribution Agreement and the Acquisition of Bolle France as though
they occurred at the beginning of the periods presented. The pro forma
combined financial statements at September 30, 1997 and December 31, 1996 are
based on the audited historical financial statements of Bolle Inc. ("Bolle
Inc." or the "Company") at December 31, 1996, the unaudited interim financial
statements of Bolle Inc. at September 30, 1997, the Bolle France historical
financial statements at December 31, 1996, June 30, 1997 and September 30,
1997, and the adjustments set forth below.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate.
Management does not expect material changes to purchase accounting and other
pro forma adjustments upon final allocation of purchase price and completion
of the Contribution Agreement. The unaudited pro forma combined financial
information presented herein is not necessarily indicative of the results of
operations or financial position that BEC would have obtained had such events
occurred at the beginning of the period, as assumed, or of the future results
of the Company.
F-2
<PAGE>
BOLLE INC.
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BOLLE PRO FORMA PRO FORMA
INC. ADJUSTMENTS COMBINED
--------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents ................... $ 1,525 $ 1,525
Trade receivables, net .................... 10,387 10,387
Trade receivables from related parties .... 1,432 1,432
Inventories, net .......................... 13,317 13,317
Prepaid and other current assets .......... 1,869 1,869
--------- -------------- -----------
Total current assets ..................... 28,530 28,530
Investment in affiliates ................... 10,185 (a1) 10,185
Property and equipment, net ................ 4,835 5,672 (a2) 10,507
Trademark, net ............................. 39,750 39,750
Goodwill and other intangibles, net ....... 9,229 9,229
Other assets ............................... 169 1,000 (a3) 1,169
--------- -------------- -----------
Total assets ............................. $82,513 $ 16,857 $99,370
========= ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt ........................... $ 278 $ 145 (a2)$ 423
Accounts payable .......................... 5,093 5,093
Indebtedness to related parties ........... 34,379 $ (17,454) (b) 16,925
Accrued compensation ...................... 1,192 1,192
Accrued commissions and royalties.......... 360 360
Other accrued expenses .................... 3,756 348 (a4) 4,104
--------- -------------- -----------
Total current liabilities ................ 45,058 (16,961) 28,097
Long term debt ............................. 3,428 (a2) 3,428
Long term liabilities ...................... 1,940 1,300 (a4) 3,240
--------- -------------- -----------
Total liabilities ......................... 46,998 (12,233) 34,765
--------- -------------- -----------
Mandatorily redeemable preferred stock ..... 11,055 9,294 (c) 20,349
Stockholders' equity ....................... 24,460 19,796 (d) 44,256
--------- -------------- -----------
Total liabilities and stockholders' equity $82,513 $ 16,857 $99,370
========= ============== ===========
</TABLE>
F-3
<PAGE>
BOLLE INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(1) (2)
BOLLE BOLLE PRO FORMA PRO FORMA
INC. FRANCE ADJUSTMENTS COMBINED
--------- --------- -------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales ............................ $20,670 $18,656 $(3,060)(e) $36,266
COSTS AND EXPENSES:
Cost of sales ........................ 9,750 11,577 (3,060)(e) 18,267
Selling general and administrative
expenses............................. 10,593 5,258 (179)(f) 16,310
638 (g)
Interest expense (income)............. 516 175 (226)(h) 465
Other income ......................... (803) (359) (1,162)
--------- --------- -------------- -----------
Total costs and expenses ............. 20,056 16,651 (2,827) 33,880
--------- --------- -------------- -----------
Income (loss) from continuing
operations before income taxes ..... 614 2,005 (233) 2,386
Provision for (benefit from) income
taxes ............................... 196 1,193 (88)(i) 1,301
--------- --------- -------------- -----------
Income (loss) from continuing
operations .......................... $ 418 $ 812 $ (145) 1,085
========= ========= ============== ===========
Preferred stock dividends ............ 383 (j)
-----------
Net income from continuing operations
attributable to common stock ........ $ 702
===========
Pro forma shares outstanding.......... 7,408 (k)
Pro forma earnings per share.......... $ 0.09
</TABLE>
- ------------
(1) Represents the results of operations of Bolle Inc. for the nine months
ended September 30, 1997 including the results of operations of Bolle
France for the three months ended September 30, 1997.
(2) Represents the results of operations of Bolle France for the six months
ended June 30, 1997 not included in (1) translated using the average
rate of 5.6835 French Francs per US Dollar for the six months ended
June 30, 1997.
F-4
<PAGE>
BOLLE INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(1)
BOLLE BOLLE PRO FORMA PRO FORMA
INC. FRANCE ADJUSTMENTS COMBINED
--------- --------- --------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales...................................... $24,425 $48,827 $(12,955)(e) $60,297
COSTS AND EXPENSES:
Costs of sales................................. 12,130 29,965 (12,955)(e) 29,140
Selling general and administrative expenses ... 11,374 11,286 (123)(f) 23,813
1,276 (g)
Interest expense (income)...................... (256) 473 714 (h) 931
Other (income) expense......................... (450) 250 (200)
--------- --------- --------------- -----------
Total costs and expenses....................... 22,798 41,974 (11,088) 53,684
--------- --------- --------------- -----------
Income (loss) from continuing operations
before income taxes........................... 1,627 6,853 (1,867) 6,613
Provision for (benefit from) income taxes ..... 635 1,786 (700)(i) 1,721
--------- --------- --------------- -----------
Income (loss) from continuing operations ..... $ 992 $ 5,067 $ (1,167) 4,892
========= ========= =============== ===========
Preferred stock dividends ..................... 511 (j)
-----------
Net income from continuing operations
attributable to common stock ................. $ 4,381
===========
Pro forma shares outstanding................... 7,408 (k)
Pro forma earnings per share................... $ 0.59
</TABLE>
- ------------
(1) Represents the statement of operations of Bolle France translated using
the average rate of 5.1138 French Francs per US Dollar for the year
ended December 31, 1996.
F-5
<PAGE>
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) The following pro forma adjustments give effect to the Bill of Sale
and Assignment Agreement between BEC Group and the Company. In
accordance with the agreement, the following assets and liabilities
are being assigned to Bolle Inc. prior to the Spin-off. The pro forma
adjustments represent BEC Group's book value of the following items as
of September 30, 1997:
1. Equity in and notes receivable from affiliated companies consisting
of BEC Group's 23% interest in Eyecare Products plc ($9,534) which is
accounted for by the equity method and its investment in Superior
Vision Services, Inc. and related note receivable ($651) which are
accounted for by the cost method.
2. The Foster Grant building and related indebtedness.
3. The Preferred Stock in Accessories Associates, Inc.
4. Retained liabilities relating to BEC's sale of the Foster Grant
Group ($654) and the Prescription Eyewear Business ($994) in 1996.
Such liabilities represent estimates of amounts to be paid in
conjunction with the indemnification provisions of these sales
agreements.
(b) Adjustment to reflect the reduction of indebtedness to BEC offset by
new indebtedness pursuant to a credit facility.
(c) Adjustment to reflect the issuance of Bolle Inc. Preferred Stock in
exchange for the cancellation of the BEC Preferred Stock issued as
part of the consideration for the purchase of Bolle France.
(d) Adjustment to reflect net effect of above adjustments on the equity of
the Company.
PRO FORMA COMBINED INCOME STATEMENT ADJUSTMENTS
(e) Adjustment to reflect elimination of sales from Bolle France to Bolle
America translated at the same exchange rate used to translate the
statement of operations.
(f) Adjustment to reflect the elimination of Acquisition related expenses
at Bolle France.
(g) Adjustment to reflect the amortization of the goodwill and trademark
value ($48,642) recorded over an estimated useful life of 40 years
($1,216 per annum) and the adjustment to the value of the buildings
($1,824) over an estimated useful life of 30 years ($60 per annum).
Including these adjustments, the total depreciation and amortization
for the year ended December 31, 1996 increased from $1,263
historically to $2,503 on a pro forma combined basis.
(h) Adjustment necessary to reflect combined interest expense on the
$16,925 of debt expected to be outstanding following the Spinoff. See
Note (b). Interest is assumed at 5.5% per annum based on BEC's current
average French Franc borrowing rate. The effect on annual pre-tax
income from a 1/8% variance in the interest rate would be $21.
(i) Adjustment to reflect the statutory tax rate of 37.9% in 1997 and
37.5% in 1996 applied to the pro forma adjustments.
F-6
<PAGE>
(j) Adjustment to reflect dividend of 5.5% on the Series B Preferred
Stock.
(k) Pro forma shares outstanding is calculated as follows:
<TABLE>
<CAPTION>
100% 50% 0%
-------- -------- --------
<S> <C> <C> <C>
Shares outstanding at BEC Group, Inc. at September 30, 1997 . 17,631 17,631 17,631
Shares to be issued to minority shareholders of Bolle Inc. . 939 939 939
Conversion of principal amount of convertible debt of 100%,
50% and 0% ................................................. 3,655 1,828 0
-------- -------- --------
Subtotal-before issuance of one Company share for every
three BEC shares ........................................... 22,225 20,398 18,570
-------- -------- --------
Pro forma Company shares outstanding at September 30, 1997 . 7,408 6,799 6,190
======== ======== ========
Pro forma combined earnings per share:
For the nine months ended September 30, 1997................ $ 0.09 $ 0.10 $ 0.11
For the year ended December 31, 1996........................ $ 0.59 $ 0.64 $ 0.71
</TABLE>
F-7
<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 stockholders' equity and of
cash flows present fairly, in all material respects, the financial position
of Bolle Inc. and its subsidiaries at December 31, 1995 and 1996, and the
results of their operations and their cash flows for the years then ended 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. The financial statements of
Bolle America, Inc. for the year ended December 31, 1994 were audited by
other independent accountants whose report dated January 20, 1995 expressed
an unqualified opinion on those statements.
PRICE WATERHOUSE LLP
Dallas, Texas
March 10, 1997
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Bolle America, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of Bolle America, Inc. for the year ended December 31,
1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Bolle
America, Inc. for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
January 20, 1995
F-9
<PAGE>
BOLLE INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------
1995 1996 1997
--------- --------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 349 $ 311 $ 1,525
Trade receivables, less allowances of $400, $445 and
$698 .................................................. 5,690 4,895 10,387
Trade receivables from related parties ................. 1,432
Receivable from BEC, net ............................... 864
Inventories, net ....................................... 6,918 8,388 13,317
Prepaid and other current assets ....................... 1,113 822 1,869
--------- --------- ---------------
Total current assets ................................. 14,934 14,416 28,530
Property and equipment, net ............................. 509 534 4,835
Trademark ............................................... 39,750
Goodwill and other intangible assets, net ............... 815 646 9,229
Other assets ............................................ 51 28 169
--------- --------- ---------------
Total assets ......................................... $16,309 $15,624 $82,513
========= ========= ===============
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt ........................................ $ 22 $ $ 278
Accounts payable ....................................... 2,353 3,488 5,093
Indebtedness to related parties ........................ 1,420 34,379
Accrued compensation ................................... 278 146 1,192
Accrued commissions and royalties ...................... 536 424 360
Other accrued expenses ................................. 350 403 3,756
--------- --------- ---------------
Total current liabilities ............................ 3,539 5,881 45,058
Other long-term liabilities ............................. 1,940
--------- --------- ---------------
Total liabilities .................................... 3,539 5,881 46,998
--------- --------- ---------------
Commitments and contingencies
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 .............................. 12,770 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 ...................... 82
Retained earnings ...................................... 418
--------- --------- ---------------
Total stockholders' equity ........................... 12,770 9,743 24,460
--------- --------- ---------------
Total liabilities and stockholders' equity .......... $16,309 $15,624 $82,513
========= ========= ===============
</TABLE>
See Note 1 for basis of presentation.
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
BOLLE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales ........................ $23,094 $24,829 $24,425 $19,816 $20,670
Costs and expenses:
Costs of sales .................. 10,814 12,181 12,130 9,617 9,750
Selling, general and
administrative expenses ........ 6,987 7,610 8,105 6,338 7,686
Advertising and sponsoring
expenses ....................... 1,884 2,665 3,269 2,507 2,907
Merger related expenses ......... 3,050
Interest (income)/expense ...... 316 (302) (256) (217) 516
Other (income)/expense, net .... (104) 48 (450) (909) (803)
---------- ---------- ---------- ---------- ----------
Total costs and expenses ..... 19,897 25,252 22,798 17,336 20,056
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes............................ 3,197 (423) 1,627 2,480 614
Provision for income taxes ..... 1,260 364 635 967 196
---------- ---------- ---------- ---------- ----------
Net income (loss) ................ $ 1,937 $ (787) $ 992 $ 1,513 $ 418
========== ========== ========== ========== ==========
</TABLE>
See Note 1 for basis of presentation.
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
BOLLE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
ADDITIONAL RETAINED CUMULATIVE
PAR PAID-IN EARNINGS TRANSACTION TOTAL
SHARES VALUE CAPITAL (DEFICIT) ADJUSTMENT EQUITY
-------- ------- ------------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
<C>
BALANCE--DECEMBER 31, 1993 ..... $ 1,585
1994:
NET PROCEEDS FROM INITIAL PUBLIC
OFFERING ....................... 9,961
DIVIDEND TO STOCKHOLDERS ...... (50)
NET INCOME ..................... 1,937
---------
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 BEC ................ (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
NET INCOME--6 MONTHS ENDED JUNE
30, 1997 ....................... $ 82 82
- -----------------------------------------------------------------------------------------------------
COMMON STOCK ISSUED IN
CONNECTION WITH BOLLE FRANCE
ACQUISITION .................... 100 -- 3,302 3,302
NET INCOME--3 MONTHS ENDED
SEPTEMBER 30, 1997 ............. 336 336
CUMULATIVE TRANSLATION
ADJUSTMENT ..................... $82 82
-------- ------- ------------ ---------- ------------- ---------
BALANCE--SEPTEMBER 30, 1997
(UNAUDITED)..................... 2,000 -- $23,960 $418 $82 $24,460
======== ======= ============ ========== ============= =========
</TABLE>
See Note 1 for basis of presentation.
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
BOLLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-----------------------------------------------------
1994 1995 1996 1996 1997
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $ 1,937 $ (787) $ 992 $ 1,513 $ 418
Adjustments to reconcile income (loss) to net cash
provided (used) by operating activities:
Special charges and merger related expenses, net
of payments ........................................ 99
Depreciation and amortization ..................... 199 254 386 275 853
Bad debt expense .................................. 40 183 73 173 215
Loss (gain) on sale of property and equipment .... 3 1 45
Changes in current assets and liabilities (net of
effect of companies acquired):
Accounts receivable ............................... (1,143) (203) 821 1,326 1,663
Receivables from related parties .................. 736 (736) 556
Inventories ....................................... (714) (2,063) (1,470) 35 (424)
Other assets ...................................... (224) (528) 291 (163) (1,106)
Accounts payable .................................. (415) (323) 1,135 (559) (3,803)
Accrued expenses and other ........................ 572 (176) (191) (87) (254)
--------- ---------- --------- --------- ----------
Net cash provided (used) by operating
activities ...................................... 255 (2,808) 1,302 2,513 (1,837)
Cash flows from investing activities:
Cash expended in acquisitions, net of cash
received ......................................... (33,375)
Capital expenditures .............................. (344) (131) (319) (233) (432)
Proceeds from sale of fixed assets ................ 14 2 35
Non-compete agreement and intangible assets ...... (815) (2) (75)
--------- ---------- --------- --------- ----------
Net cash used by investing activities ............ (330) (946) (319) (233) (33,847)
Cash flows from financing activities:
Proceeds (payments) from long-term obligations .... 323 (78) (21) (21)
Payment on short-term obligations ................. (565) (13)
Payment on revolving credit line .................. (3,843)
Proceeds (payments) on indebtedness to related
parties .......................................... (1,600) (1,000) (1,845) 36,915
Proceeds from issuance of common stock ............ 9,961 (21)
Cash dividends to stockholders .................... (50)
--------- ---------- --------- --------- ----------
Net cash provided (used) by financing
activities ...................................... 5,826 (1,699) (1,021) (1,866) 36,902
Effect on cash of changes in foreign exchange rates (4)
--------- ---------- --------- --------- ----------
Net increase (decrease) in cash ..................... $ 5,751 $(5,453) $ (38) $ 414 $ 1,214
========= ========== ========= ========= ==========
Cash and cash equivalents at beginning of period ... 51 5,802 349 349 311
Cash and cash equivalents at end of period ......... $ 5,802 $ 349 $ 311 $ 763 $ 1,525
Supplemental disclosures of cash flow information:
Interest paid .................................... $ 318 $ 42 $ 5 $ 5 $ 12
Income taxes paid ................................ $ 1,232 * * * $ 1,618
</TABLE>
- ------------
* Income taxes were paid by BEC on behalf of the Company for the years
ended December 31, 1995 and 1996 and the nine months ended September
30, 1996 (unaudited) as it has been part of the BEC U.S. tax group
since 1995. In 1994, the Company was a stand alone tax filer. In
1997, only domestic income taxes were paid by BEC on behalf of the
Company. Accordingly, the income taxes paid by the Company in 1997
represent foreign income taxes.
F-13
<PAGE>
Noncash transactions:
There were no non-cash transactions during the years ended December 31,
1994 and 1995 or during the nine month period ended September 30, 1996.
1996
o During the fourth quarter of 1996, Bolle America forgave the repayment
of a $4,019 advance made to BEC during the year. The forgiveness of the
advance was characterized as a dividend in 1996.
1997
o The acquisition of Bolle France discussed in Note 2 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:
<TABLE>
<CAPTION>
<S> <C>
Cash ..................................... $ 1,294
Accounts receivable ...................... 9,441
Inventories .............................. 6,167
Other current assets...................... 388
Property and equipment ................... 3,949
Goodwill ................................. 8,642
Trademark ................................ 40,000
Other assets ............................. 181
Short-term debt .......................... (175)
Accounts payable and accrued liabilities (9,756)
Other long-term liabilities .............. (1,896)
---------
Net assets acquired .................... $58,235
=========
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data, unless otherwise noted)
NOTE 1 -- GENERAL INFORMATION, BUSINESS AND BASIS OF PRESENTATION
General Information
Bolle Inc. (the "Company") is a subsidiary of BEC Group, Inc. ("BEC"), a
Delaware corporation. The Company was organized on February 3, 1997 to effect
the July 1997 acquisition by BEC 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 BEC in November
1995 in a transaction accounted for as a pooling of interests.
The Company and BEC expects to enter into a management services agreement
(the "Management Agreement") pursuant to which BEC will provide key
management services to the Company for an initial term of three years, and
thereafter is automatically renewed for successive one-year periods until
terminated by either party upon no later than 90 days prior to the expiration
of the initial term, or any renewal term then in effect.
Business
Bolle Inc. manufactures, markets, imports and distributes sunglasses,
safety goggles, sport shields and ski goggles. 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 BEC at the time the Company
was formed. The net assets of Bolle America were contributed to the Company
by BEC 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, Bolle America prior to the acquisition of Bolle
France. The results of operations of Bolle France are included beginning on
July 9, 1997, (the closing date of the Bolle France acquisition described in
Note 2 below).
For the periods subsequent to the acquisition of Bolle America by BEC,
certain revenues and expenses reflected in the financial statements include
allocations of certain corporate expenses from BEC. These allocations include
income from BEC's investment in Eyecare Products Plc, as well as expenses for
general management, treasury, legal, tax, financial reporting and auditing,
insurance, investor and public relations and information management which
were allocated 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.
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.
Interim Financial Information
The financial statements for the nine months ended September 30, 1996 and
1997 are unaudited but include all adjustments (consisting of normal
recurring adjustments) that the Company considers
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
necessary for a fair presentation. Operating results for the nine months
ended September 30, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. Financial disclosures
herein relating to matters subsequent to March 10, 1997 are unaudited.
NOTE 2 -- ACQUISITIONS
On July 9, 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 subsidiaries, for a total purchase
price of approximately $58,235, comprised of cash of $31,000, BEC Series A
preferred stock of $9,294, Company 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
preliminary allocation of purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets ......... $17,290
Property and equipment 3,949
Goodwill ............... 8,642
Trademarks ............. 40,000
Other assets ........... 181
Current liabilities ... (9,931)
Long term liabilities . (1,896)
---------
$58,235
=========
</TABLE>
The Company determined that net book value approximated fair value for
current assets, other assets, current liabilities and other liabilities,
except for the costs and liabilities related to the legal, tax and
operational reorganization totaling $1,750 recorded as part of purchase
accounting.
The land included in property and equipment was purchased 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(Registered Trademark) trademark was valued at $40,000. The remainder of
the excess of purchase price over book value of $8,642 was allocated to
goodwill. The trademark and goodwill are being amortized over 40 years (Note
4).
Management does not expect material changes to the purchase accounting
upon final allocation of the purchase price which will occur by July 10,
1998.
NOTE 3 -- MERGER RELATED EXPENSES
Merger related expenses represent $3.1 million of transaction costs
associated with the pooling of interests between BEC and Bolle America
discussed in Note 1.
NOTE 4 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries unless control indicates otherwise.
Investments in less than 50% owned affiliates and certain greater than 50%
owned affiliates are accounted for by the equity method. Investments in less
than 20% owned affiliates are accounted for by the cost method (Note 8). All
significant intercompany transactions, profits and accounts have been
eliminated in consolidation.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
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 or delivery of
products 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 in over thirty countries, 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, 1995 and 1996 and the nine months ended
September 30, 1996 (unaudited), the Company had sales to a specific customer
located in the United States that represented 14%, 11% and 15% of their net
sales. For the year ended December 31, 1994 and the nine months ended
September 30, 1997 (unaudited), 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. 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 material, 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.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
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 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 material impairment of the trademark, goodwill or other
intangible assets exists.
Impairment of Long-Lived Assets
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.
Pro forma earnings per share
Due to the subsequent events described in Note 16 and their effect on the
capitalization of the company, pro forma earnings per share have not been
presented herein as they are not considered meaningful.
New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share" establishes specific guidelines for publicly held companies for
the computation, presentation, and disclosure requirements of earnings per
share. The statement is effective for all periods ending after December 15,
1997 and restatement will be required for all prior-period EPS data
presented. The application of SFAS 128 to the Company's computation of
earnings per share does not affect the pro forma earnings per share amounts
reported for the year ended December 31, 1996 or the nine months ended
September 30, 1997. The Company plans to adopt SFAS No. 128 in its financial
statements for the year ended December 31, 1997.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
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 will be 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 ending after December 15, 1997 and
reclassification of financial statements for earlier periods presented will
be required for comparative purposes. The Company plans to adopt 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 ending after December 15, 1997. Although the Company presently
reports as one operating segment and expects to continue to do so, the
materiality considerations set forth in SFAS No. 131 will be monitored to
assure compliance with this statement for the year ended December 31, 1997.
Pensions and post retirement indemnity
The employees of Bolle America currently participate in a 401(k) Savings
plan administered by BEC. No pension, post-retirement or other benefit
arrangements have been established by Bolle, Inc.
A provision 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 the 1994, 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
reporting period. Actual results could differ from these estimates.
Fair Value
At September 30, 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.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
NOTE 5 -- INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ ---------------
1995 1996 1997
-------- -------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials ... $ $ $ 1,759
Work in
progress........ 3,409
Finished goods .. 7,077 8,635 10,484
Less: reserve ... (159) (247) (2,335)
-------- -------- ---------------
$6,918 $8,388 $13,317
======== ======== ===============
</TABLE>
NOTE 6 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------- ---------------
1995 1996 1997
------- ------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Land ........................... $ $ $ 423
Buildings ...................... 2,233
Machinery and equipment ........ 397 369 1,814
Computer hardware and software 413 593 582
Furniture and fixtures ......... 95 98 534
Leasehold improvements.......... 5 5
------- ------- ---------------
910 1,065 5,586
Less: accumulated depreciation (401) (531) (751)
------- ------- ---------------
$ 509 $ 534 $4,835
======= ======= ===============
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
and the nine months ended September 30, 1996 (unaudited) and 1997 (unaudited)
was $166, $172, $216, $147 and $406, respectively.
The minimum future rental expense for property and buildings under lease
is as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 ........... 67
Thereafter ..... --
</TABLE>
NOTE 7 -- TRADEMARK, GOODWILL AND OTHER INTANGIBLE ASSETS
Trademark, goodwill and other intangible assets and related accumulated
amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------- ---------------
1995 1996 1997
------ ------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Trademark ............................ $ $ $40,000
Goodwill ............................. 8,655
Non-compete agreement ................ 800 800 800
Other identifiable intangible assets 15 16 139
------ ------- ---------------
815 816 49,594
Less accumulated amortization ....... (170) (615)
------ ------- ---------------
$815 $ 646 $48,979
====== ======= ===============
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
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 and will pay $100 per
year from January 1, 1997 to 2005.
Amortization expense for the years ended December 31, 1994, 1995 and 1996
and the nine month periods ended September 30, 1996 (unaudited) and 1997
(unaudited) was $33, $82, $170, $128 and $447, respectively.
NOTE 8 -- EQUITY IN AFFILIATED COMPANIES
The Company sells its products to three related party distributors, Bolle
Sunglasses UK, Bolle Japan and Bolle Canada, which are owned 51%, 30%, and
51%, respectively. All investments are accounted for under the equity method
of accounting. Bolle Sunglasses UK and Bolle Canada are accounted for under
the equity method because the businesses are managed and operated by the
minority owners. The Company's equity in the net assets of these entities of
approximately $75 is considered immaterial.
NOTE 9 -- INTERCOMPANY CREDIT ARRANGEMENT
During the years ended December 31, 1995, 1996 and the nine months ended
September 30, 1996 (unaudited) and 1997 (unaudited), Bolle America was party
to a revolving intercompany credit arrangement with BEC 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 arrangement includes assignment to the
Company upon change of control. The debt incurred to finance the cash portion
of the consideration has been pushed down to Bolle Inc. under this
arrangement.
NOTE 10 -- 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
Spinoff of the Company, Bolle Inc. will file its consolidated tax return
separate from BEC.
Income before provision for income taxes consists of the following for the
periods ended:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
U.S....... $3,197 $(423) $1,627 $2,480 $(57)
Foreign... 671
-------- -------- -------- -------- -------
$3,197 $(423) $1,627 $2,480 $614
======== ======== ======== ======== =======
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
The provision for income taxes consists of the following for the periods
ended:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------
1994 1995 1996 1996 1997
-------- ------- ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
UNITED STATES
Current:
Federal ................. $1,095 $ 616 $542 $817 (212)
State and local ......... 182 103 81 136 (34)
Deferred ................. (17) (355) 12 14 245
-------- ------- ------ ------ -------
1,260 364 635 967 (1)
FOREIGN
Deferred.................. 197
-------- ------- ------ ------ -------
Total provision for
income
taxes .................. $1,260 $ 364 $635 $967 $ 196
======== ======= ====== ====== =======
</TABLE>
The Company's effective tax rates differ from the Federal statutory rate
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------
1994 1995 1996 1996 1997
------- --------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected tax (benefit) at statutory
rate .............................. 34.0% (34.0)% 34.0% 34.0% 34.0%
State income taxes (benefit) ....... 3.8% 16.1% 3.5% 3.5% (4.2)%
Non-deductible and merger related
expenses .......................... 104.0% 2.9%
Foreign rate differential........... 5.1%
Other, net ......................... 1.6% 1.5% 1.5% (5.8)%
------- --------- ------- ------- --------
39.4% 86.1% 39.0% 39.0% 32.0%
======= ========= ======= ======= ========
</TABLE>
Significant components of deferred income taxes are as follows for the
periods ended:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- ---------------
1995 1996 1997
------ ------ ---------------
<S> <C> <C> <C>
Current deferred tax assets:
Accounts receivable.................... $150 $168 $ 66
Non qualified stock options............ 54 54 54
Inventories............................ 116 129 231
Accrued expenses....................... 114 83 65
------ ------ ---------------
Total current deferred tax assets .... 434 434 416
------ ------ ---------------
Non-current deferred tax assets:
Intangibles............................ 30 12 4
Pension liability...................... 63
Fixed assets........................... 6 9
------ ------ ---------------
Total non-current deferred tax
assets................................ 30 18 76
------ ------ ---------------
Gross deferred tax asset............. 464 452 492
------ ------ ---------------
Current deferred liabilities:
Other liabilities...................... (2,071)
------ ------ ---------------
Gross deferred tax liability.......... (2,071)
------ ------ ---------------
Net deferred tax asset (liability) .. $464 $452 $(1,579)
====== ====== ===============
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
No valuation allowance has been established against deferred tax assets
as realization is considered to be more likely than not. Current deferred tax
assets of $434, $434 and $416 are included in "Prepaid and other current
assets" at December 31, 1995 and 1996 and September 30, 1997 respectively.
Non-current deferred tax assets of $30, $18 and $76 are included in "Other
assets" at December 31, 1995 and 1996 and September 30, 1997, respectively.
Current deferred liabilities of $2,071 are included in "Other accrued
expenses" at September 30, 1997.
NOTE 11 -- MANDATORILY REDEEMABLE PREFERRED STOCK
In connection with the acquisition of Bolle France described in Note 2,
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 existing BEC senior debt. Prior to that, the
Company may redeem any shares of Bolle Series A Preferred Stock at any time.
Further, 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 BEC remains in compliance with the
financial covenants contained in any senior indebtedness in effect as of June
4, 1997 after giving effect to such redemption and $2,000 is available for
borrowing by BEC under such senior indebtedness.
NOTE 12 -- STOCK OPTION PLANS
Certain employees of the Company currently participate in the BEC stock
incentive plan. Such options are exercisable into common stock of BEC.
Accordingly, BEC disclosures for the Company employees included in the BEC
stock incentive plan are shown below. The Company plans to adopt a separate
stock option and incentive plan similar to the BEC plan in anticipation of
the Spinoff.
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:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------
1994 1995 1996 1997
--------- ---------- --------- --------------
<S> <C> <C> <C> <C>
Net income (loss)
As reported...... $1,937 $ (787) $992 $ 418
Pro forma........ $1,937 $(1,398) $706 $(195)
</TABLE>
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>
<S> <C>
Dividend yield ............... 0%
Expected volatility .......... 64%
Risk free rate of return .... 5%
Expected turnover ............ 7%
Expected term ................ 5 years
</TABLE>
The weighted average fair values of all Benson Eyecare Corporation (BEC's
predecessor, "Benson") options granted during the years ended December 31,
1994, 1995 and 1996 were $3.72, $4.80 and $5.12, respectively. The weighted
average fair value of all BEC options granted during 1996 and 1997 was $2.55
and $2.57, respectively.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
BEC may grant nonqualified stock options, incentive stock options or
stock appreciation rights to officers, directors, consultants and key
employees of BEC.
As a result of the Essilor Merger and Asset Sale, all Benson options were
canceled. Option holders received consideration (including new BEC options)
for their Benson options. Accordingly, all options were issued under the BEC
Stock Compensation Plan, on or after May 3, 1996.
A summary of the transactions for Benson options held by Company employees
is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
RANGE NUMBER OF
PER BENSON SHARE BENSON SHARES EXPIRATION DATE
----------------- --------------- ---------------
<S> <C> <C> <C>
Outstanding at 12/31/93 ........................... --
Outstanding at 12/31/94 ........................... --
Granted ........................................... $6.13-$9.00 252
Exercised ......................................... -- --
Cancelled ......................................... $9.00-$9.00 (4)
---------------
Outstanding at 12/31/95 ........................... $6.13-$9.00 248 1996-2002
Granted ........................................... --
Exercised ......................................... --
Cancelled ......................................... --
Cancelled in connection with Merger and Asset Sale (248)
---------------
Outstanding at 12/31/96 ........................... --
</TABLE>
A summary of the transactions for BEC options held by Company employees is
as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE NUMBER OF
PRICE PER BEC SHARE BEC SHARES
------------------------ ------------
<S> <C> <C>
Outstanding at 12/31/95 --
Granted ................. 4.98 198
Exercised ............... --
Cancelled ............... 4.98 (30)
------------
Outstanding at 12/31/96 4.98 168
Granted ................. 4.49 889
Exercised ............... --
Cancelled ............... 5.06 (53)
------------
Outstanding at 9/30/97 . 4.53 1,004
============
</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 74 exercisable BEC options held by Company employees at September
30, 1997 had an option price range of $3.46 -- $5.05 per BEC share. The
weighted average remaining contractual life of the 1,004 BEC options held by
Company employees outstanding at September 30, 1997 was approximately 6.8
years.
NOTE 13 -- RELATED PARTY TRANSACTIONS
Prior to the planned spin off (see Note 16); the Company will enter into a
Management Services Agreement with BEC pursuant to which BEC will provide key
management services to the Company. The Management Services Agreement has an
initial term of three years, and thereafter is automatically renewed for
successive one-year periods until terminated by either party upon ninety days
written notice. During the initial term of the Management Services Agreement,
the Company will pay BEC $720 per year for such services.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
With the acquisition of Bolle France, the Company has transactions with
related parties (BEC, Bolle Sunglasses UK, Bolle Japan and Bolle Canada), for
which transactions and balances have been disclosed under the captions
"Receivables from BEC, net," "Trade receivables from related parties" and
"Indebtedness to related parties." Such transactions are realized at
conditions equivalent to those prevailing for unrelated parties.
NOTE 14 -- 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.
NOTE 15 -- GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment: the manufacture,
marketing and distribution of sunglasses, safety goggles, sport shields and
ski goggles. 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.
Geographic information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers:
United States ...................... $23,094 $24,829 $24,425 $19,816 $14,896
Europe ............................. 5,774
--------- --------- --------- --------- ---------
Total net sales ..................... $23,094 $24,829 $24,425 $19,816 $20,670
========= ========= ========= ========= =========
(Transfers between geographic areas
eliminated in consolidation):
United States ...................... $ $ $ $ $
Europe ............................. 2,870
--------- --------- --------- --------- ---------
Total transfers ..................... $ -- $ -- $ -- $ -- $ 2,870
========= ========= ========= =========
Income (loss) before income taxes:
United States ...................... $ 3,409 $ 2,373 $ 921 $ 1,353 $ 2,222
Europe ............................. (1,895)
Interest, merger related expenses
and other income, net ............. (212) (2,796) 706 1,127 287
--------- --------- --------- --------- ---------
Total income (loss) before income
taxes .............................. $ 3,197 $ (423) $ 1,627 $ 2,480 $ 614
========= ========= ========= ========= =========
Identifiable assets:
United States ...................... $17,549 $16,309 $15,624 $13,795 $13,353
Europe ............................. 72,966
Corporate assets ................... (56)
--------- --------- --------- --------- ---------
Total identifiable assets ........... $17,549 $16,309 $15,624 $13,795 $86,263
========= ========= ========= ========= =========
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands, except per share data, unless otherwise noted)
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 related expenses, interest and other income, net. Identifiable assets
of geographic areas are those assets used in the Company's operations in each
area.
NOTE 16 -- SUBSEQUENT EVENTS
On October 31, 1997, BEC announced its intent to spin off the Company to
BEC's shareholders (the "Spinoff"). Application will be made to list the spun
off Bolle Common Stock on the Nasdaq National Market.
In connection with the Spinoff, the Company expects that, pursuant to a
Bill of Sale and Assignment Agreement to be entered into between BEC and the
Company prior to the consummation of the Spinoff (the "Contribution
Agreement"), (i) BEC will assign to the Company all of BEC's assets other
than assets related to the ORC Business (as defined in the Contribution
Agreement) and certain other specified assets retained by BEC; and (ii) the
Company will assume all of BEC'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 will be
contributed to the capital of the Company and the remaining balance will be
refinanced via a bank credit facility.
In connection with the Spinoff, it is expected that the Company will agree
at or prior to the Spinoff to assume all obligations and liabilities of BEC
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 BEC in connection with the purchase of Bolle
France and BEC will then be released from all such obligations or
liabilities. In addition, it is expected that, at or prior to the Spinoff,
each Seller will convey to the Company all shares of Series A Preferred Stock
of BEC (the "BEC Preferred Stock") held by such Seller and the Company will
issue 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
BEC Preferred Stock conveyed by such Seller to the Company. No shares of
Bolle Common Stock will be issued to the holders of outstanding shares of
Bolle Series B Preferred Stock pursuant to the Spinoff. BEC will cancel all
warrants (the "BEC Warrants") to purchase 2,130,000 shares of BEC Common
Stock and the Company will issue in exchange to each holder of canceled BEC
Warrants, warrants to purchase Bolle Common Stock (the "Bolle Warrants") in
proportion to the number of BEC Warrants held by such holder prior to the
cancellation. No shares of Bolle Common Stock will be issued to holders of
outstanding Bolle Warrants pursuant to the Spinoff.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
November 26, 1997
To the Board of Directors and
Shareholders of Holdings BF SA
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Holding
BF SA and its subsidiaries at December 31, 1996, June 30, 1997 and September
30, 1997 and the results of their operations and their cash flows for the
year, six months and three months then ended in conformity with accounting
principles generally accepted in the United States of America. 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
auditing standards generally accepted in the United States of America 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.
Befec -Price Waterhouse
Lyon, France
/s/ Olivier Auscher
- ----------------------------
Olivier Auscher
F-27
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
COMBINED BALANCE SHEET
DECEMBER 31, 1996, JUNE 30, 1997 AND SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS OF FRENCH FRANCS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
ASSETS 1996 1997 1997
------------- ------------ ---------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ..................... FF 17,884 FF 7,610 FF 8,115
Trade receivables, less allowance for doubtful
accounts of FF 1,556, FF 2,414 and FF 3,094 . 64,185 55,524 46,382
Inventories ................................... 29,697 36,268 32,756
Other current assets .......................... 2,918 2,282 8,629
------------- ------------ ---------------
Total current assets ......................... 114,684 101,684 95,882
Investments ................................... 191 690 570
Property and equipment, net ................... 11,038 12,498 26,180
Trademark, net ................................ -- -- 235,308
Goodwill, net ................................. -- -- 50,753
Other assets .................................. 545 375 403
------------- ------------ ---------------
Total assets ................................. FF126,458 FF115,247 FF409,096
============= ============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt................................ FF 11,886 FF 1,032 FF 991
Indebtedness to Bolle Inc...................... -- -- 212,138
Accounts payable............................... 25,312 32,422 22,053
Accrued liabilities............................ 24,085 20,560 25,580
------------- ------------ ---------------
Total current liabilities..................... 61,283 54,014 260,762
Long term liabilities........................... 949 1,084 5,415
Accrued reorganization liabilities.............. 5,050 5,650 6,050
------------- ------------ ---------------
Total liabilities............................. 67,282 60,748 272,227
------------- ------------ ---------------
Minority interests.............................. 11,820 395 --
Commitments and contingencies ..................
Stockholders' equity:
Common stock--par value FF 1,000............... 16,500 53,600 53,600
Capital surplus................................ -- -- 81,058
Cumulative translation adjustment.............. (78) (78) 259
Retained earnings.............................. 30,934 582 1,952
------------- ------------ ---------------
Total stockholders' equity.................... 47,356 54,104 136,869
------------- ------------ ---------------
Total liabilities and stockholders' equity ... FF126,458 FF115,247 FF409,096
============= ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996, THE SIX MONTHS ENDED JUNE 30, 1997
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------- ------------ ---------------
<S> <C> <C> <C>
Net sales:
Sales to Bolle America............................. FF66,251 FF17,391 FF17,461
Third party sales ................................. 183,442 88,641 35,124
-------------- ------------ ---------------
Total net sales: .................................. 249,693 106,032 52,585
-------------- ------------ ---------------
Costs and expenses:
Costs of sales ................................... 153,233 65,798 34,411
Selling, general and administrative expenses ..... 57,716 29,885 12,238
Interest expense ................................. 2,417 993 2,349
Other expenses, net .............................. 1,281 (2,043) (493)
-------------- ------------ ---------------
Total costs and expenses ........................ 214,647 94,633 48,505
-------------- ------------ ---------------
Income before income taxes and minority interests 35,046 11,399 4,080
Provision for income taxes ........................ 9,133 6,783 2,523
-------------- ------------ ---------------
Net income before minority interests .............. 25,913 4,616 1,557
Minority interests ................................ (8,250) (265) 395
-------------- ------------ ---------------
Net income ........................................ FF17,663 FF4,351 FF1,952
============== ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1996, JUNE 30, 1997 AND SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
RETAINED TRANSLATION CAPITAL
SHARES PAR VALUE EARNINGS ADJUSTMENT SURPLUS TOTAL
-------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1996
Balance--beginning of
year..................... 100 FF16,500 FF14,568 FF FF FF31,068
Translation adjustments .. (78) (78)
Dividend to stockholders . (1,297) (1,297)
Net income................ 17,663 17,663
-------- ----------- ----------- ------------- ------------ ------------
Balance--December 31,
1996..................... 100 16,500 30,934 (78) 47,356
1997
Acquisition of minority
interests................ 37,100 (23,100) 14,000
Dividend to stockholders . (9,972) (9,972)
Investment in new
subsidiary............... (1,631) (1,631)
Net income................ 4,351 4,351
-------- ----------- ----------- ------------- ------------ ------------
Balance--June 30, 1997 ... 100 FF53,600 FF 582 (78) FF54,104
- ------------------------------------------------------------------------------------------------------
Adjustments to reflect
purchase by Bolle Inc. . (582) 337 81,058 80,813
Net income................ 1,952 1,952
-------- ----------- ----------- ------------- ------------ ------------
Balance--September 30,
1997..................... 100 FF53,600 FF1,952 FF259 FF81,058 FF136,869
======== =========== =========== ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996, SIX MONTHS ENDED JUNE 30, 1997
AND THREE MONTHS ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS OF FRENCH FRANCS)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------- ------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ...................................... FF17,663 FF4,351 FF1,952
Adjustments to reconcile net income to cash
provided by operating activities:
Minority interests .............................. 8,250 265 (395)
Depreciation and amortization ................... 4,486 2,275 3,403
Bad debt expense ................................ 1,241 858 680
Loss on sale of property and equipment ......... 69 -- 262
Changes in current assets and liabilities:
Accounts receivable ............................. (158) 7,798 8,462
Other current assets ............................ (392) 170 (6,347)
Inventories ..................................... (8,603) (6,571) 3,512
Other assets .................................... (1,888) 641 (403)
Accounts payable ................................ 387 5,543 (9,560)
Accrued expenses and other ...................... 12,102 (1,359) 1,065
-------------- ------------ ---------------
Net cash provided by operating activities ..... 33,157 13,971 2,631
-------------- ------------ ---------------
Cash flows from investing activities:
Capital expenditures ............................ (4,640) (3,734) (2,272)
Proceeds from sale of fixed assets .............. 91 -- 105
Investment in unconsolidated subsidiaries ...... (89) (474) 120
Net cash (used) by investing activities ....... (4,638) (4,208) (2,047)
-------------- ------------ ---------------
Cash flows from financing activities:
Payments on short term debt ..................... (17,514) (10,065) (79)
Cash dividends to stockholders .................. (11,120) (9,972) --
-------------- ------------ ---------------
Net cash (used) by financing activities ....... (28,634) (20,037) (79)
-------------- ------------ ---------------
Net increase (decrease) in cash .................. (115) (10,274) 505
Cash and cash equivalents at beginning of period 17,999 17,884 7,610
-------------- ------------ ---------------
Cash and cash equivalents at end of period ...... FF17,884 FF7,610 FF8,115
============== ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 1996, THE SIX MONTHS
ENDED JUNE 30, 1997, AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS OF FRENCH FRANCS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The combined financial statements of Holding BF SA and subsidiaries (the
"Group") have been prepared in accordance with accounting principles
generally accepted in the United States of America. The combined financial
statements of the Group include the subsidiaries and equity investments owned
by Holding BF SA in addition to certain entities held by the owners of
Holding BF SA. Accordingly, the combined financial statements include the
consolidated accounts of Holding BF SA and its wholly owned and
majority-owned subsidiaries (SNC Bolle 76%, Bolle Protection Sarl 88%, Bolle
Production Sarl 68.75%), and the accounts of RM Plastiques Sarl and Bolle
Diffusion Sarl at December 31, 1996.
On July 10, 1997, Bolle Inc., a wholly-owned subsidiary of BEC Group Inc.
acquired from the Bolle family, shareholders of Holding BF SA, all of the
shares of Holding BF SA and subsidiaries. Further, in connection with the
purchase agreement, Holding BF SA acquired the minority interests in SNC Bolle
and all of the outstanding stock of RM Plastiques Sarl, Bolle Protection
Sarl and Bolle Production Sarl prior to closing of the transaction as part
of the legal and tax reorganization of the Group. Accordingly the combined
accounts of the Company at June 30, 1997 include Holding BF SA and its
wholly-owned subsidiaries (SNC Bolle 100%, Bolle Protection Sarl 100%, Bolle
Production Sarl 100%, RM Plastiques Sarl 100%) and the accounts of Bolle
Diffusion Sarl, all on a pre-acquisition basis.
Bolle Inc. acquired Bolle Diffusion Sarl separately on July 10, 1997.
Bolle Diffusion Sarl was accounted for outside the consolidation of Holding
BF SA at September 30, 1997. Accordingly, the financial statements of Holding
BF SA at September 30, 1997 are presented on a combined basis and include the
accounts of Bolle Diffusion Sarl.
Further, the combined financial statements at September 30, 1997 reflect
the application of push down accounting of Bolle Inc. debt used to fund the
acquisition of the Group and related purchase accounting adjustments.
Business
Holding BF SA and subsidiaries operates in one business segment and
manufactures and sells sunglasses and sport shields, safety and tactical
eyewear and ski goggles. These products are manufactured in the Group's plant
in Oyonnax, France and through subcontractors and are sold to distributors or
direct customers located around the world.
Principles of Consolidation
All significant intercompany transactions, profits and accounts have been
eliminated in consolidation. Investments in companies in which the Group does
not have control, but has the ability to exercise significant influence are
accounted for by the equity method. Bolle Sunglasses Ltd. and Bolle Canada
Inc. are held by majority-owned subsidiaries of Holding BF SA, and therefore
the Group's ownership of each of these entities is 38%, respectively at
December 31, 1996. Subsequent to the Company's acquisition of the minority
interests described above, Holding BF SA's ownership of Bolle Sunglasses Ltd.
and Bolle Canada Inc. increased to 51%, respectively and continue to be
accounted for under the equity method of accounting in the financial
statements of Holding BF SA at June 30, 1997 and September 30, 1997, as the
Group did not have effective control of these entities.
Revenue Recognition
Revenue is recognized upon shipment or delivery of products with estimates
provided for returns based on management estimates.
F-32
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk and Major Customers
In the opinion of management, concentration of credit risk varies
significantly on a country-by-country basis. The Group sells to customers in
twenty countries, 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 on-going relationship with the Group, and collateral
is generally not required. Credit risk is affected by conditions or
occurrences in the local economies and relative strength of the retail
environment in each of the countries where the Group's customers operate. The
Group establishes an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and
other information.
The Group sells its products to three related party distributors, Bolle
Sunglasses UK Ltd. and Bolle Canada, Inc., which were both 51% owned by SNC
Bolle as of June 30, 1997, and Bolle America, Inc. which is a sister company
owned 100% by Bolle Inc. For the year ended December 31, 1996, and the six
months and three months ended June 30, 1997 and September 30, 1997,
respectively, Bolle America, Inc. represented 27%, 16% and 33% of the Group's
net sales, respectively. Specific cost of sales related to Bolle America or
any other single customer cannot be calculated. Sales to Bolle Sunglasses UK
Ltd. and Bolle Canada did not exceed 10%, respectively in any of the periods
presented.
Foreign Currency Translation
For non-French subsidiaries which operate in a local currency environment,
assets and liabilities are translated into French Francs at period-end
exchange rates. 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 stockholders' equity.
In the normal course of business, operations (mainly sales) of the Group
is not exposed to fluctuations in currency values. Accordingly, the Group
does not enter into any type of financial instrument with respect to balance
sheet exposure arising from foreign exchange risk.
Up until July 10, 1997, the Group, however, had entered into a series of
agreements with Bolle America, Inc. providing a series of fixed exchange
rates on the French franc/U.S. dollar exchange rate for sales to that
customer. Therefore, foreign currency transaction losses amounting to FF 114
for the year ended December 31, 1996 and FF 0 for the six months June 30,
1997 are included in other income.
Cash and Cash Equivalents
Cash and cash equivalents represent investments with maturities of three
months or less from the time of purchase, and are carried at cost which
approximates fair value because of the short maturity of those instruments.
Cash paid for interest and income taxes was FF 1,232 and FF 7,852 for the
year ended December 31, 1996; FF 290 and FF 3,966 for the six months ended
June 30, 1997, and FF 73 and FF 9,840 for the three months ended September
30, 1997, respectively.
Property and Equipment
Buildings are valued at cost and depreciated over 30 years on a
straight-line basis.
F-33
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Other property and equipment are recorded at fair value and depreciated
over their estimated useful life calculated, on a straight-line method (see
below):
<TABLE>
<CAPTION>
<S> <C>
Fittings and fixtures ..... 5 years
Machinery and equipment .... 7-10 years
Motor vehicles.............. 5 years
Office furniture............ 3-5 years
</TABLE>
Impairment of Long-Lived Assets
At each balance sheet date, the Group 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 asset's carrying amount to determine whether a
write-down to market value is required.
Warranties
Certain sales are subject to warranty against material defects. Potential
future warranty costs are provided on the balance sheet.
Pensions and Post Retirement Indemnity
A provision is recorded for legal employees' lump sum termination
indemnities. These indemnities are due to all employees which leave the Group
at retirement age (65) and depend upon the length of employees' service and
salary level. The obligation, which is not funded, is calculated using an
actuarial method (weighted-average discount rate of 6.19%, salary increase
of 2.5%) and takes into account staff turnover and mortality statistics
until retirement age. There are no other pensions, post-retirement or post
employment obligations to the Company as such employee benefits are provided
by the French social security system.
Research and Development
Research, development and engineering expenditures which amounted to FF
3,045, FF 1,752, and FF 931 for the year ended December 31, 1996, the six
months ended June 30, 1997 and the three months ended September 30, 1997,
respectively, are expensed as incurred. Substantially all engineering and
development costs are related to developing new products or designing
significant improvements to existing products.
Income Taxes
Taxable income/loss of the various companies comprising the Group was
included in the tax returns of the appropriate taxable entity. Accordingly,
consolidated income tax returns were not prepared for the Group. 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.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires Group management to make estimates
and assumptions that effect 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 reporting period. Actual results could differ from these estimates.
F-34
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Fair value
At December 31, 1996, June 30, 1997 and September 30, 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.
Trademark and Goodwill
The fair value of the worldwide Bolle(Registered Trademark) trademark of
the Group (FF 236,788) has been established by an independent appraisal and
is reflected in the Group's combined balance sheet as a result of the
revaluation of assets recorded in connection with the acquisition of the
Group by Bolle Inc. Both the trademark and goodwill are being amortized over
40 years.
NOTE 2 -- RELATED PARTY TRANSACTIONS
As disclosed in Note 1, the Group sells to related parties (Bolle UK,
Bolle Japan). Such transactions are realized at conditions equivalent to
those prevailing for unrelated parties.
As disclosed in Note 5, prior to July 10, 1997 the Group borrowed from
certain stockholders (Bolle family). Interest expense and balances are
disclosed in the statement of operations and on the balance sheet,
respectively.
Certain stockholders of the Group owned 100% of RM Plastique Sarl prior
to July 10, 1997, a company with which the Group subcontracts certain
assembly tasks. Services rendered by RM Plastique Sarl, amounting to FF
1,385, FF 1,053 and FF 165 for the year ended December 31, 1996, the six
months ended June 30, 1997 and the three months ended September 30, 1997, are
invoiced at cost on an arm's length basis.
The minority stockholders in SNC Bolle referred to in Note 8 were also the
majority stockholders of the Group before July 10, 1997.
The Indebtedness to Bolle Inc., as of September 30, 1997 consists
primarily of debt incurred in conjunction with the purchase of the Group by
Bolle Inc. and short term working capital financing provided by Bolle Inc.
During the three months ended September 30, 1997, Bolle Inc. charged an
average annualized interest rate of 5.5% on the balance.
NOTE 3 -- INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------- ----------- ---------------
<S> <C> <C> <C>
Raw materials ... FF 13,076 FF 12,047 FF 10,402
Work in progress . 10,580 23,341 20,153
Finished goods .. 10,741 5,580 6,901
Reserves ......... (4,700) (4,700) (4,700)
-------------- ----------- ---------------
FF 29,697 FF 36,268 FF 32,756
============== =========== ===============
</TABLE>
F-35
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------- ----------- ---------------
<S> <C> <C> <C>
Land .......................... FF -- FF -- FF 2,500
Buildings and fixtures ........ 11,193 11,625 13,205
Machinery and equipment ...... 56,257 58,142 8,356
Motor vehicles ................ 2,579 2,637 406
Office furniture............... 3,827 5,187 2,855
Less: accumulated
depreciation.................. (62,818) (65,093) (1,142)
-------------- ----------- ---------------
FF11,038 FF12,498 FF26,180
============== =========== ===============
</TABLE>
Depreciation expense for the year ended December 31, 1996 amounted to FF
4,486 and FF 2,275 and FF 1,519 for the six and three months ended June 30,
and September 30, 1997, respectively.
NOTE 5 -- SHORT TERM DEBT AND INDEBTEDNESS TO BOLLE INC.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
---------------- ------------ -----------------
<S> <C> <C> <C>
Short term debt ..........
Bank debt ............... FF 559 FF 509 FF 431
Bank overdraft .......... 5,704 158
Other ................... 5,623 523 402
---------------- ------------ -----------------
Total short term debt .... FF 11,886 FF 1,032 FF 991
================ ============ =================
</TABLE>
The Group benefits from bank overdraft facilities which extend through
October 31, 1997 totaling FF 8,200 at an interest of Pibor + 1.5. The rate of
interest for the year ended December 31, 1996 and the six and three months
ended June 30, and September 30, 1997 averaged 4.9%.
Short term related party debt represents dividends declared by the Group
payable to the Bolle family and interest accrued on such undistributed
dividends at a variable rate of interest, which averaged 6.4% during the year
ended December 31, 1996 and 6.0% for the six months ended June 30, 1997.
Indebtedness to Bolle Inc. represents debt incurred by Bolle Inc. to
acquire the Group and interest accrued on the balance at an average
annualized rate of 5.5% for the three months ended September 30, 1997.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
-------------- ----------- ---------------
<S> <C> <C> <C>
Salaries, wages and other
employee benefits ......... FF 5,632 FF 4,543 FF 4,591
Fringe benefits accruals .. 2,667 2,328 1,743
Other taxes ................ 632 993 1,623
Interest payable ........... 2,190 -- --
Income taxes ............... 7,117 7,925 6,994
Deferred taxes ............. 1,154 3,271 3,105
Warranty ................... 3,400 1,500 1,421
Reorganization of the
Group...................... -- -- 5,624
Other....................... 1,293 -- 479
-------------- ----------- ---------------
FF 24,085 FF 20,560 FF 25,580
============== =========== ===============
</TABLE>
F-36
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7 -- INCOME TAXES
The provision (benefit) from income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
---------------- -------------- -----------------
<S> <C> <C> <C>
Current ...... FF 12,588 FF 4,741 FF 2,690
Deferred ..... (3,455) 2,042 (167)
---------------- -------------- -----------------
Total ........ FF 9,133 FF 6,783 FF 2,523
================ ============== =================
</TABLE>
The Company's effective tax rate differs from the statutory rate as
follows:
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
---------------- -------------- -----------------
<S> <C> <C> <C>
French statutory rate .......................... 36.7% 41.7% 41.7%
Non-taxable income attributable to minority
stockholders (see Note 8) ..................... (10.5)% -- --
Impact of new statutory rate.................... -- 19.6% --
Non-deductible expenses......................... -- -- 20.1%
Other........................................... (0.2)% (1.7)% --
---------------- -------------- -----------------
Effective income tax rate....................... 26.0% 59.6% 61.8%
================ ============== =================
</TABLE>
Significant components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997
---------------- ------------- -----------------
<S> <C> <C> <C>
Pension liability ............... FF (467) FF (375) FF (375)
Accrued liabilities ............. 697 -- --
Inventory and other.............. 624 3,271 3,105
---------------- ------------- -----------------
Net deferred tax liability .... FF 854 FF 2,896 FF 2,730
================ ============= =================
</TABLE>
At December 31, 1996, June 30, 1997 and September 30, 1997, other assets
include FF 300, FF 375 and FF 375 of deferred tax assets.
Historically, the Company consisted of a number of different tax entities
with different ownership interests. Prior to its acquisition by Bolle Inc.,
such entities' tax returns were prepared and filed on an unconsolidated
basis. The Company's structure is currently being revised in order to allow
it to prospectively file one consolidated tax return in France.
F-37
<PAGE>
HOLDING BF S.A. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 -- MINORITY INTERESTS
<TABLE>
<CAPTION>
<S> <C>
Minority interests at December 31, 1995 ......................... FF13,393
Minority interest in net income of consolidated subsidiaries ... 8,250
Dividends paid to minority shareholders ......................... (9,823)
-------------
Minority interests at December 31, 1996 ......................... FF11,820
=============
Minority interest in net income of consolidated subsidiaries ... 265
Acquisition of minority interests by the Group................... (11,690)
-------------
Minority interests at June 30, 1997 ............................. FF 395
=============
Minority interest in losses of consolidated subsidiaries ....... (395)
-------------
Minority interests at September 30, 1997 ........................ FF --
=============
</TABLE>
At December 31, 1996, minority shareholders had a 24% interest in SNC
Bolle, a Group consolidated subsidiary which form of incorporation provides
for an allocation of pre-tax income to minority shareholders in the period
earnings are generated. Minority interests in the statement of operations for
the year ended December 31, 1996 include FF 8,011 relating to SNC Bolle. This
amount is on a pre-tax basis as the related income tax is born directly by
the minority stockholders.
As described in Note 1, in connection with the acquisition of the Group by
Bolle Inc., Holding BF SA acquired the minority interests in SNC Bolle and all
of the outstanding stock of RM Plastiques Sarl, Bolle Protection Sarl and
Bolle Production Sarl prior to closing of the transaction. Accordingly, the
only remaining minority interests at June 30, 1997 and September 30, 1997
relate to Bolle Diffusion Sarl. For the three months ended September 30,
1997, Bolle Diffusion Sarl incurred a net loss of FF 1,325, FF 930 of which was
included in the Group's results.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Group has various commitments to purchase materials and supplies as
part of the ordinary conduct of business. In the aggregate, such commitments
are not at prices in excess of current market. Management believes that the
settlement of such commitments will not materially affect the financial
position, results of operations or cashflows of the Group. The Group is also
subject to various litigation incidental to its business. The Group does not
believe that exposure on any matter will result in a significant impact on
its financial position, results of operations or cash flows.
F-38
