SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 28, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-19873
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BELL SPORTS CORP.
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(Exact name of registrant as specified in its charter)
Delaware 36-3671789
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
6350 San Ignacio Avenue, San Jose, California 95119
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(Address of principal executive offices) (Zip Code)
(408) 534-3400
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Not applicable
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Preferred Stock Purchase Rights
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(Title of class)
4 1/4% Convertible Subordinated Debentures due 2000
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 19, 1997 was $108,593,906 (based on the average of
the high and low sales price as reported by The Nasdaq Stock Market on such
date).
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of each of the registrant's classes of common
stock, as of September 19, 1997:
Class Number of shares
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Common Stock, $.01 par value 13,832,373
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Company's 1997 Annual Meeting of
Stockholders to be filed by the Company with the Securities and Exchange
Commission within 120 days after the end of the fiscal year are incorporated by
reference in Part III of this Form 10-K.
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PART I.
Item 1. Business
(a) General development of business
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Bell Sports Corp. was incorporated in Delaware in 1989. As used herein, unless
the context otherwise clearly requires, the "Company" refers to Bell Sports
Corp., its consolidated subsidiaries and its predecessors. The Company is a
leading world-wide designer, manufacturer, marketer and distributor of bicycle
accessories, bicycle helmets and auto racing helmets. The Company markets its
products under the following brand names and trademarks: BELL(R), GIRO(R), RHODE
GEAR U.S.A.(R), BLACKBURN(R), VISTALITE(R), BSI(R), BikeXtras(TM), Copper
Canyon(TM), Cycletech(TM) and SpokeHedz(TM). For the fiscal year ended June 28,
1997, bicycle accessories, bicycle helmets, bicycles, and auto racing products
represented 50%, 35%, 13% and 2%, respectively, of the Company's net sales.
The Company is a successor to four principal businesses which engaged in the
manufacturing and distribution of bicycle accessories, bicycle helmets, auto
racing helmets and motorcycle helmets. In June 1991, the Company ceased
manufacturing and marketing motorcycle helmets, although the Company continues
to license the trademarks used in connection with the manufacture of such
helmets to a third party. In August 1991, the Company established EuroBell S.A.
("EuroBell"), to enhance the Company's ability to compete in the European
market. In April 1992, the Company completed an initial public offering of its
common stock, par value $.01 ("Common Stock"). In November 1992, the Company
acquired Blackburn Designs, Inc. ("Blackburn"), a leading designer and marketer
of certain bicycle accessories. In December 1992, the Company completed a
secondary public offering of its Common Stock. The Company completed a public
offering of convertible subordinated debentures in November 1993.
In January 1994, the Company acquired the business of VistaLite, Inc.
("VistaLite"), a leading designer and manufacturer of LED safety lights and
headlights for bicycles. In May 1995, the Company acquired substantially all of
the assets of SportRack Canada, Inc. ("SportRack"), which designs, manufactures
and markets automobile roof rack systems. The Company subsequently sold
substantially all of the SportRack assets in July 1997 (the "Sale of
SportRack"). In July 1995, the Company completed the merger (the "AMRE Merger")
of a subsidiary of the Company with American Recreation Company Holdings, Inc.
("AMRE") pursuant to which AMRE became a wholly owned subsidiary of the Company.
AMRE is a world-wide designer, marketer and distributor of bicycle helmets and
bicycles accessories. In April 1997, the Company sold the AMRE Service
Cycle/Mongoose business (the "Sale of Service Cycle/Mongoose"), which was
primarily comprised the design, distribution and marketing of bicycles and
certain non-proprietary bicycle parts and accessories. In January 1996, the
Company acquired the assets of Giro Sport Design, Inc. and all of the
outstanding stock of Giro Sport Design International, Inc. (collectively
"Giro"). Giro designs, manufacturers and markets premium bicycle helmets. In
November 1996, the Company opened a sales, marketing and distribution office in
Sydney, Australia ("Bell Sports Australia") to service the Australian, New
Zealand and Pacific Rim Markets.
In September 1997, the Company announced that it had retained Montgomery
Securities as its financial advisor to assist it in evaluating strategic
alternatives to enhance stockholder value. Such alternatives may include, but
will not be limited to, a merger, sale, joint venture or other business
combination, repurchase of outstanding debt or equity securities, or continuing
to pursue a corporate growth strategy. There can be no assurance that a
transaction will occur as a result of the evaluation.
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(b) Financial information about industry segments
---------------------------------------------
The Company operates primarily in one line of business -- the manufacturing,
marketing and distributing of bicycle accessories and bicycle helmets. The
Company also manufactures and markets auto racing helmets. The revenues
generated and the identifiable assets used in the auto racing business are not
significant to the Company.
(c) Narrative description of business
---------------------------------
(i) Principal products, markets and distribution channels
The Company manufactures, markets and distributes bicycle
accessories and bicycle helmets.
The Company markets its products in two primary trade channels --
specialty retail and mass merchant. The specialty retail trade
channel is comprised of independent bicycle dealers ("IBDs"),
sporting good retailers and mail-order catalogs, all of which
target the mid-to- premium-priced segment of the consumer market.
The mass merchant trade channel appeals to the economy-priced
segment of the market and includes retailers such as Wal*Mart,
Kmart and Costco Wholesale.
The Company has two U.S. divisions which offer products to the
specialty retail trade channel -- Specialty Retail Division and
Giro. The Company's Specialty Retail Division markets bicycle
helmets under the Bell Pro brand name and bicycle accessories
under the Rhode Gear, Blackburn, and VistaLite brand names. Sale
of merchandise is made through inside sales representatives. Giro
offers premium bicycle helmets under the Giro brand name and
sunglasses under the Smith brand name. The Giro brand is
considered to be one of the most elite brands in the bicycle
helmet industry. Giro sells its products through independent sales
representatives.
The Company also markets a wide range of bicycle accessories and
bicycle helmets in the mass merchant trade channel through its
Mass Merchant Division. Bicycle helmets are marketed under the
brand names -- Bell, BSI and Headwinds. Bicycle accessories are
marketed under the brand names -- BikeXtras, Copper Canyon,
Cycletech, and SpokeHedz, as well as licensed brand names Fisher
Price and Disney. Prior to fiscal 1996, the Bell brand of bicycle
helmets was marketed exclusively in the specialty retail trade
channel.
The Company currently has four international divisions located in
Canada, France, Ireland and Australia.
Bell Sports Canada, located in Granby, Quebec, has two divisions
-- Specialty Retail Division and Mass Merchant Division. The
Specialty Retail and Mass Merchant Divisions operate similarly to
the U.S. divisions and use most of the same brand names, plus a
few which are unique to the Canadian market.
EuroBell,located in Roche-La-Moliere, France, manufactures,
markets, and distributes bicycle accessories and bicycle helmets.
Bicycle accessories are marketed under the Rhode Gear, VistaLite
and Blackburn brands. Bicycle helmets are marketed to specialty
shops and mass merchants under the Bell and Bike Star brand names,
as well as certain private label arrangements.
Giro Ireland Limited, located in Limerick, Ireland, manufactures,
markets and distributes bicycle helmets across Europe under the
Giro brand name.
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Bell Sports Australia, located in Sydney, Australia, was opened in
November 1996 as a sales, marketing and distribution office. The
Bell Sports' Australia markets are Australia, New Zealand and the
Pacific Rim, and it sells many of the Company's brand name
products to the specialty retail and mass merchant trade channels.
The Company is also a leading international manufacturer and
marketer of auto racing helmets.
(ii) Status of new products
The Company has ongoing research and development programs directed
at enhancing and extending its existing products and developing
new products. See "Research and Development Expenditures". The
Company does not presently have a new product or new industry
segment that requires the investment of a material amount of the
total assets of the Company.
(iii) Sources and availability of raw materials
No single raw material accounts for a significant portion of the
cost of the Company's products. The Company's bicycle and auto
racing helmets contain plastic expandable polystyrene foam, which
is one of the primary materials used in the Company's helmets.
Presently, the Company purchases substantially all of its
expandable polystyrene from BASF and Polysource, two of several
possible suppliers of this material. Metal tubing, readily
available from many sources, is used extensively in the
manufacturing of bicycle carriers for automobiles. The Company
does not have any long-term supply contracts for the purchase of
raw materials. Some components and many finished good items,
including certain bicycle parts and accessories, are manufactured
for the Company by outside suppliers, including suppliers in
Central America, Western Europe and the Pacific Rim.
(iv) Patents, trademarks and licenses
In the course of its business, the Company employs various
trademarks, trade names and service marks, including its logos, in
the packaging and advertising of its products. The Company
believes the strength of its service marks, trademarks and trade
names are of considerable value and importance to its business and
intends to continue to protect and promote its marks as
appropriate. The loss of any significant mark could have a
material adverse effect on the Company. The Company also licenses
the Bell trademark for use on certain motorcycle, snowmobile and
police helmets manufactured by third parties.
The Company is the owner of numerous federal registrations and
applications filed with the United States Patent and Trademark
Office. These registrations constitute evidence of the validity of
these marks and the Company's exclusive right to use the marks on
its products. The Company may also be entitled to protection under
the federal Trademark Act for the Company's unregistered marks.
The Company owns 93 United States patents and 57 foreign patents.
As of June 28, 1997, the Company had 23 United States patents and
29 foreign patents pending issuance. None of the Company's patents
are believed to be material to the Company's financial condition
or results of operations.
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(v) Extent to which the business is seasonal
As a result of the timing of the Company's spring selling season,
net sales are normally higher in the second half of the fiscal
year than the first half. The first quarter of the fiscal year is
generally the Company's slowest quarter. Although some selling and
administrative expenses are variable with sales, many expenses are
incurred evenly throughout the year. Accordingly, low sales in any
quarter may adversely affect the Company's operating margins and
profitability in such quarter. The Company's quarterly results may
also vary depending on such factors, among others, as the timing
of new product introductions, major customer shipments, inventory
holdings of significant customers, adverse weather conditions and
the sales mix of products sold.
(vi) Working capital items
The timing of the Company's preseason selling programs and spring
selling season may cause fluctuations in the levels of inventory
and receivables held by the Company from quarter to quarter. The
Company supports sales of its products through various seasonal
promotions, which include extended payment terms for independent
bicycle dealers. Historically, inventories and receivables are
higher in the second half of the fiscal year as compared to the
first half.
(vii) Dependence on single customer
The Company sells to small independent bicycle dealers and
national mass merchants. In fiscal 1997, 1996 and 1995
approximately 18%, 17% and 13%, respectively, of the Company's
sales were to a single customer, Wal*Mart. Due to the Sale of
Service Cycle/Mongoose and the Sale of SportRack, the dependence
on this customer may increase during fiscal 1998. The loss of this
customer, or a significant reduction in sales to this or other
large mass merchant customers, could have a material adverse
effect on the Company's sales and profitability. The write-off of
any significant receivable due from these customers could also
adversely impact the Company's profitability.
(viii) Backlog orders
Historically, there is a backlog of specialty retail orders from
October to December as a result of preseason orders placed after
the fall trade shows. The backlog of orders decreases over the
winter months and is usually insignificant by the end of the
Company's third fiscal quarter. The mass merchant trade channel
does not operate with a large backlog. At the end of each fiscal
year the backlog was not significant.
(ix) Business subject to renegotiation
The Company does not currently engage in any business with
governmental authorities that may be subject to renegotiation of
profits or termination of contracts or subcontracts at the
election of such authorities.
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(x) Competitive conditions
The markets for the Company's bicycle-related products are highly
competitive, and the Company faces competition from a number of
sources in each of its product lines. Some competitors are part of
large bicycle manufacturers and may be able to better promote
bicycle helmet and accessory sales through bicycle sales programs.
Competition is based on price, quality, customer service, brand
name recognition, product features and style. Although there are
no significant technological or manufacturing barriers to enter
the bicycle related businesses, factors such as brand recognition,
customer relationships and product liability exposure may
discourage new competitors from entering the business. Many new
competitors have entered the bicycle helmet market in the last
five years and pricing pressures have increased significantly as a
result of such competition.
(xi) Research and development expenditures
The Company has an ongoing research and development program
directed at enhancing and expanding its existing products and
developing new products. The Company's bicycle helmet research and
development staff primarily focuses on developing technical
product features which can improve helmet aerodynamics, weight,
comfort, durability, safety, aesthetics and style in an effort to
broaden a helmet's consumer appeal. A separate staff focuses on
developing innovative and better performing bicycle accessories.
Research and development expenditures in fiscal 1997, 1996 and
1995 were approximately $4.7 million, $4.7 million and $3.3
million, respectively.
(xii) Material effects of compliance with environmental regulations
In the ordinary course of its business, the Company is required to
dispose of certain waste at off-site locations. During fiscal
1993, the Company became aware of an investigation by the Illinois
Environmental Protection Agency (the "Illinois Agency") of a waste
disposal site, owned by a third party, which was previously
utilized by the Company. As a result of that investigation, the
Illinois Agency informed the Company that certain of the Company's
practices with respect to the identification, storage and disposal
of hazardous waste and related reporting requirements may not have
complied with the applicable law. On March 14, 1995, the State of
Illinois (the "State") filed a complaint with the Illinois
Pollution Control Board (the "Pollution Control Board") against
the Company and the disposal site owner based on the same
allegations. The complaint sought penalties not exceeding
statutory maximums and such other relief as the Pollution Control
Board determines appropriate. The disposal site owner filed a
cross-claim against the Company that seeks to have penalties
assessed against the Company and not against the disposal site
owner. Any penalties as a result of the cross-claim would be
payable to the State. The Pollution Control Board has approved a
settlement between the State and the Company pursuant to which the
Company paid $69,000 to the State and disposed of certain
materials in a container at the waste disposal site at an
authorized disposal facility. The cross-claim by the landfill
owner is still pending, and the outcome of the cross-claim can not
presently be determined.
Additionally, the Illinois Agency has been negotiating with the
disposal site owner with respect to the procedures and actions
necessary to close the disposal site. The extent and nature of any
actions which may be taken against the Company with respect to
this matter cannot presently be determined.
(xiii) Number of employees
The Company employed approximately 1,900 persons at June 28, 1997.
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(d) Financial information about foreign and domestic operations and export sales
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The financial information required with respect to foreign and domestic
operations and export sales of the Company appears in Note 13 to the
Consolidated Financial Statements of the Company appearing on page 40 of
this Annual Report on Form 10-K.
Item 2. Properties
The following table sets forth a brief description of the properties of the
Company and its subsidiaries:
Location General Description
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San Jose, CA Corporate headquarters and sales, marketing,
administration, research and development facility
of approximately 63,600 square feet
Rantoul, IL Administration, manufacturing, and distribution
facility of approximately 322,400 square feet on 34
acres
Santa Cruz, CA Giro sales, marketing, administration,
manufacturing, distribution and research and
development facility of approximately 41,300 square
feet
Scottsdale, AZ Administration offices of approximately 1,600
square feet
York, PA Distribution center with approximately 300,000
square feet
Memphis, TN Distribution center with approximately 198,000
square feet
Fairfield, CA Distribution center with approximately 254,000
square feet
Paris, France EuroBell, S.A. sales and marketing office of
approximately 5,000 square feet
Roche-La-Moliere, France Administrative, manufacturing and distribution
facility of approximately 38,700 square feet on 2.9
acres
Limerick, Ireland Giro sales, manufacturing and distribution facility
of approximately 18,750 square feet
Granby, Quebec Sales, marketing, administration and distribution
facilities of approximately 136,000 square feet
Calgary, Alberta Distribution facility of approximately 14,000
square feet
Sydney, Australia Sales, marketing, administration and distribution
facility of approximately 21,500 square feet
All locations are leased except for the York, PA facility, which is owned by
American Recreation Company, Inc., a wholly owned subsidiary of the Company, and
the Roche-La-Moliere facility, which is held under a lease-purchase arrangement.
The Memphis, TN distribution center is scheduled to close in November 1997
pursuant to the Company's restructuring plan developed in the third quarter of
fiscal 1997.
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Item 3. Legal Proceedings
Due to the nature of its business, the Company at any particular time, may be a
defendant in a number of product liability lawsuits for serious personal injury
or death allegedly related to the Company's products and, in certain instances,
products manufactured by others. Many such lawsuits seek damages in substantial
amounts, including punitive damages.
As of June 28, 1997, there were 38 lawsuits pending relating to injuries
allegedly suffered from products made or sold by the Company. Of the 38
lawsuits, 14 involve motorcycle helmets, 13 involve bicycle helmets, 1 involves
an auto racing helmet, 1 involves a bicycle pedal, 7 involve bicycles and 2
involve bicycle accessories.
Three of the 38 lawsuits pending against the Company as of June 28, 1997 are
scheduled for trial prior to December 31, 1997. During each of the last 5 fiscal
years the Company has been served with complaints in the following number of
cases: 10 cases in fiscal 1993, 11 cases in fiscal 1994, 5 cases in fiscal 1995,
12 cases in fiscal 1996 and 15 cases in fiscal 1997. Of the 15 cases served in
fiscal 1997, which includes Giro and AMRE lawsuits, 4 involve motorcycle
helmets, 5 involve bicycles, and 6 involve bicycle helmets. Of these same 15
cases, 3 cases involve a claim relating to death, 5 involve claims relating to
serious, permanently disabling injuries, and 7 involve less serious injuries
such as broken bones or lacerations. Typical product liability claims include
allegations of failure to warn, breach of express and implied warranties, design
defects and defects in the manufacturing process.
Although the Company sold its motorcycle manufacturing business in June 1991 in
a transaction in which the purchaser assumed all responsibility for product
liability claims arising out of helmets manufactured prior to the date of the
disposition, the Company agreed to use its in-house defense team to defend these
claims at the purchaser's expense. Included in the 14 motorcycle helmet cases
that were being defended by the Company's in-house defense team at June 28,
1997, are lawsuits in which the Company is either a named defendant or is
defending claims against the purchaser. One of the cases involves the appeal of
a jury verdict rendered against the Company in February 1996 by a Canadian jury.
Unless reversed on appeal, the verdict is estimated to be between $3.0 and $4.0
million, which includes associated legal fees and tax implications. If the
purchaser is for any reason unable to pay a judgment, settlement amount or
defense costs arising out of these claims, the Company could be held responsible
for the payment of such amount or costs. The Company believes that the purchaser
does not currently have the financial resources to pay any significant judgment,
settlement amount or defense costs arising out of any claim. Although the
Company cannot predict the outcome of an appeal, the Company currently has
adequate cash balances and sources of capital available to satisfy the judgment
if the appeal is unsuccessful. Accordingly, the Company currently does not
believe the claim will have a material adverse effect on liquidity or the
financial condition of the Company. Although the Company maintains product
liability insurance, this claim arose during a period in which the Company was
self-insured. The Company currently does not have a reserve for this judgment.
The Company has licensed the "Bell" trademark for use on motorcycle helmets. The
Company believes that it is possible that, by virtue of its status as licenser
and the fact that such motorcycle helmets carry the Bell name, the Company could
be named as a defendant in an action involving liability for the motorcycle
helmets manufactured by the purchaser of the Company's motorcycle helmet
business.
The philosophy of the Company is to vigorously defend all product liability
claims. The Company has developed extensive in-house experience with respect to
the defense of claims due to the number of claims lodged against the Company and
its vigorous defense posture. The Company also retains certain outside counsel
who specialize in product liability and frequently represent the Company. To
date the Company has been successful in defending and settling product liability
claims, with only one final judgment having been entered against the Company in
1984 in an amount not material to the Company. Although the Company intends to
continue to aggressively defend itself against all claims asserted against
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it, currently pending proceedings and any future claims are subject to the
uncertainties attendant to litigation and the ultimate outcome of any such
proceedings or claims cannot be predicted.
Since 1977, the Company has been intermittently protected to some degree by
various product liability insurance policies. There are various periods,
however, for which no insurance is available. Due to certain deductibles,
self-insured retention levels and aggregate coverage amounts applicable under
the Company's insurance policies that do exist, the Company may bear
responsibility for a significant portion, if not all, of the defense costs
(which include attorney's fees, settlement costs and the cost of satisfying
judgments) of any claim asserted against the Company. There can be no assurance
that insurance coverage, if available, will be sufficient to cover one or more
large claims or that the applicable insurer will be solvent at the time of any
covered loss. Certain of the Company's insurers for the periods prior to fiscal
1986 are insolvent. Further, there can be no assurance that the Company will
obtain insurance coverage at acceptable levels and costs in the future.
Successful assertion against the Company of one or a series of large uninsured
claims, or of one or a series of claims exceeding any insurance coverage, could
have a material adverse effect on the Company. The Company's current products
liability insurance covers claims based on occurrences within the policy period
up to a maximum of $5,000,000 for each occurrence and $5,000,000 in the
aggregate in excess of the Company's self-insured retention of $2,000,000 per
occurrence for helmets and the Company's self-insured retention of $250,000 for
other products, including Mongoose bicycles manufactured or sold prior to the
Sale of Service Cycle/Mongoose. The policy provides coverage only for products
manufactured or sold by the Company and does not provide any coverage with
respect to motorcycle helmets. The Company's current insurance policy allows the
Company's in-house product liability defense team to manage all claims against
the Company.
Insurance coverage for products distributed by AMRE prior to the AMRE Merger
include various self-insured retentions from $25,000 to $50,000 for all products
claims with various coverages in excess of the self-insured retention. The
Company continues to utilize its in-house defense team to manage all claims, and
monitor those claims handled through a third party administrator, because of
pre-existent insurance limitations set forth prior to the acquisition.
Insurance coverage for products manufactured by Giro, prior to the acquisition
by the Company in January 1996, include self-insured retentions from $25,000 to
$150,000 for all product claims with $1.5 million coverage in excess of the self
insured retention levels. The Company maintains an active role in the management
of all Giro related litigation. Giro claims served after October 1, 1995 are
insured under the same coverage provided to the Company.
Besides the product liability litigation described above, the Company is not
party to any material litigation that, if adversely determined, would have a
material effect on its business.
See Item 1.(c)(xii) "Material effects of compliance with environmental
regulations" for information relating to an investigation by the Illinois
Environmental Protection Agency of certain of the Company's off-site waste
handling practices.
Shareholder Litigation
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In February 1995, an AMRE shareholder filed a lawsuit, on his own behalf, and a
purported class action, against AMRE and its directors in the Chancery Court of
the State of Delaware, alleging various breaches of fiduciary and common law
duties and requesting both monetary and injunctive relief. The alleged basis for
the claims was the action of AMRE and its directors in connection with the
authorization and approval of the AMRE Merger, which was consummated on July 3,
1995. The case was dismissed in March 1997.
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Item 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock is traded on The Nasdaq National Market under the symbol
"BSPT". The Company's 4 1/4% Convertible Subordinated Debentures due 2000 are
traded on The Nasdaq Small Cap Market under the symbol "BSPTG".
High Low
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Fiscal Year 1997
1st Quarter $7.625 $5.500
2nd Quarter 7.125 5.625
3rd Quarter 6.375 4.875
4th Quarter 8.125 4.938
Fiscal Year 1996
1st Quarter $14.500 $9.875
2nd Quarter 11.125 7.000
3rd Quarter 9.125 5.500
4th Quarter 10.375 6.000
As of September 19, 1997, there were approximately 1,000 shareholders of record;
the Company estimates that, as of such date, there were approximately 11,900
beneficial owners.
The Company currently intends to retain future earnings for use in its business,
and therefore, does not anticipate paying any dividends in the foreseeable
future.
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Item 6. Selected Financial Data
The selected financial data set forth below has been derived from the audited
consolidated financial statements of the Company. The following selected
financial data should be read in conjunction with the Company's consolidated
financial statements and related notes included elsewhere in this report.
<TABLE>
<CAPTION>
(in thousands, except per share data)
Fiscal Years Ended
------------------------------------------------------------------------
June 28, June 29, July 1, July 2, July 3,
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Summary of Operations Data:
Net sales $259,534 $262,340 $102,990 $116,090 $82,611
(Loss) income from continuing
operations (18,188) (12,375) (3,443) 10,459 6,582
(Loss) income before
extraordinary items and
cumulative effect of change in
accounting principle (18,188) (12,375) (3,443) 10,459 6,582
Extraordinary items (298)
(Loss) income before cumulative
effect of change in accounting
principle (18,188) (12,375) (3,443) 10,459 6,284
Cumulative effect of change in
accounting for income taxes 700
Net (loss) income $(18,188) $(12,375) $ (3,443) $ 10,459 $ 6,984
Per Common Share:
(Loss) income from continuing
operations $ (1.33) $ (0.90) $ (0.42) $ 1.27 $ 0.88
Net (loss) income $ (1.33) $ (0.90) $ (0.42) $ 1.27 $ 0.93
Weighted average common shares
outstanding 13,722 13,740 8,178 8,245 7,523
Balance Sheet Data:
Working capital $130,677 $149,474 $ 108,821 $ 91,044 $ 52,013
Total assets 268,754 298,635 186,434 184,658 82,219
Total debt, less current portion 107,689 124,501 92,934 91,384 3,853
Total stockholders' equity $118,965 $136,041 $ 75,816 $ 75,187 $ 67,658
</TABLE>
Results for fiscal 1997 include a pre-tax loss on disposal of product line of
$25.4 million related to the Sale of the Service Cycle/Mongoose business.
Results for fiscal 1996 include an inventory write-up of $14.1 million related
to the AMRE Merger and the acquisitions of SportRack and Giro, which was fully
charged against cost of sales.
Results for fiscal 1993, which was a 53 week accounting period, include a loss
on an early extinguishment of debt which was classified as an extraordinary
item.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is a leading world-wide designer, manufacturer, marketer and
distributor of bicycle accessories, bicycle helmets and auto racing helmets. The
Company sells bicycle helmets and a variety of bicycle accessories, under
various brand names such as Bell, Giro, Rhode Gear, Blackburn and VistaLite.
In September 1997, subsequent to the Company's fiscal year-end, the Company
announced that it had retained Montgomery Securities as its financial advisor to
assist it in evaluating strategic alternatives to enhance stockholder value.
Such alternatives may include, but will not be limited to, a merger, sale, joint
venture or other business combination, repurchase of outstanding debt or equity
securities, or continuing to pursue a corporate growth strategy. There can be no
assurance that a transaction will occur as a result of the evaluation.
In July 1997, subsequent to the Company's fiscal year-end, the Company
consummated the sale of substantially all of the SportRack assets (the "Sale of
SportRack") for approximately $14 million to an affiliate of Advanced Accessory
System Canada, Inc. SportRack designs, manufactures and markets automobile roof
rack systems. There was no material gain or loss associated with this
transaction.
In April 1997, pursuant to a plan developed in the third quarter, the Company
consummated the sale of the AMRE Service Cycle/Mongoose business (the "Sale of
Service Cycle/Mongoose") to Brunswick Corporation. The sales price approximated
$20.5 million. Included in the third quarter of fiscal 1997 pre-tax income are
$25.4 million of costs associated with the Sale of Service Cycle/Mongoose. The
costs were comprised of the write-off of goodwill and intangibles, $14.8
million, disposal and exit costs, $5.4 million, and reorganization costs
associated with the distribution network and operations, $5.2 million.
In January 1996, the Company acquired the assets of Giro Sport Design, Inc. and
all of the outstanding stock of Giro Sport Design International, Inc.
(collectively "Giro"). The Giro acquisition was accounted for as a "purchase" as
the term is used under generally accepted accounting principles and is included
in the financial statements from the effective date of the acquisition.
Certain matters contained herein are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. These include, but are not limited
to, seasonality, adverse outcome from pending litigation, competitive actions,
loss of significant customers, timing of major customer shipments, adverse
weather conditions, retail environment, pending accounting pronouncements,
economic conditions and currency fluctuations.
Comparison of the Fiscal Year Ended June 28, 1997 with the Fiscal Year Ended
June 29, 1996
Net Sales. Net sales decreased by 1% to $259.5 million in fiscal 1997 from
$262.3 million in fiscal 1996. The decrease is primarily attributed to the Sale
of Service Cycle/Mongoose in April of 1997, which contributed $16.5 million in
net sales in the fiscal 1996 fourth quarter. On an unaudited pro forma basis,
excluding Service Cycle/Mongoose net sales for the fourth quarter of fiscal
1996, net sales increased by 6% to $259.5 million in fiscal 1997 from $245.8
million in fiscal 1996. Bicycle accessories net sales increased by $5.8 million
or 5% primarily due to strong increases with certain large customers in the mass
markets. Bicycle helmet net sales increased by $9.8 million or 12% due to strong
net sales in the U.S. Specialty Retail Division, up 24%, and Giro, up 21%. This
increases was partially offset by a decline of 11% in the Mass Merchant Division
which was due to lower unit volumes coupled with a shift in sales mix to lower
price points. Net sales in bicycles decreased by $2.8 million or 8% due to the
Sale of Service Cycle/Mongoose. Auto racing helmet net sales increased by $1.0
million or 27%.
13
<PAGE>
For the year ended June 28, 1997, bicycle accessories, bicycle helmets,
bicycles, and auto racing helmets represented 50%, 35%, 13% and 2%,
respectively, of the Company's net sales. For the year ended June 29, 1996,
bicycle accessories, bicycle helmets, bicycles, and auto racing helmets
represented 49%, 31%, 18% and 2%, respectively, of the Company's net sales.
The Company anticipates net sales in fiscal 1998 will be lower than those
achieved in fiscal 1997, due to the Sale of Service Cycle/Mongoose and the Sale
of SportRack. In fiscal 1997, Service Cycle/Mongoose and SportRack contributed
$50.8 million to net sales.
Due to the mature nature of the market for bicycle related products, the Company
expects modest sales growth in fiscal 1998.
Gross Margin. Gross margin increased to 30% of net sales in fiscal 1997 from 29%
of net sales in fiscal 1996, when excluding the impact of the inventory write-up
associated with the AMRE Merger and the acquisitions of SportRack and Giro. The
increase is attributable to the sale of the Service Cycle/Mongoose business in
April 1997, which carried gross margins lower than the Company's other product
lines, coupled with an increase in the Company's specialty retail bicycle helmet
sales, which yield a higher than average gross margin.
The Company expects gross margins to increase during fiscal 1998 due to the Sale
of Service Cycle/Mongoose in fiscal 1997 which carried lower margins than other
Company product lines.
Selling, General and Administrative. Selling, general and administrative costs
decreased to 23% of net sales for fiscal 1997 from 25% in fiscal 1996. In fiscal
1997, selling, general and administrative costs decreased by $6.4 million or 10%
to $60.4 million from $66.8 million in fiscal 1996. The decrease is attributable
to lower advertising expenditures of $4.0 million, a full year benefit of cost
savings produced by the Company's restructuring plan announced in fiscal 1995
and the Sale of Service Cycle/Mongoose in April 1997. In fiscal 1996, the
Company incurred $5.6 million in advertising expenses for a one-time promotional
campaign to establish brand name awareness across all trade channels and to
educate consumers on the importance of wearing protective headgear for bicycling
and in-line skating. Advertising expenditures incurred in fiscal 1997 are more
representative of what the Company intends to spend during fiscal 1998.
The reductions in selling, general and administrative expenses noted above were
offset by increases relating to opening a distribution and sales office in
Sydney, Australia during November 1996 and the inclusion of Giro, acquired in
January 1996, for a full year.
Loss on Disposal of Product Line. In April 1997, pursuant to a plan developed in
the third quarter, the Company completed the sale of its Service Cycle/Mongoose
inventory, trademarks and certain other assets to Brunswick Corporation. The
sales price approximated $20.5 million. Included in the third quarter of fiscal
1997 pre-tax income are $25.4 million of costs associated with the Sale of
Service Cycle/Mongoose. The costs were comprised of the write-off of goodwill
and intangibles, $14.8 million, disposal and exit costs, $5.4 million, and
reorganization costs associated with the distribution network and operations,
$5.2 million.
Amortization of intangibles. Amortization of goodwill and intangible assets
increased to $3.3 million in fiscal 1997 from $2.9 million in fiscal 1996. The
increase is due to the inclusion of a full year of amortization related to the
Giro acquisition in January 1996, partially off-set by a decrease in
amortization as a result of the write-off of certain goodwill and intangibles as
part of the Sale of Service Cycle/Mongoose in April 1997. The Company expects
amortization to decrease in fiscal 1998 from fiscal 1997 due to the write-off of
the Service Cycle/Mongoose goodwill and intangibles which is included in the
loss on disposal of product line.
Restructuring charges. During the third quarter of fiscal 1997, the Company
announced plans to significantly downsize the Scottsdale, Arizona corporate
office by consolidating certain Scottsdale
14
<PAGE>
functions with the San Jose, California office. This included relocating the
corporate headquarters to San Jose. Included in the fiscal 1997 pre-tax income
are $2.7 million of restructuring charges related to this plan.
During fiscal 1996, the Company commenced significant organizational and office
consolidations including closing four offices. Most U.S. sales, marketing and
research and development operations were consolidated in San Jose, California
and all corporate functions in Scottsdale, Arizona. Substantially all of the
Canadian operations were consolidated into one facility in Granby, Quebec.
Restructuring charges were $1.5 million and $1.8 million for fiscal 1997 and
1996, respectively relating to these activities.
Total restructuring charges were approximately $4.1 million and $5.9 million for
fiscal 1997 and 1996, respectively. The Company does not anticipate recording
any additional restructuring charges related to these plans in fiscal 1998.
Net investment income and interest expense. Net investment income increased
slightly in fiscal 1997. The increase is due to the settlement of an arbitration
case related to the handling of certain marketable securities by an outside
investment advisor during the first quarter of fiscal 1997. The settlement
proceeds, net of related expenses and expected losses to sell certain securities
were $1.3 million. Excluding this settlement, interest income decreased to $1.6
million in fiscal 1997 from $2.9 million in fiscal 1996. This decline is due to
lower levels of cash and marketable securities invested during the year.
Interest expense decreased to $7.3 million for fiscal 1997 from $8.7 million for
fiscal 1996. The decrease is due to lower debt balances outstanding and lower
interest rates for fiscal 1997 when compared to fiscal 1996.
The Company anticipates net investment income will increase in fiscal 1998 as a
result of higher cash and cash equivalent balances. The increase in cash and
cash equivalents is attributed to cash proceeds received from the Sale of
Service Cycle/Mongoose and SportRack.
The Company also anticipates interest expense to decline as a portion of the
cash proceeds from the Sale of Service Cycle/Mongoose and SportRack were used to
reduce amounts outstanding on the Company's revolving credit facility.
Income taxes. An income tax benefit of $3.0 million or 14% of the pre-tax loss
was reported for fiscal 1997 compared to an income tax benefit of $8.3 million
or 40% of the pre-tax loss was reported for fiscal 1996. Net operating loss
carryforwards of approximately $34.0 million remain available to the Company at
June 28, 1997.
The major difference in the effective tax rates is the write-off of non-tax
deductible goodwill due to the Sale of Service Cycle/Mongoose in April 1997.
Comparison of the Fiscal Year Ended June 29, 1996 with the Fiscal Year Ended
July 1, 1995
In July 1995, the Company completed the merger of a subsidiary of the Company
with American Recreation Holdings, Inc. ("AMRE"), (the "AMRE Merger"), pursuant
to which AMRE became a wholly owned subsidiary of the Company. The unaudited pro
forma summary presented below is for illustrative purposes only, giving effect
to the AMRE Merger, accounted for as a "purchase".
Net Sales. Net sales increased by 4% to $262.3 million in fiscal 1996 compared
to $253.3 million in fiscal 1995 stated on a pro forma basis. The overall
increase is primarily attributed to inclusion of Giro and SportRack sales, which
were not included for the entire comparable prior year period. Sales increases
were experienced in the bicycle accessories category due to the addition of
SportRack and higher sales to the mass merchant channel. Bicycle helmet sales
were down 1% due to a weak retail environment in the Company's second and third
quarters and inclement weather conditions during the third and fourth
15
<PAGE>
quarters. The Company believes it maintained bicycle helmet market share in
fiscal 1996 despite an overall decline in bicycle helmet unit sales. This market
decline was offset by the acquisition of Giro and the introduction of the Bell
helmet brand into the mass merchant trade channel. At June 29, 1996, a total of
25 million children were covered by mandatory helmet legislation, in 14 states.
Bicycle sales increased by 7% due to higher domestic Mongoose sales and an
increased distribution of Mongoose products in Europe.
For the year ended June 29, 1996, bicycle accessories, bicycle helmets,
bicycles, and auto racing helmets represented 49%, 31%, 18% and 2%,
respectively, of the Company's net sales. For the year ended July 1, 1995,
stated on a pro forma basis, bicycle accessories, bicycle helmets, bicycles and
auto racing helmets represented 48%, 32%, 18% and 2% respectively of the
Company's net sales.
Gross Margin. Gross margins increased to 29% of net sales in fiscal 1996,
excluding the impact of the inventory write-up, compared to 25% in fiscal 1995,
stated on a pro forma basis. The increase is due to improvement in the Bell
brand helmet margins from 42% to 46%, improved Mongoose bicycle margins and the
inclusion of Giro and SportRack, which provide higher gross margins, during the
current fiscal year. The increase in the Bell brand margin was attained in both
the specialty retail and the mass merchant channels.
Gross margins for fiscal 1996 were 23% including the impact of an inventory
write-up. The inventory write-up of $14.1 million, related to the merger with
AMRE and the acquisitions of SportRack and Giro has been fully charged against
cost of sales during fiscal 1996.
Selling, General and Administrative. Selling, general and administrative costs
increased to 25% of net sales for fiscal 1996 from 24% in fiscal 1995 stated on
a pro forma basis. For fiscal 1996 selling, general and administrative costs
increased $5.7 million from $61.1 million in fiscal 1995 stated on a pro forma
basis to $66.8 million in fiscal 1996. The increase is attributable to
incremental expenditures in excess of $5.6 million for an advertising and
promotional campaign to promote the Bell brand and to educate consumers on the
importance of wearing bicycle helmets and incremental selling, general and
administrative expenses related to SportRack and Giro which were acquired in May
1995 and January 1996, respectively, offset by general and administrative
expense savings resulting from the merger with AMRE.
Amortization of Intangibles. Amortization of goodwill and intangible assets
increased to $2.9 million for fiscal 1996 from $2.3 million in fiscal 1995,
stated on a pro forma basis. These increases are due to a full year of
amortization of the SportRack intangibles and the inclusion of amortization of
intangibles for Giro which was acquired in January 1996.
Restructuring Charges. Restructuring charges were $5.9 million in fiscal 1996
compared to $4.6 million in fiscal 1995, stated on a pro forma basis. These
costs relate to the consolidation of organizations, facilities, computer systems
and product lines related to the merger with AMRE.
Net Investment Income and Interest Expense. Net investment income decreased by
$1.5 million in fiscal 1996 to $2.9 million from $4.4 million in fiscal 1995,
stated on a pro forma basis. The decrease is due to lower cash and marketable
securities balances resulting from the cash acquisition of Giro and utilization
of cash to reduce outstanding debt balances. Interest expense decreased by $1.2
million in fiscal 1996 to $8.7 million from $9.9 million in fiscal 1995, stated
on a pro forma basis. The decrease is attributable to lower outstanding debt
balances in fiscal 1996 than fiscal 1995, stated on a pro forma basis.
Income Taxes. An income tax benefit of $8.3 million or 40% of the pre-tax loss
was reported for fiscal 1996 compared to an income tax benefit of $3.6 million
or 32% of the pre-tax loss for fiscal 1995, stated on a pro forma basis. Net
operating loss carryforwards of approximately $26.0 million remained available
to the Company at June 29, 1996.
16
<PAGE>
Financial Position
The Company's current ratio decreased to 4.5 to 1 at June 28, 1997 from 5.4 to 1
at June 29, 1996. Cash and cash equivalent and marketable securities decreased
to $29.0 million at June 28, 1997 from $31.1 million at June 29, 1996. The
decline primarily relates to debt payments of $15.3 million and capital
expenditures of $7.1 million offset with proceeds of $20.5 million from the Sale
of Service Cycle/Mongoose.
Accounts receivable at June 28, 1997 increased slightly to $75.9 million from
$75.7 million at June 29, 1996 due to the addition of Bell Sports Australia in
fiscal 1997. Accounts receivable are expected to be at lower levels in fiscal
1998 due to the Sale of Service Cycle/Mongoose and the Sale of SportRack. Fiscal
year-end receivables did not fully reflect the effect of the Sale of Service
Cycle/Mongoose as the Company retained the receivables as part of the sales
agreement. As of September 1997, a majority of the Service Cycle/Mongoose
receivables had been collected. The Company believes adequate reserves exist for
any Service Cycle/Mongoose receivables that may not be collectible.
Inventories at June 28, 1997 decreased 22% or $12.9 million to $46.5 million
from $59.4 million at June 29, 1996. This decrease predominately relates to the
Sale of Service Cycle/Mongoose in April 1997.
Goodwill and intangible assets at June 28, 1997 decreased $15.6 million from
June 29, 1996, due to write-offs related to the Sale of Service Cycle/Mongoose
and $3.3 million of amortization during the fiscal year.
Outstanding debt decreased $16.0 million to $107.7 million at June 28, 1997 from
$123.7 at June 29, 1996. The decrease is due to the Company utilizing cash from
the Sale of Service Cycle/Mongoose to reduce amounts outstanding under its
revolving credit facility.
Liquidity and Capital Resources
The Company's working capital decreased to $130.7 million at June 28, 1997 from
$149.5 million at June 29, 1996 as cash was utilized in the reduction of
long-term debt obligations.
In April 1997, upon the Sale of Service Cycle/Mongoose, the Company amended its
$100.0 million multicurrency, secured revolving line of credit ("Revolving
Credit") to reduce the line to $60.0 million ("Amended Credit Agreement"). The
Amended Credit Agreement grants to the syndicated bank group a security interest
in the U.S. accounts receivable and inventories for the term of the facility.
The Amended Credit Agreement requires borrowings outstanding under the line of
credit to be maintained below $15.0 million for a period of thirty consecutive
days between July 1st and September 30th of each fiscal year.
Borrowings under the Amended Credit Agreement have been significantly reduced
using the proceeds received from the Sale of Service Cycle/Mongoose. Further
reductions have been made in the first quarter of fiscal 1998 from the
collection of Service Cycle/Mongoose receivables. Subsequent to year end, in
July 1997, the Company sold substantially all of the assets of SportRack for
approximately $14.0 million. The proceeds were used to reduce the amount
outstanding under the Amended Credit Agreement.
The Amended Credit Agreement expires in December 1999 and is classified as a
long-term liability. Based on the provisions of the agreement, the Company could
borrow a maximum of $54.1 million as of June 28, 1997, of which $34.5 million
was unused.
The Amended Credit Agreement provides the Company with several interest rate
options, including U.S. prime, LIBOR plus a margin, Canadian prime plus the
applicable LIBOR margin less 0.50%, Canadian banker's acceptance plus the LIBOR
margin plus 0.125%, and short-term fixed rates offered by the agent bank in the
loan syndication. The LIBOR margin is currently 1.50% per annum, but it can
range between 1.00% and 1.50% depending on the Company's interest coverage
ratio. Under the Amended Credit
17
<PAGE>
Agreement, the Company is required to pay a quarterly commitment fee on the
unused portion of the facility at a rate that ranges from 0.20% to 0.30% per
annum. At June 28, 1997, the quarterly commitment fee was 0.30% per annum.
The Amended Credit Agreement contains certain financial covenants, the most
restrictive of which are a minimum interest coverage ratio, a maximum funded
debt ratio and a minimum adjusted net worth amount. It also contains covenants
that prohibit the payment of cash dividends as well as restrict the amount that
the Company can repurchase of its subordinated debt and common stock. At June
28, 1997, the Company was in compliance with all bank covenants.
The Company's primary uses of funds during fiscal 1997 relates to debt payments
of $15.3 million and capital expenditures of $7.1 million. In fiscal 1997,
capital expenditures were made primarily for computer systems and new product
tooling. The Company expects to spend approximately $5.0 to $6.0 million on
capital expenditures in fiscal 1998. The largest planned expenditures are for
new product tooling.
The Company announced in September 1997 that it retained Montgomery Securities
as its financial advisor to assist the Company in evaluating strategic
alternatives designed to enhance shareholder value. Such alternatives may
include, but will not be limited to, a merger, sale, joint venture or other
business combination, repurchase of outstanding debt or equity securities, or
continuing to pursue a corporate growth strategy. There can be no assurance that
a transaction will occur as a result of this evaluation.
The Company believes its available cash flows from operations and the Amended
Credit Agreement should be adequate to satisfy its working capital requirements
in fiscal 1998. The Company does not anticipate paying dividends on its Common
Stock in the foreseeable future.
18
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Bell Sports Corp.
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 Bell Sports
Corp. and its subsidiaries at June 28, 1997 and June 29, 1996, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended June 28, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
August 15, 1997
19
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 29,008 $ 23,140
Marketable securities 7,996
Accounts receivable 75,915 75,651
Inventories 46,549 59,413
Deferred taxes and other current assets 16,048 17,285
--------- ---------
Total current assets 167,520 183,485
Property, plant and equipment 23,738 24,722
Goodwill 56,471 71,245
Intangibles and other assets 21,025 19,183
--------- ---------
Total assets $ 268,754 $ 298,635
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 11,299 $ 11,797
Accrued compensation and employee benefits 3,998 4,392
Accrued expenses 20,209 16,752
Notes payable and current maturities of long-term debt and capital lease obligations 1,337 1,070
--------- ---------
Total current liabilities 36,843 34,011
Long-term debt 106,454 122,919
Capital lease obligations and other liabilities 6,492 5,664
--------- ---------
Total liabilities 149,789 162,594
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.01 par value; authorized 1,000,000 shares, none issued
Common stock; $.01 par value; authorized 25,000,000 shares; issued and outstanding:
14,248,114 and 13,753,042 shares in 1997, respectively, and 14,224,360 and
13,700,960 shares in 1996, respectively 143 142
Additional paid-in capital 142,486 141,647
Unrealized holding losses on marketable securities (461)
Cumulative foreign currency translation adjustments (407) 81
(Accumulated deficit) retained earnings (18,039) 149
--------- ---------
124,183 141,558
Treasury stock, at cost, 495,072 shares in 1997 and 523,400 shares in 1996 (5,218) (5,517)
--------- ---------
Total stockholders' equity 118,965 136,041
--------- ---------
Total liabilities and stockholders' equity $ 268,754 $ 298,635
========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
20
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal years ended
------------------------------------------------
Pro forma
(unaudited)
June 28, June 29, July 1, July 1,
1997 1996 1995 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 259,534 $ 262,340 $ 253,251 $ 102,990
Cost of sales 183,098 201,621 190,948 74,407
--------- --------- --------- ---------
Gross profit 76,436 60,719 62,303 28,583
Selling, general and administrative expenses 60,416 66,826 61,125 30,948
Loss on disposal of product line 25,360
Amortization of goodwill and intangible assets 3,320 2,854 2,266 954
Restructuring charges 4,141 5,850 4,618 2,123
Net investment income (2,939) (2,877) (4,427) (4,740)
Interest expense 7,289 8,691 9,934 4,633
--------- --------- --------- ---------
Net loss before benefit from income taxes (21,151) (20,625) (11,213) (5,335)
Benefit from income taxes (2,963) (8,250) (3,589) (1,892)
--------- --------- --------- ---------
Net loss $ (18,188) $ (12,375) $ (7,624) $ (3,443)
========= ========= ========= =========
Net loss per common share $ (1.33) $ (0.90) $ (0.53) $ (0.42)
========= ========= ========= =========
Weighted average number of common shares
outstanding 13,722 13,740 14,284 8,178
========= ========= ========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
21
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Unrealized Cumulative
Holding Foreign Retained Total
Additional Losses on Currency Earnings Stock-
Common Common Paid-In Marketable Translation (Accumulated Treasury holders'
Shares Stock Capital Securities Adjustments Deficit) Stock Equity
------ ----- ------- ---------- ----------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 2, 1994 8,099 $ 81 $ 63,731 $ (4,551) $ (41) $ 15,967 $ 75,187
Exercise of stock options 67 1 589 590
Change in unrealized holding
losses on marketable securities 3,268 3,268
Currency translation adjustment 214 214
Net loss (3,443) (3,443)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at July 1, 1995 8,166 82 64,320 (1,283) 173 12,524 75,816
Issuance of stock and stock
options for AMRE merger 5,988 59 77,152 77,211
Exercise of stock options 70 1 175 176
Purchase of treasury stock (523) $ (5,517) (5,517)
Change in unrealized holding
losses on marketable securities 822 822
Currency translation adjustment (92) (92)
Net loss (12,375) (12,375)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at June 29, 1996 13,701 142 141,647 (461) 81 149 (5,517) 136,041
Exercise of stock options 24 1 1,138 1,139
Issuance of treasury stock 28 (299) 299 0
Change in unrealized holding
losses on marketable securities 461 461
Currency translation adjustment (488) (488)
Net loss (18,188) (18,188)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at June 28, 1997 13,753 $ 143 $ 142,486 $ 0 $ (407) $ (18,039) $ (5,218) $ 118,965
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
22
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal years ended
----------------------------------
June 28, June 29, July 1,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss $(18,188) $(12,375) $ (3,443)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Write-off of goodwill and intangibles 14,531
Amortization of goodwill and intangibles 3,338 2,854 954
Depreciation 6,222 6,059 3,971
Loss on disposal of property, plant and equipment 1,599 1,299
Provision for doubtful accounts 4,553 2,481 1,024
Provision for inventory obsolescence 2,876 3,602 4,183
Deferred income taxes (2,827) (7,546) (2,612)
Changes in assets and liabilities, net of adjustments
for acquisitions and dispositions:
Accounts receivable (4,976) (14,819) 8,594
Inventories (7,782) 8,296 (1,097)
Other assets (684) 717 (527)
Accounts payable (288) 852 (1,267)
Other liabilities 2,536 (13,370) (1,524)
-------- -------- --------
Net cash provided by (used in) operating activities 910 (21,950) 8,256
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Capital expenditures (7,058) (5,312) (5,198)
Proceeds from the sale of Service Cycle/Mongoose 20,515
Acquisition of other businesses, net of cash acquired (1,493) (16,789) (3,822)
Net sales (purchases) of marketable securities 8,458 29,779 24,778
-------- -------- --------
Net cash provided by investing activities 20,422 7,678 15,758
-------- -------- --------
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance common stock, net of costs 176 123
Treasury stock purchases (5,517)
Issuance of other long-term debt 1,843
Payments on notes payable, long-term debt and capital leases (869) (4,076) (835)
Net payments on line of credit agreement (14,403) (25,099)
-------- -------- --------
Net cash (used in) provided by financing activities (15,272) (34,516) 1,131
-------- -------- --------
Effect of exchange rate changes on cash (192) (90) 117
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 5,868 (48,878) 25,262
Cash and cash equivalents at beginning of period 23,140 72,018 46,756
-------- -------- --------
Cash and cash equivalents at end of period $ 29,008 $ 23,140 $ 72,018
======== ======== ========
</TABLE>
See accompanying notes to these consolidated financial statements
23
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The Company And Its Significant Accounting Policies
Bell Sports Corp. and its wholly owned subsidiaries ("the Company" or "Bell")
design, manufacture, market and distribute bicycle accessories, bicycle helmets
and automotive racing helmets.
Principles of Consolidation and Accounting Period
- -------------------------------------------------
The consolidated financial statements include the accounts of Bell Sports Corp.
and its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation. The Company's fiscal year is
either a fifty-two or fifty-three week accounting period ending on the Saturday
that is nearest to the last day of June.
In July 1995, the Company completed the merger (the "AMRE Merger") of a
subsidiary of the Company with American Recreation Company Holdings, Inc.
("AMRE") pursuant to which AMRE became a wholly owned subsidiary of the Company.
The unaudited pro forma information presented in these Consolidated Financial
Statements is for illustrative purposes only, giving effect to the AMRE Merger,
accounted for as a "purchase", as such term is used under generally accepted
accounted principles.
(Loss) Income Per Share Information
- -----------------------------------
(Loss) income per common and common equivalent share is computed using the
weighted average number of common stock and common stock equivalent share
outstanding during the periods, using the treasury stock method for stock
options and warrants. Fully diluted net (loss) income per common share for the
fiscal years ended June 28, 1997, June 29, 1996 and July 1, 1995 have not been
presented since an assumed conversion (using the if-converted method, which
includes the adjustment of reported net income for interest charges on a
net-of-tax basis) of the Company's convertible subordinated debentures (the
"Debentures") bearing interest at 4-1/4% per annum (see Note 5) would be
anti-dilutive.
Accounts Receivable and Concentration of Credit Risk
- ----------------------------------------------------
Accounts receivable at June 28, 1997 and June 29, 1996 are net of allowances for
doubtful accounts of $5.0 million and $3.5 million, respectively.
The Company's principal customers operate in the mass merchant or sporting goods
retail markets or operate as independent bicycle dealers. The customers are not
geographically concentrated. As of June 28, 1997, and June 29, 1996,
respectively, 23% and 21% of the Company's gross accounts receivable were
attributed to one mass merchant customer. In addition, one mass merchant
customer accounted for 18%, 17% and 13% of net sales during each of the fiscal
years ended 1997, 1996 and 1995, respectively.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
24
<PAGE>
Marketable Securities
- ---------------------
Consistent with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), all marketable securities have been classified as
available-for-sale securities and are reported at fair value with unrealized
holding gains and losses reported in stockholders' equity until realized. A
decline in the market value of the security below cost that is deemed other than
temporary is charged to earnings resulting in the establishment of a new cost
basis for the security. The fair value of the marketable securities was obtained
from published market quotes or outside professional pricing sources. The
Company uses specific identification as the basis for determining cost in
computing realized gains and losses.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value). Costs included in inventories are landed
purchased cost on sourced items, and raw materials, direct labor and
manufacturing overhead on manufactured items.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided using the straight-line method over
the estimated useful lives of the related assets. Leasehold improvements and
capital lease assets are amortized using the straight-line method over the
shorter of the base lease term or the estimated useful lives of the related
assets. Maintenance and repair costs are expensed as incurred.
Goodwill and Intangible Assets
- ------------------------------
The excess of the acquisition cost over the fair value of the net identifiable
assets of businesses acquired in purchase transactions has been included in
goodwill and is amortized on a straight-line basis over twenty-five to forty
years and is recorded net of accumulated amortization of $5.5 million and $4.0
million at June 28, 1997 and June 29, 1996, respectively. Other intangible
assets, which include non-compete agreements, acquisition costs, patents and
trademarks, and other items, are amortized over their estimated economic lives,
ranging from two to seventeen years. Accumulated amortization for intangible
assets totaled $4.2 million and $3.1 million at June 28, 1997 and June 29, 1996,
respectively. The Company's policy is to account for goodwill and all other
intangible assets at the lower of amortized cost or net realizable value. As
part of an ongoing review of the valuation and amortization of intangible
assets, management assesses the carrying value of the Company's intangible
assets to determine if changes in facts and circumstances suggest that it may be
impaired. If this review indicates that the intangibles will not be recoverable,
as determined by a nondiscounted cash flow analysis over the remaining
amortization period, the carrying value of the Company's intangibles would be
reduced to its estimated fair market value.
Management's Estimates and Assumptions
- --------------------------------------
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 those estimates.
25
<PAGE>
Research and Development Expense
- --------------------------------
Research and developmental costs are charged to expense as incurred. These costs
totaled $4.7 million, $4.7 million and $3.3 million for fiscal 1997, 1996 and
1995, respectively.
Advertising Costs
- -----------------
Advertising and related costs are expensed as incurred, except for ad production
costs which are expensed in the fiscal year in which the ad is first run. These
costs amounted to $9.1 million, $14.7 million and $6.2 million for fiscal years
ended 1997, 1996 and 1995, respectively.
Translation of Foreign Currency
- -------------------------------
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars
at the rates of exchange on the balance sheet date. Revenue and expense items
are translated at the average rates of exchange prevailing during the fiscal
year. Translation adjustments are recorded in the cumulative foreign currency
translation adjustment component of stockholders' equity.
Foreign Exchange Contracts
- --------------------------
The Company periodically enters into forward foreign exchange contracts in
managing its foreign currency risk. Forward exchange contracts are used to hedge
various intercompany and external commitments with foreign subsidiaries and
inventory purchases denominated in foreign currencies. Exchange contracts
usually have maturities of less than one year. The Company has no significant
outstanding foreign exchange contracts at June 28, 1997, and has had no
significant foreign exchange contract activity during the fiscal year then
ended.
Income Taxes
- ------------
Consistent with the provisions of SFAS No. 109 "Accounting for Income Taxes"
("SFAS 109"), the Company uses the liability method of accounting for income
taxes, which is an asset and liability approach for financial accounting and
reporting of income taxes. Deferred tax assets and liabilities are recorded
based upon temporary differences between the tax basis of assets and liabilities
and their carrying values for financial reporting purposes. A valuation
allowance is provided for deferred tax assets when management concludes it is
more likely than not that some portion of the deferred tax assets will not be
realized.
Accounting for Stock-Based Compensation
- ---------------------------------------
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123") was issued. SFAS 123 encourages, but does not require, companies to record
compensation cost for stock-based compensation plans at fair value. The Company
has elected to continue to recognize compensation expense based on the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").
26
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
In February 1997, SFAS No. 128, "Earnings per Share" ("SFAS 128") was issued.
Under SFAS 128, primary earnings per share is replaced by basic earnings per
share and fully diluted earnings per share is replaced by diluted earnings per
share.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") was
issued. SFAS 130 establishes standards for the reporting of comprehensive income
and its components in a full set of general-purpose financial statements for
periods beginning after December 15, 1997. Reclassification of financial
statements for earlier periods for comparative purposes is required.
In June 1997, SFAS No. 131, "Disclosures About Segments of An Enterprise and
Related Information" ("SFAS 131") was issued. SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers.
The Company will adopt SFAS 128 in fiscal 1998 and SFAS 130 and SFAS 131 in
fiscal 1999 and does not expect such adoptions to have a material effect on the
consolidated financial statements.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform with the current
year presentation.
NOTE 2 - Net Investment Income
Net investment income consists of the following (in thousands):
<TABLE>
<CAPTION>
June 28, June 29, July 1,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Dividend income $ 184 $ 610 $ 1,919
Interest income 1,646 3,130 4,329
Proceeds from settlement of arbitration case 1,815
Realized gains on sale of marketable securities 10
Realized losses on sale of marketable securities (654) (779) (1,031)
Investment fees and other (52) (84) (487)
----------- ----------- -----------
Total $ 2,939 $ 2,877 $ 4,740
=========== =========== ===========
</TABLE>
The fiscal 1997 investment income amount includes proceeds from the settlement
of an arbitration case related to the handling of certain marketable securities
by an outside investment advisor. The settlement proceeds, net of related
expenses and expected losses to sell certain securities, were $1.3 million.
27
<PAGE>
NOTE 3 - Inventories
Inventories consist of the following components (in thousands):
June 28, June 29,
1997 1996
------------ ------------
Raw materials $ 5,865 $ 5,330
Work in process 2,125 2,315
Finished goods 38,559 51,768
------------ ------------
Total $ 46,549 $ 59,413
============ ============
Included in cost of sales for fiscal 1996 is approximately $14.1 million
pertaining to the write-up to fair value of finished goods related to the merger
with AMRE and the acquisitions of SportRack and Giro.
NOTE 4 - Property, Plant And Equipment
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 28, June 29, Estimated
1997 1996 useful life
----------- ----------- -------------
<S> <C> <C> <C>
Land, buildings and leasehold improvements $ 9,703 $ 9,523 3-38 years
Machinery, equipment and tooling 21,239 21,215 3-10 years
Office equipment 9,408 7,478 3-7 years
Other 475 570 3-7 years
----------- -----------
40,825 38,786
Less: Accumulated depreciation and amortization (17,087) (14,064)
----------- -----------
Total $ 23,738 $ 24,722
=========== ===========
</TABLE>
NOTE 5 - Bank Credit Facilities And Long-Term Debt
In April 1997, upon the Sale of Service Cycle/Mongoose, the Company amended its
$100.0 million multicurrency, secured revolving line of credit ("Revolving
Credit") to reduce the line to $60.0 million ("Amended Credit Agreement"). The
Amended Credit Agreement grants to the syndicated bank group a security interest
in the U.S. accounts receivable and inventories for the term of the facility.
The Amended Credit Agreement requires borrowings outstanding under the line of
credit to be maintained below $15.0 million for a period of thirty consecutive
days between July 1st and September 30th of each fiscal year.
Borrowings under the Amended Credit Agreement have been significantly reduced
using the proceeds received from the Sale of Service Cycle/Mongoose. Further
reductions have been made in the first quarter of fiscal 1998 from the
collection of Service Cycle/Mongoose receivables. Subsequent to year end, in
July 1997, the Company sold substantially all of the assets of SportRack for
approximately $14.0 million. The proceeds were used to reduce the amount
outstanding under the Amended Credit Agreement.
The Amended Credit Agreement expires in December 1999 and is classified as a
long-term liability. Based on the provisions of the agreement, the Company could
borrow a maximum of $54.1 million as of June 28, 1997, of which $34.5 million
was unused.
The Amended Credit Agreement provides the Company with several interest rate
options, including U.S. prime, LIBOR plus a margin, Canadian prime plus the
applicable LIBOR margin less 0.50%, Canadian banker's acceptance plus the LIBOR
margin plus 0.125%, and short-term fixed rates offered by the agent
28
<PAGE>
bank in the loan syndication. The LIBOR margin is currently 1.50% per annum, but
it can range between 1.00% and 1.50% depending on the Company's interest
coverage ratio. Under the Amended Credit Agreement, the Company is required to
pay a quarterly commitment fee on the unused portion of the facility at a rate
that ranges from 0.20% to 0.30% per annum. At June 28, 1997, the quarterly
commitment fee was 0.30% per annum.
The Amended Credit Agreement contains certain financial covenants, the most
restrictive of which are a minimum interest coverage ratio, a maximum funded
debt ratio and a minimum adjusted net worth amount. It also contains covenants
that prohibit the payment of cash dividends as well as restrict the amount that
the Company can repurchase of its subordinated debt and common stock. At June
28, 1997, the Company was in compliance with all bank covenants.
On November 16, 1993, the Company issued an aggregate principal amount of $86.25
million of Convertible Subordinated Debentures (the "Debentures"), at par value.
Interest on the Debentures is payable on May 15 and November 15 of each year.
The Debentures are redeemable, in whole or in part, at the option of the Company
at any time on or after November 15, 1996, at specified redemption prices.
Principal is due at maturity on November 15, 2000. The Debentures are
convertible by the holder at any time prior to maturity, unless previously
redeemed, into shares of the Common Stock at a conversion price of $54.06 per
share, subject to adjustment in certain events. For the fiscal years ended June
28, 1997, June 29, 1996 and July 1, 1995, interest expense relating to the
Debentures totaled $4.1 million in each year. This amount includes $384,000 of
amortization expense relating to debt issuance costs. Unamortized debt issuance
costs relating to the Debentures total $1.3 million and $1.7 million at June 28,
1997 and June 29, 1996, respectively. Such costs are amortized on a
straight-line basis over seven years.
The fair value of the Debentures at June 28, 1997, based on their quoted market
price of $85 at the close of business on June 28, 1997, was approximately $73.3
million.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 28, June 29,
1997 1996
------------ ------------
<S> <C> <C>
Notes collateralized by certain equipment due at various dates
through December 2000 and bearing interest at fixed rates
ranging from 2.9% to 10.3% $ 1,841 $ 2,304
Revolving credit agreement, maturing December 1999, bearing
interest at 4.63% 19,591 35,138
4 1/4% convertible subordinated debentures maturing
November 2000 86,250 86,250
------------ ------------
107,682 123,692
Less: Current maturities 1,228 773
------------ ------------
Total long-term debt $ 106,454 $ 122,919
============ ============
</TABLE>
Scheduled maturities, by fiscal year, of long-term debt are as follows (in
thousands):
1998 $ 1,228
1999 442
2000 19,762
2001 86,250
29
<PAGE>
NOTE 6 - Stockholders' Equity
Stock Options
The Company may grant, under various employee stock option plans (the "Plans"),
options to purchase up to 1,825,000 shares of Common Stock to officers and key
employees. Under the various Plans, the exercise price of options granted may
not be less than the fair market value of the Common Stock at the date of grant.
The options must be exercised within ten years of the date of grant and
typically vest equally over a three year period.
Under the 1993 Outside Directors Stock Option Plan (the "Directors' Plan"),
stock options for up to 200,000 shares may be granted to directors who are not
employees of the Company. Each non-employee director receives an option to
purchase 2,000 shares of Common Stock on the date of the Company's annual
meeting of stockholders at an exercise price equal to the fair market value of
the Common Stock on the date of grant. The options must be exercised within ten
years of the date of grant and vest equally over a three-year period. Each
non-employee director also receives immediately exercisable options to purchase
Common Stock, with an exercise price per share equal to 50% of the fair market
value of the Common Stock at the date of grant, in lieu of a cash retainer fee.
The number of shares subject to each option is determined by dividing $10,000 by
50% of the fair market value of the Common Stock on the date of grant.
In April 1997, the Company provided Brunswick Corporation a three year option to
purchase 600,000 shares of the Company's Common Stock at an exercise price of
$7.50 per share pursuant to the sale of the Service Cycle/Mongoose business. See
Note 9. The options are immediately exercisable and must be exercised within
three years of the date of grant.
On August 27, 1996, the Management Stock Incentive Committee (the "Committee")
of the Board of Directors (the "Board") adopted a program permitting employees
eligible to participate in the Company's bonus program to elect to forego their
fiscal 1997 operating bonus and return all outstanding stock options granted
after April 1992 in exchange for replacement stock options. In general,
employees eligible to participate in the Company's bonus program are eligible
for 10% to 75% of their annual base salary if the Company meets or exceeds
certain Board approved net operating income goals.
Senior management with long tenure agreed to cancel 40% of their existing stock
options, excluding stock options granted prior to April 1992, to increase the
number of stock options available for grant, thereby facilitating the broadening
of participation in the stock option program and enabling the Company to create
a voluntary program by which other employees participating in the Company's
bonus program would be able to replace existing stock options in exchange for
foregoing their fiscal 1997 operating bonus.
Under the replacement program, the number of shares of Common Stock subject to a
replacement option to be granted to an eligible employee was determined by
multiplying 80% of such employee's estimated fiscal 1997 operating bonus. Each
replacement option had an exercise price per share of $7.06 per share, the
average of the high and low transaction prices of a share of Common Stock as
reported by The Nasdaq Stock Market, and will become exercisable in equal
one-third increments over an eighteen month period with respect to options
replacing cancelled options and over a three year period for replacement options
granted in excess of their existing options. Options with respect to 966,242
shares with exercise prices ranging from $8.50 to $17.37 per share were
exchanged under the replacement program.
The replacement program replaced certain stock options that were issued under a
previous stock option replacement program implemented by the Committee in March
1995. Stock options with respect to 676,501 shares with exercise prices ranging
from $23.25 to $38.37 per share were exchanged.
30
<PAGE>
The following table summarizes option activity:
<TABLE>
<CAPTION>
Number Weighted
of shares average
underlying options exercise Options
price exercisable
--------------------
<S> <C> <C> <C>
Options outstanding at July 3, 1994 1,016,540 $24.44
Options granted 918,001 $14.26
Options exercised (76,114) $ 4.23
Options canceled (676,501) $27.93
Options terminated (29,251) $29.95
--------------------
Options outstanding at July 1, 1995 1,152,675 $15.92 61,000
Options granted 909,688 $ 9.19
Options exercised (70,607) $ 1.31
Options canceled (75,000) $13.67
Options terminated (70,167) $18.28
--------------------
Options outstanding at June 29, 1996 1,846,589 $13.33 549,660
Options granted 1,075,605 $ 7.21
Options exercised (23,754) $ 0.46
Options terminated (566,677) $13.10
--------------------
Options outstanding at June 28, 1997 2,331,763 $ 8.19 1,130,635
====================
</TABLE>
Options Outstanding as at June 28, 1997:
<TABLE>
<CAPTION>
Weighted average
Range of Number Weighted average remaining contractual
exercise prices of shares exercise price life (years)
- ------------------------- ------------------ ----------------------- ------------------------
<S> <C> <C> <C>
$1.713 - $3.125 62,810 $ 2.22 8.5
$ 6.25 - $ 7.88 1,940,750 $ 7.25 9.2
$ 8.50 - $10.80 109,036 $ 9.86 6.6
$12.94 - $15.12 166,167 $13.81 7.5
$16.12 - $19.75 23,000 $17.07 6.9
$28.25 - $42.37 30,000 $37.66 6.3
------------------
2,331,763
==================
</TABLE>
Options Exercisable at June 28, 1997:
Range of Number Weighted average
exercise prices of shares exercise price
- ------------------------- ------------------ -----------------------
$1.713 - $3.125 62,810 $ 2.22
$ 6.25 - $ 7.88 856,844 $ 7.25
$ 8.50 - $10.80 65,706 $ 9.86
$12.94 - $15.12 98,277 $13.94
$16.12 - $19.75 16,998 $17.34
$28.25 - $42.37 30,000 $37.66
------------------
1,130,635
==================
31
<PAGE>
The Company continues to apply APB 25 for stock-based compensation. As required,
the Company has adopted the disclosure provisions of SFAS 123 for employee stock
options. The fair value of options granted during fiscal years 1997 and 1996 was
computed using the Black-Scholes option pricing model. The weighted-average
assumptions used for stock option grants were an expected volatility of the
market price of the Company's Common Stock of 46.4%; weighted-average expected
life of the options of approximately 4.4 years, no dividend yield and risk-free
interest rates ranging from 4.89% to 6.56%. The interest rates are effective for
option grant dates made throughout the year. Adjustments for forfeitures are
made as they occur. The total value of options granted for the years ended June
28, 1997 and June 29, 1996 was computed as approximately $1,405,000 and $75,000,
respectively. If the Company had accounted for these stock options issued to
employees in accordance with SFAS 123, the effect on net loss and loss per share
for each fiscal year would have been as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
June 28, 1997 June 29, 1996
----------------------------- --------------------------------
Net Loss EPS Net Loss EPS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
As Reported $(18,188) $ (1.33) $(12,375) $ (0.90)
Pro Forma $(19,045) $ (1.39) $(12,421) $ (0.90)
</TABLE>
The pro forma effects of applying SFAS 123 may not be representative of the
effects on reported net income and earnings per share for future years since
options vest over several years an additional awards are made each year.
Rights Plan
On September 22, 1994, the Board declared a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of Common Stock. The
dividend was awarded on October 3, 1994, to the holders of record of the Common
Stock at the close of business on October 3, 1994. One Right is also associated
with each share of Common Stock issued after October 3, 1994.
When the Rights become exercisable, each Right will entitle the holder thereof
(with certain exceptions) to purchase from the Company one one-hundredth of a
share of the Series A Junior Participating Preferred Stock, $.01 par value (the
"Preferred Shares"), of the Company at a price of $75.00 per one one-hundredth
of a Preferred Share, subject to adjustment (the "Exercise Price"). Under
certain circumstances, each Right (other than those which have become void) will
entitle the holder to purchase, at the Exercise Price, Common Stock having a
then current market value of two times the Exercise Price; or, if the Company is
acquired in a merger or other business combination, each such Right will entitle
the holder to purchase, at the Exercise Price, common stock of the acquirer
having a then current market value of two times the Exercise Price.
The Rights become exercisable 10 business days after any person has acquired, or
announced its intention to commence a tender offer for, 15% or more of the
Common Stock. The Rights will also become exercisable 10 business days after a
determination by the disinterested members of the Board (as defined in the
Stockholders Rights Agreement dated as of September 22, 1994 and amended by the
First Amendment dated as of February 15, 1995) that any person beneficially
owning 10% or more of the Common Stock intends to utilize its position to seek
short-term financial gain to the detriment of the best long-term interests of
the Company and its stockholders.
Under specified conditions, the Company will be entitled to redeem the Rights at
$.01 per Right.
32
<PAGE>
Stock Repurchase Program
On August 24, 1995, the Company announced a stock repurchase program authorizing
the repurchase of up to 10% of the outstanding shares of the Company's Common
Stock from time to time in open market or private transactions. The timing of
any repurchase and the price and number of shares repurchased will depend on
market conditions and other factors. As of June 28, 1997, the Company had
repurchased a total of 523,400 shares at an aggregate purchase price of
approximately $5.5 million, of which 28,328 shares were utilized under a
restricted stock award program. Shares repurchased may be retired or used for
general corporate purposes.
NOTE 7 - Commitments And Contingencies
Product Liability
- -----------------
The Company is subject to various product liability claims and/or suits brought
against it for claims involving damages for personal injuries or deaths.
Allegedly, these injuries or deaths relate to the use by claimants of products
manufactured by the Company and, in certain cases, products manufactured by
others. The ultimate outcome of these existing claims and any potential future
claims cannot presently be determined. Management believes that existing product
liability claims/suits are defensible and that, based on the Company's past
experience and assessment of current claims, the aggregate of defense costs and
any uninsured losses will not have a material adverse impact on the Company's
liquidity or financial position.
The cost of product liability insurance fluctuated greatly in past years and the
Company opted to self-insure claims for certain periods. The Company has been
covered by product liability insurance since July 1, 1991. This insurance is
subject to a self-insured retention. There is no assurance that insurance
coverage will be available or economical in the future.
The Company sold its motorcycle helmet manufacturing business in June 1991 in a
transaction in which the purchaser assumed all responsibility for product
liability claims arising out of helmets manufactured prior to the date of
disposition and the Company agreed to use its in-house defense team to defend
these claims at the purchaser's expense. If the purchaser is for any reason
unable to pay the judgment, settlement amount or defense costs arising out of
this or any other claim, the Company could be held responsible for the payment
of such amounts or costs. The Company believes that the purchaser does not
currently have the financial resources to pay any significant judgment,
settlement amount, or defense costs arising out of this or any other claim.
On February 2, 1996, a Toronto, Canada jury returned a verdict against Bell
based on injuries arising out of a 1986 motorcycle accident. The jury found that
Bell was 25% responsible for the injuries with the remaining 75% of the fault
assigned to the plaintiff and the other defendant. If the judgment is upheld,
the amount of the claim for which Bell would be responsible and the legal fees
and tax implications associated therewith are estimated to be between $3.0 and
$4.0 million.
The Company has filed an appeal of the Canadian verdict. Although the Company
cannot predict the outcome of an appeal, the Company currently has adequate cash
balances and sources of capital available to satisfy the judgment if the appeal
is unsuccessful. Accordingly, the Company currently does not believe the claim
will have a material adverse effect on liquidity or the financial condition of
the Company. Although the Company maintains product liability insurance, this
claim arose during a period in which the Company was self-insured. The Company
currently does not have a reserve for this judgment.
Environmental Litigation
- ------------------------
In the ordinary course of its business, the Company is required to dispose of
certain waste at off-site locations. During 1993, the Company became aware of an
investigation by the Illinois Environmental Protection Agency (the "Illinois
Agency") of a waste disposal site, owned by a third party, which was
33
<PAGE>
previously utilized by the Company. As a result of that investigation, the
Illinois Agency informed the Company that certain of the Company's practices
with respect to the identification, storage and disposal of hazardous waste and
related reporting requirements may not have complied with the applicable law. On
March 14, 1995, the State of Illinois (the "State") filed a complaint with the
Illinois Pollution Control Board (the "Pollution Control Board") against the
Company and the disposal site owner based on the same allegations. The complaint
sought penalties not exceeding statutory maximums and such other relief as the
Pollution Control Board determines appropriate. The disposal site owner filed a
cross-claim against the Company that seeks to have penalties assessed against
the Company and not against the disposal site owner. Any penalties as a result
of the cross-claim would be payable to the State. The Illinois Pollution Control
Board has approved a settlement between the State and the Company pursuant to
which the Company paid $69,000 to the State and disposed of certain materials in
a container at the waste disposal site at an authorized disposal facility. The
cross-claim by the landfill owner is still pending, and the outcome of the
cross-claim can not presently be determined.
Additionally, the Illinois Agency has been negotiating with the disposal site
owner with respect to the procedures and actions necessary to close the disposal
site. The extent and nature of any actions which may be taken against the
Company with respect to this matter cannot presently be determined.
Shareholder Litigation
- ----------------------
In February 1995, an AMRE shareholder filed a lawsuit, on his own behalf, and a
purported class action, against AMRE and its directors in the Chancery Court of
the State of Delaware, alleging various breaches of fiduciary and common law
duties and requesting both monetary and injunctive relief. The alleged basis for
the claims was the action of AMRE and its directors in connection with the
authorization and approval of the AMRE Merger, which was consummated on July 3,
1995. The case was dismissed in March 1997.
Leases
- ------
The Company leases certain equipment and facilities under various noncancellable
capital and operating leases. The total expense under these operating leases
amounted to approximately $4.0 million, $3.4 million and $1.9 million for the
fiscal years ended 1997, 1996 and 1995, respectively.
At June 28, 1997, the future minimum annual rental commitments under all
noncancellable leases were as follows (in thousands):
Operating Capital
Leases Leases
------------ -------------
1998 $ 3,780 $ 240
1999 3,771 240
2000 3,387 240
2001 2,999 240
2002 2,036 204
Thereafter 13,816 884
------------ -------------
Total minimum lease commitments $29,789 2,048
============
Less: Interest portion 705
-------------
Present value of capital lease obligations 1,343
Less: Current portion 109
-------------
Total long-term capital lease obligations $1,234
=============
34
<PAGE>
NOTE 8 - Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and short-term debt approximates fair value because of
the short maturity of these instruments. The following table presents the
carrying amounts and estimated fair value of the Company's other financial
instruments (in thousands):
June 28, 1997 June 29, 1996
--------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Marketable securities $ 7,996 $ 7,996
Long-term debt (Note 5) $106,454 $94,745 122,919 102,561
The estimated fair values of marketable securities and the convertible
debentures are based on quoted market prices. The estimated fair value of other
long-term debt approximates its carrying value.
NOTE 9 - Acquisitions and Dispositions
On May 15, 1995, the Company purchased, for $3.3 million, substantially all of
the assets of SportRack, a Canadian designer, manufacturer and marketer of
automobile roof rack systems.
Effective July 3, 1995, the Company completed, for Common Stock, the merger
("AMRE Merger") of a subsidiary of the Company with American Recreation Company
Holdings, Inc. ("AMRE") a designer, marketer and distributor of bicycles,
related bicycle parts and accessories and bicycle helmets in the United States
and Canada. The purchase price of $76.0 million was computed by converting each
of the 8.7 million outstanding shares of AMRE Common Stock into .6890 shares of
Bell Common Stock and multiplying the result by $12.70, the average of the Bell
Common Stock between June 9, 1995 and June 22, 1995. The purchase price was
increased by an additional $1.2 million attributable to outstanding AMRE stock
options, which were converted into Bell stock options. The purchase price has
been allocated to the fair value of the net assets of AMRE. The purchase price
was approximately $52.8 million greater than the fair value of the identifiable
net assets acquired, and, accordingly, goodwill was increased by this amount.
Unaudited pro forma financial information for fiscal 1995 is presented in the
Consolidated Statements of Operations assuming the Company consummated the AMRE
Merger at the beginning of the 1995 fiscal year. Pro forma adjustments have been
made to adjust net investment income and interest expense for the effects of a
required pre-payment of related party obligations, to increase amortization
expense for goodwill and other intangibles, and to reflect pro forma tax
effects.
On January 22, 1996, the Company acquired, for $16.8 million, substantially all
of the assets of privately-owned, Giro Sport Design, Inc. of California and all
outstanding shares of Giro Sport Design International, Inc., the holding company
which owns Giro's Ireland operation (collectively "Giro"). Giro designs,
manufactures and markets premium bicycle helmets in North America, Europe and
other parts of the world.
Acquisitions were accounted for as purchase transactions from their respective
effective dates. Accordingly, their results of operations have been included in
the accompanying statements of operations from the effective dates of the
acquisitions. The impact of these acquisitions, other than AMRE, were not
significant.
On April 29, 1997, pursuant to a plan developed in the third quarter, the
Company completed the sale of its Service Cycle/Mongoose inventory, trademarks
and certain other assets to Brunswick Corporation. The sales price approximated
$20.5 million. As part of the sales transaction, the Company provided Brunswick
Corporation a three year option to purchase 600,000 shares of the Company's
common stock at an exercise price of $7.50 per share. The Company retained and
35
<PAGE>
will collect customer accounts receivable related to the Service Cycle/Mongoose
business, which were approximately $19.4 million at April 29, 1997. At June 28,
1997 the outstanding accounts receivable balance was approximately $5.9 million.
As a result of the Service Cycle/Mongoose disposal, the Company announced plans
to reorganize its North American distribution network and operations to better
utilize facilities.
Included in the third quarter of fiscal 1997 pre-tax income are $25.4 million of
costs associated with the Sale of Service Cycle/Mongoose. The costs were
comprised of the write-off of goodwill and intangibles, $14.8 million, disposal
and exit costs, $5.4 million, and reorganization costs associated with the
distribution network and operations, $5.2 million.
Subsequent to the Company's Fiscal year-end, on July 2, 1997, the Company
completed the sale of substantially all of the assets of SportRack, which
designs, manufactures and markets automobile roof rack systems, for
approximately $14 million to an affiliate of Advanced Accessory System Canada,
Inc. There was no material gain or loss associated with this transaction.
NOTE 10 - Restructuring Charges and Other One-Time Charges
Restructuring Charges - 1997
- ----------------------------
During the third quarter of fiscal 1997, the Company announced plans to
significantly downsize the Scottsdale, Arizona corporate office by consolidating
certain Scottsdale functions with the San Jose, California office. Included in
the fiscal 1997 pre-tax income are $2.7 million of restructuring charges related
to this plan. Also included in the fiscal 1997 pre-tax income are $1.5 million
of restructuring charges related to the Program, as defined below, including
facility closing costs, severance and other employee related costs.
The following table sets forth the details of activity during fiscal 1997 for
restructuring charges and related accrued liabilities (in thousands):
June 29, Restructuring Cash June 28,
1996 charges payments 1997
------- ------------- --------- --------
Lease payments and other
facility expenses $ 942 $ 983 $(1,065) $ 860
Severance and other employee
related costs 4,215 3,158 (4,456) 2,917
------- ------- ------- -------
Total $ 5,157 $ 4,141 $(5,521) $ 3,777
======= ======= ======= =======
On June 27, 1995, the Company's stockholders approved the issuance of Common
Stock in connection with the Agreement and Plan of Merger dated February 15,
1995 among the Company, Bell Merger Co., a wholly owned subsidiary of the
Company, and American Recreation Company Holdings, Inc. ("AMRE"). In
contemplation of the merger, the Company formulated a program (the "Program") to
consolidate and integrate the operations of Bell, SportRack and AMRE, as well as
combine certain product lines. This Program called for the consolidation of
certain sales and marketing, research and development, manufacturing, finance
and management information systems functions.
Restructuring Charges - 1996
- ----------------------------
During fiscal 1996, the Company commenced significant organizational and office
consolidations including closing the Cerritos, Providence, Commack and Calgary
offices. Most U.S. sales, marketing and research and development operations were
consolidated in San Jose, California and all corporate functions in
36
<PAGE>
Scottsdale, Arizona. Substantially all of the Canadian operations were
consolidated into one facility in Granby, Quebec. These consolidations were
finalized during the first half of fiscal 1997.
Included in fiscal 1996 pre-tax income is $5.9 million related to restructuring
charges, including facility closing costs, severance and other employee related
costs and costs to combine computer systems. The Company eliminated 35 positions
in sales and marketing, research and development, finance and manufacturing. The
other employee costs are due to various employees relocating to San Jose or
Scottsdale. The costs to combine computer systems related to an implementation
study and the write-off of redundant software costs.
The following table sets forth the details of activity during fiscal 1996 for
restructuring charges and related accrued liabilities (in thousands):
<TABLE>
<CAPTION>
Acquisition
accrual Restruc- Non-
July 1, recorded turing Cash cash June 29,
1995 to goodwill charges payments charges 1996
-------- ------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lease payments and other
facility expenses $ 769 $ 1,951 $ 528 $ (1,755) $ (551) $ 942
Severance and other employee
related costs 453 7,965 2,328 (6,531) 4,215
Computer systems 2,994 (2,994)
-------- ------------- ----------- ------------ ---------- -----------
Total $1,222 $ 9,916 $ 5,850 $ (11,280) $ (551) $ 5,157
======== ============= =========== ============ ========== ===========
</TABLE>
Restructuring Charges - 1995
- ----------------------------
Included in fiscal 1995 pre-tax income is $2.1 million related to restructuring
charges, including facility closing costs, reductions in the carrying value of
assets, severance and other employee related costs. The Company eliminated 25
positions, in sales and marketing, research and development, finance and
manufacturing.
The following table sets forth the details of activity during fiscal 1995 for
restructuring charges and related accrued liabilities (in thousands):
<TABLE>
<CAPTION>
1995 Cash Non-cash July 1,
Accrual Payments Charges 1995
---------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Lease payments and other facility expenses $ 769 $ 769
Severance and other employee related costs 672 $(219) 453
Asset write-downs 682 $(682)
---------- ------------ ------------- ---------
Total $2,123 $(219) $(682) $1,222
========== ============ ============= =========
</TABLE>
Other One-Time Charges
- ----------------------
In fiscal 1995, the Company made a strategic decision to market its Bell helmet
brand across all trade channels, including the mass merchant trade channel. As a
result of this branding change, the Company recorded in the fourth quarter
charges of $2.4 million, which reduced gross profit, for the discontinuation of
certain product tooling and inventory. These charges primarily relate to the
combination of the Company's bicycle helmet product line with AMRE's helmet
product line.
37
<PAGE>
NOTE 11 - Income Taxes
Pre-tax (loss) income by jurisdiction for each fiscal year follows (in
thousands):
June 28, June 29, July 1,
1997 1996 1995
-------- -------- ---------
Domestic $(23,882) $(22,395) $ (3,963)
Foreign 2,731 1,770 (1,372)
-------- -------- --------
Total $(21,151) $(20,625) $ (5,335)
======== ======== ========
The (benefit) provision for income taxes for each fiscal year follows (in
thousands):
<TABLE>
<CAPTION>
June 28, June 29, July 1,
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current (benefit) expense:
U.S. Federal $ (757) $(1,254) $ 100
State and local 153
Foreign 601 482
------- ------- -------
Total current (156) (772) 253
Deferred tax (benefit) expense:
U.S. Federal (2,200) (6,402) (1,933)
State and local (568) (1,144) (309)
Foreign (59) (370)
------- ------- -------
Total deferred (2,827) (7,546) (2,612)
Impact of stock option deduction credited to equity 20 68 467
------- ------- -------
Total income tax benefit $(2,963) $(8,250) $(1,892)
======= ======= =======
</TABLE>
The (benefit) provision for income taxes for each fiscal year differs from the
U.S. statutory federal income tax rate for the following reasons:
June 28, June 29, July 1,
1997 1996 1995
------- ------- -------
Statutory U.S. rate (34.0)% (34.0)% (34.0)%
Tax exempt investment income (0.1) (0.2) (11.5)
Nondeductible goodwill 24.8 2.9 2.2
State income tax (2.7) (5.5) 1.8
Effective international tax rate (1.5) (0.6)
Other items, net (0.5) (2.6) 6.0
------ ------ ------
Effective tax benefit rate (14.0)% (40.0)% (35.5)%
====== ====== ======
The majority of the nondeductible goodwill included in permanent differences
under the effective tax rate calculation for the year ended June 28, 1997 is the
write-off of goodwill due to the Sale of Service Cycle/Mongoose. See Note 9.
38
<PAGE>
Deferred income tax assets and (liabilities) are comprised of the following (in
thousands):
June 28, June 29,
1997 1996
-------- --------
Net operating losses and other tax loss carryforwards $ 14,142 $ 12,494
Inventory and accounts receivable reserves 3,692 4,468
Accrued liabilities 6,066 4,545
Package design costs capitalized for tax purposes 780 746
Other 915 578
-------- --------
Gross deferred tax assets 25,595 22,831
Depreciation (858) (65)
Other (276) (1,388)
-------- --------
Gross deferred tax liability (1,134) (1,453)
Deferred tax assets valuation allowance (1,970) (1,305)
-------- --------
Net deferred tax assets 22,491 20,073
Less: current portion (10,228) (11,116)
-------- --------
Long term deferred tax assets $ 12,263 $ 8,957
======== ========
Domestic net operating losses totaling approximately $34 million will be carried
forward and begin to expire in 2007. Utilization of loss carryforwards in future
years may be subject to limitations if substantial changes in the Company's
ownership should occur.
General business tax credits were accounted for under the flow-through method
and totaled approximately $630,000. The credits will be carried forward and will
begin to expire in 2009 and minimum tax credits totaling approximately $500,000
will be carried forward with an indefinite life.
The deferred tax assets valuation allowance at June 28, 1997 and June 29, 1996
was required primarily for net operating loss carryforwards and accounting
reserves that, in management's view, will not be realized in the foreseeable
future.
The Company has not provided for U.S. federal income and foreign withholding
taxes of certain non-U.S. subsidiaries' undistributed earnings as of June 28,
1997, because such earnings are intended to be reinvested indefinitely. If these
earnings were distributed, the withholding tax would be due and foreign tax
credits should become available under current law to reduce the resulting U.S.
income tax liability.
39
<PAGE>
NOTE 12 - Additional Cash Flow Statement Information
The Company's non-cash investing and financing activities and cash payments for
interest and income taxes for each fiscal year are summarized below (in
thousands):
<TABLE>
<CAPTION>
June 28, June 29, July 1,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Additional paid in capital arising from tax benefits associated
with the exercise of stock options $ 20 $ 68 $ 67
Issuance of stock and stock options for AMRE merger 77,211
Purchase price adjustment to accrued liabilities and goodwill 200
Liabilities assumed in lieu of a cash payment in
connection with the acquisition of SportRack 1,382
Cash paid during the period for:
Interest $ 7,050 $ 8,816 $ 4,183
Income taxes 748 116 2,180
</TABLE>
NOTE 13 - Foreign Operations And Export Sales
Information regarding geographic sales, net income and identifiable assets are
as follows (in thousands):
<TABLE>
<CAPTION>
United
States Europe Canada Total
----------- --------- -------- ---------
<S> <C> <C> <C> <C>
Year ending June 28, 1997:
Sales to unaffiliated customers $212,634 $21,419 $25,481 $259,534
Net (loss) income (20,778) 1,441 1,149 (18,188)
Total assets 233,189 8,581 26,984 268,754
Year ending June 29, 1996:
Sales to unaffiliated customers $222,613 $17,408 $22,319 $262,340
Net (loss) income (13,644) 688 581 (12,375)
Total assets 262,568 10,956 25,111 298,635
Year ending July 1, 1995:
Sales to unaffiliated customers $ 88,430 $14,325 $ 235 $102,990
Net loss (3,347) (5) (91) (3,443)
Total assets 172,245 9,632 4,557 186,434
</TABLE>
Included in the figures for the United States in the above table are sales and
income in the Pacific Rim, and the assets of Bell Sports Australia, which are
not significant enough to be broken-out in the periods depicted.
40
<PAGE>
NOTE 14 - Quarterly Financial Data (Unaudited)
The unaudited information presented below has been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of financial position
and results of operations have been made.
Quarterly financial data is as follows (in thousands, except per share data):
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
--------- --------- ---------- ----------
Year ending June 28, 1997:
Net sales $62,068 $56,623 $70,575 $70,268
Gross profit 17,508 16,006 20,713 22,209
Net income (loss) 3 (475) (21,943) 4,227
Net income (loss) per share 0.00 (0.03) (1.59) 0.31
Year ending June 29, 1996:
Net sales $57,675 $56,215 $67,442 $81,009
Gross profit 10,135 8,442 19,916 22,226
Net (loss) income (5,372) (7,724) 713 8
Net (loss) income per share (0.38) (0.56) 0.05 0.00
41
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Registrant
- ---------------------------
The information contained under the headings "Nominees for Directors", "Members
of Board of Directors Continuing in Office" and "Section 16 (a) Beneficial
Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by
reference.
Executive Officers of the Registrant
- ------------------------------------
Information with respect to executive officers of the Company as of September
1997, is set forth below:
<TABLE>
<CAPTION>
Name Age Positions and Offices
- ---- --- ---------------------
<S> <C> <C>
Terry G. Lee 48 Chairman and Chief Executive Officer
Harry H. Manko 70 Vice Chairman and Director
Mary J. George 47 President and Chief Operating Officer
Howard A. Kosick 43 President - U.S. Group
Robert Alan McCaughen 43 President - Canada
Linda K. Bounds 42 Chief Financial Officer, Senior Vice President, Secretary and
Treasurer
John A. Williams 37 Vice President of Finance and Corporate Controller
</TABLE>
Terry G. Lee, Director, Chairman and Chief Executive Officer. Mr Lee also served
as President of the Company until the completion of the AMRE Merger. He joined
Bell Helmets, Inc. (a predecessor of the Company, "Bell Helmets") as President
and Chief Operating Officer and a Director in 1984, and became Chief Executive
Officer in 1986. He was also a stockholder and consultant to Echelon Sports
Corporation (a predecessor of the Company) prior to its acquisition by the
Company in 1989. Prior to joining Bell Helmets, Mr. Lee spent 14 years with
Wilson Sporting Goods, a subsidiary of Pepsico, Inc., where his last position
was Senior Vice President - Sales and Distribution. Mr. Lee became Chief
Executive Officer and Chairman of the Company in November 1989.
Harry H. Manko, Vice Chairman and Director. Mr. Manko has been a Director of the
Company and the Vice Chairman of the Company since July 1995. Mr. Manko headed
AMRE and its predecessors for 41 years. Mr. Manko become Chairman of the Board
and a Director of AMRE in April 1993. From 1984 to 1993, Mr. Manko was President
and Chief Executive Officer of American Recreation Group, L.P. ("ARG"), a
predecessor of AMRE. Mr. Manko currently serves as the President of the Bicycle
Products Supplier Association, previously named Bicycle Wholesale Distributor
Association ("BWDA"). He formerly served as the Treasurer of BWDA and as
President of the Bicycle Institute of America.
Mary J. George, President and Chief Operating Officer. Ms. George joined the
Company in October 1994 as the Senior Vice President of Marketing and Strategic
Planning, became President - Specialty Retail Division in July 1995, became
President - North America in December 1995, and became President and Chief
Operating Officer in April 1997. Prior to joining the Company, Ms. George served
as President of Denar Corporation from January 1993 to August 1994 and as
President of The WestPointe Group from January 1991 to December 1992. Ms. George
was Chief Executive Officer of Kids William & Clarissa (formerly Avitar
Marketing) from September 1990 to December 1990 and served as its President and
Chief Operating Officer from January 1989 to September 1990.
42
<PAGE>
Howard A. Kosick, President - U.S. Group. Mr. Kosick joined Bell in October 1989
as its Chief Financial Officer, Secretary, Treasurer and Senior Vice President,
became Executive Vice President in 1992, and became U.S. Group President in
April 1997. From 1981 until October 1989, he served in various financial
management positions for Household Manufacturing, Inc. Mr. Kosick is a Certified
Public Accountant.
Robert Alan McCaughen, President - Canada. Mr. McCaughen joined the Company in
July 1995, in connection with the AMRE Merger as President of Denrich Sporting
Goods. Mr. McCaughen became President - Canada in August 1995. Previously, Mr.
McCaughen served as President of Denrich Sporting Goods Canada, LTD. ("Denrich")
since August 1991, when AMRE acquired Denrich. Mr. McCaughen also served as
President and was one of the founders of Denrich's predecessor company which
commenced operations in 1989.
Linda K. Bounds, Chief Financial Officer, Senior Vice President, Secretary and
Treasurer. Ms. Bounds joined the Company in February 1990, became a Vice
President in 1993, and Chief Financial Officer, Executive Vice President,
Secretary and Treasurer in April 1997. From 1984 to 1990, she served in various
financial management positions for Celestial Seasonings, Inc. Ms. Bounds is a
Certified Public Accountant.
John A. Williams, Vice President of Finance and Corporate Controller (Chief
Accounting Officer). Mr. Williams joined the Company in December 1995 as
Director of Finance and became Vice President of Finance and Corporate
Controller in April 1997. Prior to joining the Company, Mr. Williams served in
various financial management positions at Microage Computer Corp. from October
1994 to December 1995, and as a Senior Audit Manager at Price Waterhouse LLP
from 1990 to October 1994.
Item 11. Executive Compensation
Except for the information relating to Item 13 hereof and except for information
referred to in Item 402(a)(8) of Regulation S-K, the information contained under
the headings "Executive Officer Compensation" and "Election of Directors -
Directors Meetings and Committees" in the Proxy Statement is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Security Ownership of Directors,
Executives, Officers and Principal Stockholders" in the Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Except for the information relating to Item 11 hereof and except for information
referred to in Item 402 (a)(8) of Regulation S-K, the information contained
under the headings "Executive Officer Compensation", "Election of Directors -
Directors Meetings and Committees" and "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by reference.
43
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The consolidated financial statements, other financial data and consolidated
financial schedules of the Company and its subsidiaries, listed below are
included as part of this report:
Page No.
- --------
20 Consolidated balance sheets - June 28, 1997 and June 29, 1996
21 Consolidated statements of operations - Years ended June 28, 1997,
June 29, 1996, July 1, 1995 on a pro forma basis, and July 1, 1995.
23 Consolidated statements of cash flows - Years ended June 28, 1997,
June 29, 1996 and July 1, 1995
24 Notes to consolidated financial statements
19 Report of independent accountants on consolidated financial statements
49 Schedule II - Valuation and qualifying accounts
S-1 Report of independent accountants on financial statement schedule
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
44
<PAGE>
(a)(3) Exhibits
Except for the documents that are marked with an asterisk, each of
the documents listed below has heretofore been filed (file number
0-19873) by the Company with the Securities and Exchange
Commission (the "Commission") and each such document is
incorporated herein by reference. The documents that are marked
with an asterisk are filed herewith.
Number Description
- ------ -----------
3(i) Restated Certificate of Incorporation of the Registrant, as
amended by the Certificate of Designation of Series A Junior
Participating Preferred Stock of the Registrant and as further
amended on June 27, 1995 (Exhibit 4 (1) to the Registrant's
Registration Statement on Form S-8, File No. 33-94296)
3 (ii) Bylaws of the Registrant (Exhibit 4 (2) to the Registrant's
Registration Statement on Form S-8, File No. 33-94296)
4.1 Certificate of Designation of Series A Junior Participating
Preferred Stock of Bell Sports Corp. (Exhibit 4 (2) to the
Registrant's Registration Statement on Form S-4, File No.
33-92344)
4.2 Stockholders Rights Agreement (the "Stockholders Rights
Agreement") dated as of September 22, 1994 between the
Registrant and Harris Trust & Savings Bank, as Rights Agent
(Exhibit 1 of the Registrant's Registration Statement on Form
8-A dated September 27, 1994)
4.3 First Amendment dated February 15, 1995 to the Stockholders
Rights Agreement (Exhibit 4 of the Registrant's Current Report
on Form 8-K dated February 15, 1995)
4.4 Indenture, dated as of November 15, 1993, between the
Registrant (Exhibit 4 (1) to the Registrant's Current Report
on Form 8-K dated October 26, 1993)
10.1 Employment Agreement dated as of June 13, 1995 among
Registrant, Bell Sports, Inc. and Terry G. Lee (Exhibit 10 (1)
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended July 1, 1995)
10.2 Severance Agreement dated as of January 3, 1995 among
Registrant, Bell Sports, Inc. and Terry G. Lee (Exhibit 10 (2)
to the Registrant's Quarterly Report on Form 10-Q, for the
quarter ended December 31, 1994)
10.3* Phantom Stock Unit Agreement dated as of September 23, 1997
between Registrant and Terry G. Lee
10.4 Employment Agreement dated as of June 13, 1995 among
Registrant, Bell Sports, Inc. and Howard A. Kosick (Exhibit 10
(1) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 1, 1995)
10.5* Memorandum of Understanding dated September 25, 1997 between
Registrant, Bell Sports, Inc. and Howard A. Kosick
10.6 Severance Agreement dated as of January 3, 1995 among
Registrant, Bell Sports, Inc. and Howard A. Kosick (Exhibit 10
(4) to the Registrant's Quarterly Report on Form 10-Q, for the
quarter ended December 31, 1994)
10.7* Phantom Stock Unit Agreement dated as of September 23, 1997
between Registrant and Howard A. Kosick
45
<PAGE>
10.8 Employment Agreement dated as of June 13, 1995 among
Registrant, American Recreation Company Holdings, Inc. and
Harry H. Manko (Exhibit 10 (1) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 1, 1995)
10.9* Employment Agreement dated as of August 29, 1997 among
Registrant, American Recreation Company Holdings, Inc. and
Mary J. George
10.10* Phantom Stock Unit Agreement dated as of September 23, 1997
between Registrant and Mary J. George
10.11 Employment Agreement dated as of April 25, 1997 among
Registrant, Bell Sports, Inc. and Linda K. Bounds (Exhibit 10
(2) to the Registrant's Quarterly Report on Form 10-Q, for the
quarter ended March 29, 1997)
10.12* Phantom Stock Unit Agreement dated as of September 23, 1997
between Registrant and Linda K. Bounds
10.13* Severance Agreement dated September 24, 1997 between
Registrant, Bell Sports, Inc. and Robert A. McCaughen
10.14* Memorandum reference Employment Contract Outline for Robert A.
McCaughen dated April 10, 1997
10.15 Restated and Amended 1991 Management Stock Incentive Plan
(Exhibit 10 (24) to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 27, 1992)
10.16 Restated and Amended 1992 Management Stock Incentive Plan
(Exhibit 4 (3) to the Registrant's Registration Statement on
Form S-8, File No. 33-94296)
10.17 American Recreation Company Holdings, Inc. Stock Option Plan
(Exhibit 4 (3) to the Registrant's Registration Statement on
Form S-8, File No. 33-94298)
10.18 Restated and Amended 1992 Outside Directors Stock Option Plan,
(Exhibit 10 (25) to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 27, 1992)
10.19 Restated and Amended 1993 Outside Directors Stock Option Plan,
(Exhibit 10 (1) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 28, 1996)
10.20 1996 Stock Option Plan (Exhibit 4 (c) to the Registrant's
Registration Statement on Form S-8, File No. 333-4468)
10.21 U.S. $100,000,000 Multicurrency Credit Agreement dated as of
February 15, 1996 Among Bell Sports Corp., the guarantors
party thereto, the banks party thereto, and Harris Trust and
Savings Bank as Agent (Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 30, 1996)
10.22 First Amendment to Credit Agreement dated April 22, 1996
between Bell Sports Corp., the guarantors party thereto, the
banks party thereto, and Harris Trust and Savings Bank as
Agent (Exhibit 10 (14) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 29, 1996)
10.23 Second Amendment to the Credit Agreement dated August 9, 1996
between Bell Sports Corp., the guarantors party thereto, the
banks party thereto, and Harris Trust and Savings Bank as
Agent (Exhibit 10 (15) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 29, 1996)
46
<PAGE>
10.24 Third Amendment to the Credit Agreement dated April 28, 1997
between Bell Sports Corp., the guarantors party thereto, the
banks party thereto, and Harris Trust and Savings Bank as
Agent (Exhibit 10 (5) to the Registrant's Current Report on
Form 8-K dated April 29, 1997)
10.25 Form of Vehicle Lease Agreement between Bell Sports, Inc. and
Mission Leasing, (Exhibit 10 (77) to the Registrant's
Registration Statement on Form S-1, File No. 33-45868)
10.26 Form of Equipment Lease Agreement between Bell Sports, Inc.
and Mission Leasing, (Exhibit 10 (78) to the Registrant's
Registration Statement on Form S-1, File No. 33-45868)
10.27 Lease of Aircraft between Bell Sports, Inc. and Hayden
Leasing, L.C. dated November 1, 1995, (Exhibit 10 (18) to the
Registrant's Annual Report on Form 10-K dated June 29, 1996)
10.28 Post Merger Stockholders Agreement dated as of February 15,
1995 between the Registrant and CB Capital Investors, Inc.,
Harry H. Manko and Stephen A. Silverstein. (Exhibit 10 (2) to
the Registrant's Current Report on Form 8-K dated February 15,
1995)
11* Statement re: computation of per share earnings
21* Subsidiaries of the Registrant
23* Consent of Price Waterhouse
27* Financial data schedule
- -----------
* Filed herewith
Exhibits 10.1 through 10.20 listed are the management contracts and compensatory
plans or arrangements required to be filed as exhibits hereto pursuant to the
requirements of Item 601 of Regulation S-K.
47
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on this 16th day of September, 1997.
Name
/s/ Terry G. Lee Chairman and Chief
- ------------------------------------------------- Executive Officer
Terry G. Lee (principal executive officer)
/s/ Linda K. Bounds Chief Financial Officer,
- ------------------------------------------------- Secretary and Treasurer
Linda K. Bounds (principal financial officer)
/s/ John A. Williams Vice President of Finance
- ------------------------------------------------- and Corporate Controller
John A. Williams (principal accounting officer)
/s/ Harry H. Manko Vice Chairman and Director
- -------------------------------------------------
Harry H. Manko
/s/ Phillip D. Matthews Director
- -------------------------------------------------
Phillip D. Matthews
/s/ Arnold L. Chavkin Director
- -------------------------------------------------
Arnold L. Chavkin
/s/ Michael R. Hannon Director
- -------------------------------------------------
Michael R. Hannon
/s/ Kenneth K. Harkness Director
- -------------------------------------------------
Kenneth K. Harkness
/s/ W. Leo Kiely, III Director
- -------------------------------------------------
W. Leo Kiely, III
/s/ Frederick W. Winter Director
- -------------------------------------------------
Frederick W. Winter
/s/ Christopher Wright Director
- -------------------------------------------------
Christopher Wright
48
<PAGE>
BELL SPORTS CORP
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For each of the three fiscal years
in the period ended June 28, 1997
(in thousands)
Additions
----------------------
---------- ---------- ---------- ---------- ----------
Balance at Charged to Charged to Balance at
beginning costs and other end of
of period expenses accounts Deductions period
---------- ---------- ---------- ---------- ----------
June 28, 1997:
Deferred tax asset
valuation allowance $ 1,305 $ 655 $ 1,970
Allowance for
doubtful accounts $ 3,448 $ 4,553 $ 2,980 $ 5,021
Inventory valuation
allowance $ 6,599 $ 2,876 $ 6,149 $ 3,326
June 29, 1996
Deferred tax asset
valuation allowance $ 2,001 $ (362) $ (334) $ 1,305
Allowance for
doubtful accounts $ 647 $ 2,481 $ 1,996(a) $ 1,676 $ 3,448
Inventory valuation
allowance $ 1,298 $ 3,602 $ 9,696(a) $ 7,997 $ 6,599
July 1, 1995
Deferred tax asset
valuation allowance $ 3,348 $ (15) $(1,332) $ 2,001
Allowance for
doubtful accounts $ 763 $ 519 $ 635 $ 647
Inventory valuation
allowance $ 576 $ 4,183 $ 3,461 $ 1,298
(a) Acquisition accrual recorded to goodwill
49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
and Stockholders of
Bell Sports Corp.
Our audits of the consolidated financial statements referred to in our report
dated August 15, 1997 appearing on page 19 of the 1997 Annual Report to
Stockholders of Bell Sports Corp. also included an audit of the Financial
Statement Schedule listed in Item 14 of this Form 10-K. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
August 15, 1997
S-1
PHANTOM STOCK UNIT AGREEMENT
----------------------------
PHANTOM STOCK UNIT AGREEMENT dated as of September 23, 1997,
effective as of August 28, 1997 (the "Effective Date"), between Bell Sports
Corp., a Delaware corporation (the "Company"), and Terry G. Lee (the
"Executive").
WHEREAS, the Company is engaged primarily in the business of
designing, manufacturing, producing, distributing, marketing, advertising and
selling auto racing helmets, bicycle helmets, bicycle accessories and related
products;
WHEREAS, the Executive currently serves as the Chairman of the
Board and Chief Executive Officer of the Company;
WHEREAS, the Executive's abilities and services are unique and
essential to the prospects of the Company; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement to further align the interests of the Executive with the
interests of the stockholders of the Company by providing additional incentives
to the Executive based upon future increases in the value of the shares of
common stock, $.01 par value, of the Company ("Common Stock").
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree as follows:
1. Phantom Stock Compensation. (a) As additional compensation
for the services provided by the Executive to the Company, effective as of the
Effective Date, the Company grants to the Executive, and the Executive is
credited with, 21,763 phantom stock units ("Units"). The Units shall, subject to
the provisions of this Agreement, become vested cumulatively as follows:
(1) On each of the first two annual anniversaries of the
Effective Date, one-half of the total number of Units granted
hereunder, subject to adjustment as provided in Section 1(c) hereof,
shall become vested; and
(2) Notwithstanding anything to the contrary contained in this
Section 1(a), all Units shall become vested upon a "Change in Control"
of the Company, as such term is defined in Appendix A to this
Agreement.
All Units which shall have become vested pursuant to this Section 1(a) are
hereinafter referred to as "Vested Units."
(b) The Company shall pay to the Executive as additional
compensation (the "Phantom Stock Benefit") an amount,
<PAGE>
determined as of the Valuation Date (as hereinafter defined), equal to the
product of (1) the number of Units then credited to the Executive hereunder
which shall have become Vested Units pursuant to Section 1(a) hereof (after
giving effect to the adjustments provided for in Section 1(c) below) multiplied
by (2) the Value (as hereinafter defined) of one share of Common Stock on the
Valuation Date. The Phantom Stock Benefit shall be paid to the Executive in
cash, subject to any applicable payroll or other taxes required to be withheld,
not later than the 30th day following the Valuation Date. Nothing in this
Section 1 shall be deemed to grant to the Executive any right in or to, or any
right to purchase or otherwise acquire, any shares of Common Stock (or any
securities convertible into Common Stock).
(c) In the event of a change in the number of outstanding
shares of Common Stock by reason of any dividend payable in shares of Common
Stock, or by reason of any stock split, reverse stock split or combination of
shares, the number of Units credited to the Executive hereunder shall be
increased or decreased, as the case may be, in the same proportion. Any such
adjustment shall be made by the good faith determination of the Board, which
determination shall be conclusive.
(d) If the Company shall spin-off a significant subsidiary or
shall make a substantial non-cash distribution to its stockholders, in partial
liquidation or otherwise (excluding, however, any Change in Control of the
Company or any transaction or change described in Section 1(c) hereof, and it is
reasonable to expect that the future Value of the Common Stock would be
materially affected thereby, the Board shall modify the formula for determining
the Phantom Stock Benefit in an equitable manner to maintain the economic
benefit granted to the Executive pursuant to this Section 1.
(e) For purposes of this Agreement, the following terms shall
have the meanings set forth below:
(1) "Valuation Date" shall mean the earliest of (A) the date,
for each Unit granted hereunder, on which such Unit becomes a Vested
Unit, (B) the date of termination of the Executive's employment other
than for "Cause" (as defined in the Employment Agreement among the
Company, Bell Sports, Inc. and the Executive dated as of June 13, 1995)
and (C) the effective date of any Change in Control.
(2) "Value" shall mean the arithmetic average of the Market
Price (as hereinafter defined) of a share of Common Stock for the 10
trading days preceding the Valuation Date, but in no event shall the
Value be less than the price per share of Common Stock paid prior to
the Valuation Date in any tender offer subject to Section 14(d) of the
Securities Exchange Act of 1934, as amended (or any statute hereafter
substituted therefor), which results in a Change in Control,
- 2 -
<PAGE>
as such price per share shall be adjusted by the good faith
determination of the Board to reflect any change described in Section
1(c) occurring subsequent to such tender offer.
(3) "Market Price" shall mean for any day the closing price of
a share of Common Stock, as reported in The Wall Street Journal as
NASDAQ National Market Issues.
(f) In the absence of manifest error, the determination of the
amount of the Phantom Stock Benefit by the Board in accordance with this Section
1 shall be binding upon the Executive and the Company.
2. Federal and State Withholding. The Company shall deduct
from the amounts payable to the Executive pursuant to this Agreement the amount
of all required federal and state withholding taxes in accordance with the
Executive's Form W-4 on file with the Company and all applicable social security
taxes.
3. Assignment. The rights and benefits of the Executive
hereunder shall not be assignable, whether by voluntary or involuntary
assignment or transfer. This Agreement shall be binding upon, and shall inure to
the benefit of, the successors and assigns of the Company, and the heirs,
executors and administrators of the Executive.
4. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and personally delivered, sent
by certified or registered mail or sent by overnight courier service as follows:
if to the Executive, to the Executive's address as set forth in the records of
the Company, and if to the Company, to the address of its principal executive
offices, attention: Chief Financial Officer, with a copy to Larry A. Barden,
Esq., Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, or to
any other address designated by any party hereto by notice similarly given.
5. Costs. In the event that a dispute shall arise between the
parties hereto and such dispute is resolved by a court of competent
jurisdiction, all reasonable attorneys' fees and costs of the Company and the
Executive and all other costs and expenses of the Company and the Executive
associated with such dispute shall be borne by the Company; provided that if it
is determined that the claims of the Executive were without reasonable basis,
each party shall bear such party's own attorneys' fees and costs.
6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to principles of conflict of laws.
- 3 -
<PAGE>
7. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
8. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By /s/ Linda K. Bounds
----------------------------------
Linda K. Bounds
Senior Vice President and
Chief Financial Officer
EXECUTIVE:
/s/ Terry G. Lee
-----------------------------------
Terry G. Lee
- 4 -
<PAGE>
Appendix A
----------
For purposes of the Phantom Stock Unit Agreement dated as of
September 23, 1997 between Bell Sports Corp. (the "Company") and Terry G. Lee,
"Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of section (3)
of this definition shall be satisfied; and provided further that, for purposes
of clause (B), if any Person (other than the Company or any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the Company
and such Person shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least
66-2/3% of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the vote
of at least 66-2/3% of the directors then comprising the Incumbent Board shall
be deemed to have been a member of the Incumbent Board; and provided further,
that no individual who was
A-1
<PAGE>
initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board shall be deemed to have been a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case, immediately
after such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 60% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company) and any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of such corporation or
20% or more of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and
(iii) at least 66-2/3% of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such reorganization, merger or
consolidation; or
(4) approval by the stockholders of the Company of (i) a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 60% of the then outstanding shares of common stock
thereof and more than 60% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the
A-2
<PAGE>
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such sale or other disposition and in substantially the
same proportions relative to each other as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (B) no Person (other
than the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or such corporation (or any corporation controlled by
the Company) and any Person which beneficially owned, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of common stock thereof or 20% or more of the
combined voting power of the then outstanding securities thereof entitled to
vote generally in the election of directors and (C) at least 66-2/3% of the
members of the board of directors thereof were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition.
A-3
Memorandum to Terry Lee
September 25, 1997
MEMORANDUM -- CONFIDENTIAL
TO: Terry Lee
CC: Phil Matthews
Linda Bounds
FROM: Howard Kosick
DATE: September 25, 1997
RE: Howard A. Kosick
Employment Agreement
I am documenting our mutual understanding with respect to my Employment
Agreement (copy attached). In conjunction with the U.S. reorganization program
announced on April 1, 1997, the Scottsdale Corporate Office has been downsized
and most Corporate functions, including the CFO function, have been relocated to
San Jose.
To help facilitate the Company's reorganization program, I have agreed to serve
as U.S. Group President in San Jose. Commuting costs to San Jose and temporary
living costs while there will continue to be reimbursed by the Company for this
period.
By signing below, Bell Sports Corp. and Bell Sports, Inc. (collectively, the
"Company") acknowledge and agree that I continue to have the right to terminate
my employment pursuant to Section 4(e)(i) of my Employment Agreement for "Good
Reason" (as defined in Section 4(e)(ii)(E) of my Employment Agreement) at any
time during the term of my Employment Agreement and that my service as U.S.
Group President has not waived, and will not waive, my right to do so. At such
time as I may elect to terminate my employment pursuant to Section 4(e)(i), I
will receive the payments and benefits specified by that Section, except as
expressly provided in the following paragraph of this Memorandum. If I elect to
terminate my employment pursuant to Section 4(e)(i), consistent with past
practice for severed employees, my stock options will fully vest and remain
exercisable through the severance period (the two-year period commencing on my
termination of employment) and for 90 days thereafter. In addition, my unvested
restricted stock grants and phantom stock units as of the date of my termination
of employment would become fully vested. (This would apply to options to
purchase 2,361 shares if they do not otherwise become vested on February 27,
1998 and to 5,441 phantom stock units if they do not otherwise vest on August
28, 1998 and August 28, 1999).
<PAGE>
Memorandum to Terry Lee
September 25, 1997
Page Two
The Company also acknowledges that if I do not elect to terminate my employment
prior to December 1, 1997 then the Company shall pay me $100,000 by December 15,
1997. Such payment shall be in lieu of any further bonus payments which may
become due pursuant to my Employment Agreement or my Severance Agreement dated
January 3, 1995 in the event of my termination of employment.
Except as expressly provided in the preceding paragraph of this Memorandum, the
understandings set forth herein are not intended to limit or affect any of my
rights under my Employment Agreement or my Severance Agreement and, except as
expressly provided in the preceding paragraph, shall be in addition to, and not
in limitation of, any rights I may have under my Severance Agreement. This
Memorandum supersedes my Memorandum to you dated April 4, 1997, which Memorandum
shall have no further force or effect.
Terry, I look forward to the continuing challenges of the U.S. President's role
and expect that I can continue to have a meaningful impact on the operations of
the business. If the foregoing is consistent with our mutual understanding,
please acknowledge the Company's acceptance of this arrangement by executing
this Memorandum in the space provided below and returning a copy thereof to me.
/s/ Howard A. Kosick
Acknowledged and agreed:
BELL SPORTS CORP.
BELL SPORTS, INC.
By: /s/ Terry G. Lee
----------------------
Terry G. Lee
HAK/er
PHANTOM STOCK UNIT AGREEMENT
----------------------------
PHANTOM STOCK UNIT AGREEMENT dated as of September 23, 1997,
effective as of August 28, 1997 (the "Effective Date"), between Bell Sports
Corp., a Delaware corporation (the "Company"), and Howard A. Kosick (the
"Executive").
WHEREAS, the Company is engaged primarily in the business of
designing, manufacturing, producing, distributing, marketing, advertising and
selling auto racing helmets, bicycle helmets, bicycle accessories and related
products;
WHEREAS, the Executive currently serves as the U.S. Group
President of the Company;
WHEREAS, the Executive's abilities and services are unique and
essential to the prospects of the Company; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement to further align the interests of the Executive with the
interests of the stockholders of the Company by providing additional incentives
to the Executive based upon future increases in the value of the shares of
common stock, $.01 par value, of the Company ("Common Stock").
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree as follows:
1. Phantom Stock Compensation. (a) As additional compensation
for the services provided by the Executive to the Company, effective as of the
Effective Date, the Company grants to the Executive, and the Executive is
credited with, 5,441 phantom stock units ("Units"). The Units shall, subject to
the provisions of this Agreement, become vested cumulatively as follows:
(1) On each of the first two annual anniversaries of the
Effective Date, one-half of the total number of Units granted
hereunder, subject to adjustment as provided in Section 1(c) hereof,
shall become vested; and
(2) Notwithstanding anything to the contrary contained in this
Section 1(a), all Units shall become vested upon a "Change in Control"
of the Company, as such term is defined in Appendix A to this
Agreement.
All Units which shall have become vested pursuant to this Section 1(a) are
hereinafter referred to as "Vested Units."
(b) The Company shall pay to the Executive as additional
compensation (the "Phantom Stock Benefit") an amount,
<PAGE>
determined as of the Valuation Date (as hereinafter defined), equal to the
product of (1) the number of Units then credited to the Executive hereunder
which shall have become Vested Units pursuant to Section 1(a) hereof (after
giving effect to the adjustments provided for in Section 1(c) below) multiplied
by (2) the Value (as hereinafter defined) of one share of Common Stock on the
Valuation Date. The Phantom Stock Benefit shall be paid to the Executive in
cash, subject to any applicable payroll or other taxes required to be withheld,
not later than the 30th day following the Valuation Date. Nothing in this
Section 1 shall be deemed to grant to the Executive any right in or to, or any
right to purchase or otherwise acquire, any shares of Common Stock (or any
securities convertible into Common Stock).
(c) In the event of a change in the number of outstanding
shares of Common Stock by reason of any dividend payable in shares of Common
Stock, or by reason of any stock split, reverse stock split or combination of
shares, the number of Units credited to the Executive hereunder shall be
increased or decreased, as the case may be, in the same proportion. Any such
adjustment shall be made by the good faith determination of the Board, which
determination shall be conclusive.
(d) If the Company shall spin-off a significant subsidiary or
shall make a substantial non-cash distribution to its stockholders, in partial
liquidation or otherwise (excluding, however, any Change in Control of the
Company or any transaction or change described in Section 1(c) hereof, and it is
reasonable to expect that the future Value of the Common Stock would be
materially affected thereby, the Board shall modify the formula for determining
the Phantom Stock Benefit in an equitable manner to maintain the economic
benefit granted to the Executive pursuant to this Section 1.
(e) For purposes of this Agreement, the following terms shall
have the meanings set forth below:
(1) "Valuation Date" shall mean the earliest of (A) the date,
for each Unit granted hereunder, on which such Unit becomes a Vested
Unit, (B) the date of termination of the Executive's employment other
than for "Cause" (as defined in the Employment Agreement among the
Company, Bell Sports, Inc. and the Executive dated as of June 13, 1995)
and (C) the effective date of any Change in Control.
(2) "Value" shall mean the arithmetic average of the Market
Price (as hereinafter defined) of a share of Common Stock for the 10
trading days preceding the Valuation Date, but in no event shall the
Value be less than the price per share of Common Stock paid prior to
the Valuation Date in any tender offer subject to Section 14(d) of the
Securities Exchange Act of 1934, as amended (or any statute hereafter
substituted therefor), which results in a Change in Control,
- 2 -
<PAGE>
as such price per share shall be adjusted by the good faith
determination of the Board to reflect any change described in Section
1(c) occurring subsequent to such tender offer.
(3) "Market Price" shall mean for any day the closing price of
a share of Common Stock, as reported in The Wall Street Journal as
NASDAQ National Market Issues.
(f) In the absence of manifest error, the determination of the
amount of the Phantom Stock Benefit by the Board in accordance with this Section
1 shall be binding upon the Executive and the Company.
2. Federal and State Withholding. The Company shall deduct
from the amounts payable to the Executive pursuant to this Agreement the amount
of all required federal and state withholding taxes in accordance with the
Executive's Form W-4 on file with the Company and all applicable social security
taxes.
3. Assignment. The rights and benefits of the Executive
hereunder shall not be assignable, whether by voluntary or involuntary
assignment or transfer. This Agreement shall be binding upon, and shall inure to
the benefit of, the successors and assigns of the Company, and the heirs,
executors and administrators of the Executive.
4. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and personally delivered, sent
by certified or registered mail or sent by overnight courier service as follows:
if to the Executive, to the Executive's address as set forth in the records of
the Company, and if to the Company, to the address of its principal executive
offices, attention: Chief Executive Officer, with a copy to Larry A. Barden,
Esq., Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, or to
any other address designated by any party hereto by notice similarly given.
5. Costs. In the event that a dispute shall arise between the
parties hereto and such dispute is resolved by a court of competent
jurisdiction, all reasonable attorneys' fees and costs of the Company and the
Executive and all other costs and expenses of the Company and the Executive
associated with such dispute shall be borne by the Company; provided that if it
is determined that the claims of the Executive were without reasonable basis,
each party shall bear such party's own attorneys' fees and costs.
6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to principles of conflict of laws.
- 3 -
<PAGE>
7. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
8. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By /s/ Terry G. Lee
----------------------------------
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
/s/ Howard A. Kosick
-----------------------------------
Howard A. Kosick
- 4 -
<PAGE>
Appendix A
----------
For purposes of the Phantom Stock Unit Agreement dated as of
September 23, 1997 between Bell Sports Corp. (the "Company") and Howard A.
Kosick, "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of section (3)
of this definition shall be satisfied; and provided further that, for purposes
of clause (B), if any Person (other than the Company or any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the Company
and such Person shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least
66-2/3% of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the vote
of at least 66-2/3% of the directors then comprising the Incumbent Board shall
be deemed to have been a member of the Incumbent Board; and provided further,
that no individual who was
A-1
<PAGE>
initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board shall be deemed to have been a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case, immediately
after such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 60% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company) and any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of such corporation or
20% or more of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and
(iii) at least 66-2/3% of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such reorganization, merger or
consolidation; or
(4) approval by the stockholders of the Company of (i) a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 60% of the then outstanding shares of common stock
thereof and more than 60% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the
A-2
<PAGE>
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such sale or other disposition and in substantially the
same proportions relative to each other as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (B) no Person (other
than the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or such corporation (or any corporation controlled by
the Company) and any Person which beneficially owned, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of common stock thereof or 20% or more of the
combined voting power of the then outstanding securities thereof entitled to
vote generally in the election of directors and (C) at least 66-2/3% of the
members of the board of directors thereof were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition.
A-3
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment dated as of August 29, 1997, effective as of
July 1, 1997, to Employment Agreement dated April 11, 1997 (the "Employment
Agreement") is entered into among Mary J. George (the "Executive"), Bell Sports
Corp., a Delaware corporation (the "Holding Company"), and Bell Sports, Inc., a
California corporation (the "Operating Company"). Except as otherwise provided
in Appendix A hereto, the Holding Company and the Operating Company are
collectively referred to herein as the "Company."
WHEREAS, the Executive currently serves as President and Chief
Operating Officer of both the Holding Company and the Operating Company pursuant
to the terms of the Employment Agreement; and
WHEREAS, the Company and the Executive desire to amend the
Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree that the Employment
Agreement shall be amended as set forth below, effective as of July 1, 1997.
1. The first sentence of Section 3(a) of the Employment
Agreement is amended to read in its entirety as follows:
"During the Employment Period, the Company shall pay to the Executive
an annual base salary at the rate of $300,000 per annum, payable in
accordance with the Company's executive payroll policy."
2. The fifth sentence of Section 3(c)(i) of the Employment
Agreement is amended to read in its entirety as follows, and Appendix A to this
Amendment shall be Appendix A to the Employment Agreement:
"All restricted phantom stock units awarded pursuant to this Section
3(c)(i) shall become fully vested upon the earlier to occur of the
termination of the Employment Period or a 'Change in Control' of the
Company, as such term is defined in Appendix A to this Agreement;
provided, however, that in the event of the termination of the
Executive's employment voluntarily by the Executive pursuant to Section
4(e) hereof or by the Company for "Cause" pursuant to Section 4(c)
hereof (as such term is defined in such section), no such restricted
phantom stock units shall vest, and all such restricted phantom stock
units shall be forfeited."
<PAGE>
3. Section 3(e) of the Employment Agreement is amended to read
in its entirety as follows:
"(e) Perquisites. During the Employment Period, the Executive
shall be entitled to (i) the use of an automobile and reimbursement by
the Company for all expenses relating to the operation thereof and (ii)
reimbursement for all expenses relating to the Executive's commuting by
commercial airline between the San Jose and Los Angeles metropolitan
areas."
4. Section 3(h) of the Employment Agreement is amended by
adding the following sentence at the end thereof:
"In addition, the Executive shall be reimbursed for all medical and
dental expenses that are not covered under the medical and dental plans
otherwise covering the Executive."
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By /s/ Terry G. Lee
----------------------------------
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
BELL SPORTS, INC.
By /s/ Terry G. Lee
----------------------------------
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
/s/ Mary J. George
------------------------------------
Mary J. George
- 2 -
<PAGE>
Appendix A
----------
For purposes of the Employment Agreement dated April 11, 1997,
as amended as of August 29, 1997, among Mary J. George, Bell Sports Corp. (the
"Company") and Bell Sports, Inc., "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of section (3)
of this definition shall be satisfied; and provided further that, for purposes
of clause (B), if any Person (other than the Company or any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the Company
and such Person shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least
66-2/3% of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the vote
of at least 66-2/3% of the directors then comprising the Incumbent Board shall
be deemed to have been a member of the
- 3 -
<PAGE>
Incumbent Board; and provided further, that no individual who was initially
elected as a director of the Company as a result of an actual or threatened
election contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board shall be deemed to have been a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case, immediately
after such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 60% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company) and any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of such corporation or
20% or more of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and
(iii) at least 66-2/3% of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such reorganization, merger or
consolidation; or
(4) approval by the stockholders of the Company of (i) a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 60% of the then outstanding shares of common stock
thereof and more than 60% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially
- 4 -
<PAGE>
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities immediately
prior to such sale or other disposition and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (B) no Person (other
than the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or such corporation (or any corporation controlled by
the Company) and any Person which beneficially owned, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of common stock thereof or 20% or more of the
combined voting power of the then outstanding securities thereof entitled to
vote generally in the election of directors and (C) at least 66-2/3% of the
members of the board of directors thereof were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition.
- 5 -
PHANTOM STOCK UNIT AGREEMENT
----------------------------
PHANTOM STOCK UNIT AGREEMENT dated as of September 23, 1997,
effective as of August 28, 1997 (the "Effective Date"), between Bell Sports
Corp., a Delaware corporation (the "Company"), and Mary J. George (the
"Executive").
WHEREAS, the Company is engaged primarily in the business of
designing, manufacturing, producing, distributing, marketing, advertising and
selling auto racing helmets, bicycle helmets, bicycle accessories and related
products;
WHEREAS, the Executive currently serves as the
President and Chief Operating Officer of the Company;
WHEREAS, the Executive's abilities and services are
unique and essential to the prospects of the Company; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement to further align the interests of the Executive with the
interests of the stockholders of the Company by providing additional incentives
to the Executive based upon future increases in the value of the shares of
common stock, $.01 par value, of the Company ("Common Stock").
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree as follows:
1. Phantom Stock Compensation. (a) As additional compensation
for the services provided by the Executive to the Company, effective as of the
Effective Date, the Company grants to the Executive, and the Executive is
credited with, 10,881 phantom stock units ("Units"). The Units shall, subject to
the provisions of this Agreement, become vested cumulatively as follows:
(1) On each of the first two annual anniversaries of the
Effective Date, one-half of the total number of Units granted
hereunder, subject to adjustment as provided in Section 1(c) hereof,
shall become vested; and
(2) Notwithstanding anything to the contrary contained in this
Section 1(a), all Units shall become vested upon a "Change in Control"
of the Company, as such term is defined in Appendix A to this
Agreement.
All Units which shall have become vested pursuant to this Section 1(a) are
hereinafter referred to as "Vested Units."
(b) The Company shall pay to the Executive as additional
compensation (the "Phantom Stock Benefit") an amount,
<PAGE>
determined as of the Valuation Date (as hereinafter defined), equal to the
product of (1) the number of Units then credited to the Executive hereunder
which shall have become Vested Units pursuant to Section 1(a) hereof (after
giving effect to the adjustments provided for in Section 1(c) below) multiplied
by (2) the Value (as hereinafter defined) of one share of Common Stock on the
Valuation Date. The Phantom Stock Benefit shall be paid to the Executive in
cash, subject to any applicable payroll or other taxes required to be withheld,
not later than the 30th day following the Valuation Date. Nothing in this
Section 1 shall be deemed to grant to the Executive any right in or to, or any
right to purchase or otherwise acquire, any shares of Common Stock (or any
securities convertible into Common Stock).
(c) In the event of a change in the number of outstanding
shares of Common Stock by reason of any dividend payable in shares of Common
Stock, or by reason of any stock split, reverse stock split or combination of
shares, the number of Units credited to the Executive hereunder shall be
increased or decreased, as the case may be, in the same proportion. Any such
adjustment shall be made by the good faith determination of the Board, which
determination shall be conclusive.
(d) If the Company shall spin-off a significant subsidiary or
shall make a substantial non-cash distribution to its stockholders, in partial
liquidation or otherwise (excluding, however, any Change in Control of the
Company or any transaction or change described in Section 1(c) hereof, and it is
reasonable to expect that the future Value of the Common Stock would be
materially affected thereby, the Board shall modify the formula for determining
the Phantom Stock Benefit in an equitable manner to maintain the economic
benefit granted to the Executive pursuant to this Section 1.
(e) For purposes of this Agreement, the following terms shall
have the meanings set forth below:
(1) "Valuation Date" shall mean the earliest of (A) the date,
for each Unit granted hereunder, on which such Unit becomes a Vested
Unit, (B) the date of termination of the Executive's employment other
than for "Cause" (as defined in the Employment Agreement among the
Company, Bell Sports, Inc. and the Executive dated as of April 11,
1997, as amended as of August 29, 1997) and (C) the effective date of
any Change in Control.
(2) "Value" shall mean the arithmetic average of the Market
Price (as hereinafter defined) of a share of Common Stock for the 10
trading days preceding the Valuation Date, but in no event shall the
Value be less than the price per share of Common Stock paid prior to
the Valuation Date in any tender offer subject to Section 14(d) of the
Securities Exchange Act of 1934, as amended (or any statute hereafter
- 2 -
<PAGE>
substituted therefor), which results in a Change in Control, as such
price per share shall be adjusted by the good faith determination of
the Board to reflect any change described in Section 1(c) occurring
subsequent to such tender offer.
(3) "Market Price" shall mean for any day the closing price of
a share of Common Stock, as reported in The Wall Street Journal as
NASDAQ National Market Issues.
(f) In the absence of manifest error, the determination of the
amount of the Phantom Stock Benefit by the Board in accordance with this Section
1 shall be binding upon the Executive and the Company.
2. Federal and State Withholding. The Company shall deduct
from the amounts payable to the Executive pursuant to this Agreement the amount
of all required federal and state withholding taxes in accordance with the
Executive's Form W-4 on file with the Company and all applicable social security
taxes.
3. Assignment. The rights and benefits of the Executive
hereunder shall not be assignable, whether by voluntary or involuntary
assignment or transfer. This Agreement shall be binding upon, and shall inure to
the benefit of, the successors and assigns of the Company, and the heirs,
executors and administrators of the Executive.
4. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and personally delivered, sent
by certified or registered mail or sent by overnight courier service as follows:
if to the Executive, to the Executive's address as set forth in the records of
the Company, and if to the Company, to the address of its principal executive
offices, attention: Chief Executive Officer, with a copy to Larry A. Barden,
Esq., Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, or to
any other address designated by any party hereto by notice similarly given.
5. Costs. In the event that a dispute shall arise between the
parties hereto and such dispute is resolved by a court of competent
jurisdiction, all reasonable attorneys' fees and costs of the Company and the
Executive and all other costs and expenses of the Company and the Executive
associated with such dispute shall be borne by the Company; provided that if it
is determined that the claims of the Executive were without reasonable basis,
each party shall bear such party's own attorneys' fees and costs.
6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to principles of conflict of laws.
- 3 -
<PAGE>
7. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
8. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By /s/ Terry G. Lee
---------------------------------
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
/s/ Mary J. George
----------------------------------
Mary J. George
- 4 -
<PAGE>
Appendix A
----------
For purposes of the Phantom Stock Unit Agreement dated as of
September 23, 1997 between Bell Sports Corp. (the "Company") and Mary J. George,
"Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of section (3)
of this definition shall be satisfied; and provided further that, for purposes
of clause (B), if any Person (other than the Company or any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the Company
and such Person shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least
66-2/3% of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the vote
of at least 66-2/3% of the directors then comprising the Incumbent Board shall
be deemed to have been a member of the Incumbent Board; and provided further,
that no individual who was
A-1
<PAGE>
initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board shall be deemed to have been a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case, immediately
after such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 60% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company) and any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of such corporation or
20% or more of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and
(iii) at least 66-2/3% of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such reorganization, merger or
consolidation; or
(4) approval by the stockholders of the Company of (i) a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 60% of the then outstanding shares of common stock
thereof and more than 60% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the
A-2
<PAGE>
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such sale or other disposition and in substantially the
same proportions relative to each other as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (B) no Person (other
than the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or such corporation (or any corporation controlled by
the Company) and any Person which beneficially owned, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of common stock thereof or 20% or more of the
combined voting power of the then outstanding securities thereof entitled to
vote generally in the election of directors and (C) at least 66-2/3% of the
members of the board of directors thereof were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition.
A-3
PHANTOM STOCK UNIT AGREEMENT
----------------------------
PHANTOM STOCK UNIT AGREEMENT dated as of September 23, 1997,
effective as of August 28, 1997 (the "Effective Date"), between Bell Sports
Corp., a Delaware corporation (the "Company"), and Linda K. Bounds (the
"Executive").
WHEREAS, the Company is engaged primarily in the business of
designing, manufacturing, producing, distributing, marketing, advertising and
selling auto racing helmets, bicycle helmets, bicycle accessories and related
products;
WHEREAS, the Executive currently serves as the Senior Vice
President, Chief Financial Officer, Treasurer and Secretary of the Company;
WHEREAS, the Executive's abilities and services are unique and
essential to the prospects of the Company; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement to further align the interests of the Executive with the
interests of the stockholders of the Company by providing additional incentives
to the Executive based upon future increases in the value of the shares of
common stock, $.01 par value, of the Company ("Common Stock").
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree as follows:
1. Phantom Stock Compensation. (a) As additional compensation
for the services provided by the Executive to the Company, effective as of the
Effective Date, the Company grants to the Executive, and the Executive is
credited with, 5,441 phantom stock units ("Units"). The Units shall, subject to
the provisions of this Agreement, become vested cumulatively as follows:
(1) On each of the first two annual anniversaries of the
Effective Date, one-half of the total number of Units granted
hereunder, subject to adjustment as provided in Section 1(c) hereof,
shall become vested; and
(2) Notwithstanding anything to the contrary contained in this
Section 1(a), all Units shall become vested upon a "Change in Control"
of the Company, as such term is defined in Appendix A to this
Agreement.
All Units which shall have become vested pursuant to this Section 1(a) are
hereinafter referred to as "Vested Units."
<PAGE>
(b) The Company shall pay to the Executive as additional
compensation (the "Phantom Stock Benefit") an amount, determined as of the
Valuation Date (as hereinafter defined), equal to the product of (1) the number
of Units then credited to the Executive hereunder which shall have become Vested
Units pursuant to Section 1(a) hereof (after giving effect to the adjustments
provided for in Section 1(c) below) multiplied by (2) the Value (as hereinafter
defined) of one share of Common Stock on the Valuation Date. The Phantom Stock
Benefit shall be paid to the Executive in cash, subject to any applicable
payroll or other taxes required to be withheld, not later than the 30th day
following the Valuation Date. Nothing in this Section 1 shall be deemed to grant
to the Executive any right in or to, or any right to purchase or otherwise
acquire, any shares of Common Stock (or any securities convertible into Common
Stock).
(c) In the event of a change in the number of outstanding
shares of Common Stock by reason of any dividend payable in shares of Common
Stock, or by reason of any stock split, reverse stock split or combination of
shares, the number of Units credited to the Executive hereunder shall be
increased or decreased, as the case may be, in the same proportion. Any such
adjustment shall be made by the good faith determination of the Board, which
determination shall be conclusive.
(d) If the Company shall spin-off a significant subsidiary or
shall make a substantial non-cash distribution to its stockholders, in partial
liquidation or otherwise (excluding, however, any Change in Control of the
Company or any transaction or change described in Section 1(c) hereof, and it is
reasonable to expect that the future Value of the Common Stock would be
materially affected thereby, the Board shall modify the formula for determining
the Phantom Stock Benefit in an equitable manner to maintain the economic
benefit granted to the Executive pursuant to this Section 1.
(e) For purposes of this Agreement, the following terms shall
have the meanings set forth below:
(1) "Valuation Date" shall mean the earliest of (A) the date,
for each Unit granted hereunder, on which such Unit becomes a Vested
Unit, (B) the date of termination of the Executive's employment other
than for "Cause" (as defined in the Employment Agreement among the
Company, Bell Sports, Inc. and the Executive dated as of April 25,
1997) and (C) the effective date of any Change in Control.
(2) "Value" shall mean the arithmetic average of the Market
Price (as hereinafter defined) of a share of Common Stock for the 10
trading days preceding the Valuation Date, but in no event shall the
Value be less than the price per share of Common Stock paid prior to
the Valuation Date in any tender offer subject to Section 14(d) of the
Securities
- 2 -
<PAGE>
Exchange Act of 1934, as amended (or any statute hereafter substituted
therefor), which results in a Change in Control, as such price per
share shall be adjusted by the good faith determination of the Board to
reflect any change described in Section 1(c) occurring subsequent to
such tender offer.
(3) "Market Price" shall mean for any day the closing price of
a share of Common Stock, as reported in The Wall Street Journal as
NASDAQ National Market Issues.
(f) In the absence of manifest error, the determination of the
amount of the Phantom Stock Benefit by the Board in accordance with this Section
1 shall be binding upon the Executive and the Company.
2. Federal and State Withholding. The Company shall deduct
from the amounts payable to the Executive pursuant to this Agreement the amount
of all required federal and state withholding taxes in accordance with the
Executive's Form W-4 on file with the Company and all applicable social security
taxes.
3. Assignment. The rights and benefits of the Executive
hereunder shall not be assignable, whether by voluntary or involuntary
assignment or transfer. This Agreement shall be binding upon, and shall inure to
the benefit of, the successors and assigns of the Company, and the heirs,
executors and administrators of the Executive.
4. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and personally delivered, sent
by certified or registered mail or sent by overnight courier service as follows:
if to the Executive, to the Executive's address as set forth in the records of
the Company, and if to the Company, to the address of its principal executive
offices, attention: Chief Executive Officer, with a copy to Larry A. Barden,
Esq., Sidley & Austin, One First National Plaza, Chicago, Illinois 60603, or to
any other address designated by any party hereto by notice similarly given.
5. Costs. In the event that a dispute shall arise between the
parties hereto and such dispute is resolved by a court of competent
jurisdiction, all reasonable attorneys' fees and costs of the Company and the
Executive and all other costs and expenses of the Company and the Executive
associated with such dispute shall be borne by the Company; provided that if it
is determined that the claims of the Executive were without reasonable basis,
each party shall bear such party's own attorneys' fees and costs.
6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to principles of conflict of laws.
- 3 -
<PAGE>
7. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
8. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By /s/ Terry G. Lee
---------------------------------
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
/s/ Linda K. Bounds
-----------------------------------
Linda K. Bounds
- 4 -
<PAGE>
Appendix A
----------
For purposes of the Phantom Stock Unit Agreement dated as of
September 23, 1997 between Bell Sports Corp. (the "Company") and Linda K.
Bounds, "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of section (3)
of this definition shall be satisfied; and provided further that, for purposes
of clause (B), if any Person (other than the Company or any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the Company
and such Person shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least
66-2/3% of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the vote
of at least 66-2/3% of the directors then comprising the Incumbent Board shall
be deemed to have been a member of the Incumbent Board; and provided further,
that no individual who was
A-1
<PAGE>
initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board shall be deemed to have been a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case, immediately
after such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 60% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company) and any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of such corporation or
20% or more of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and
(iii) at least 66-2/3% of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such reorganization, merger or
consolidation; or
(4) approval by the stockholders of the Company of (i) a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 60% of the then outstanding shares of common stock
thereof and more than 60% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the
A-2
<PAGE>
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such sale or other disposition and in substantially the
same proportions relative to each other as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (B) no Person (other
than the Company, any employee benefit plan (or related trust) sponsored or
maintained by the Company or such corporation (or any corporation controlled by
the Company) and any Person which beneficially owned, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of common stock thereof or 20% or more of the
combined voting power of the then outstanding securities thereof entitled to
vote generally in the election of directors and (C) at least 66-2/3% of the
members of the board of directors thereof were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition.
A-3
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of the 24th day of
September, 1997 among Bell Sports Corp., a Delaware corporation (the "Company"),
Bell Sports Canada Inc., a corporation existing under the laws of Canada and an
indirect wholly owned subsidiary of the Company (the "Subsidiary"), and Robert
Alan McCaughen ("the Executive").
W I T N E S S E T H
WHEREAS, the Executive currently serves as a key employee of
the Subsidiary and his services and knowledge are valuable to the Company and
the Subsidiary in connection with the management of the operating facilities,
divisions and departments of the Subsidiary; and
WHEREAS, the Board (as defined in Section 1) has determined
that it is in the best interests of the Company and its stockholders to secure
the Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, without concern as
to whether the Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control, and to
encourage the Executive's full attention and dedication to the Company, the
Board has authorized the Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, the Company and the
Executive hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by the Executive of
those duties and responsibilities of the Executive which do not differ in any
material respect from the duties and responsibilities of the Executive during
the 90-day period immediately prior to a Change in Control (other than as a
result of incapacity due to physical or mental illness) which is demonstrably
willful and deliberate on the Executive's part, which is committed in bad faith
or without reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of time after receipt
of written notice from the Company specifying such breach or (2) the commission
by the Executive of a felony involving moral turpitude.
<PAGE>
(c) "Change in Control" means:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of subsection
(3) of this Section (1)(c) shall be satisfied; and provided further that, for
purposes of clause (B), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the Company
and such Person shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least
66-2/3% of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the vote
of at least 66-2/3% of the directors then comprising the Incumbent Board shall
be deemed to have been a member of the Incumbent Board; and provided further,
that no individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on behalf of any
Person other than the Board shall be deemed to have been a member of the
Incumbent Board;
-2-
<PAGE>
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case, immediately
after such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 60% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company) and any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of such corporation or
20% or more of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and
(iii) at least 66-2/3% of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such reorganization, merger or
consolidation; or
(4) approval by the stockholders of the Company of (i) a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 60% of the then outstanding shares of common stock
thereof and more than 60% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their ownership,
immediately prior to such sale or other disposition, of the Outstanding Company
Common Stock and the Outstanding Company
-3-
<PAGE>
Voting Securities, as the case may be, (B) no Person (other than the Company,
any employee benefit plan (or related trust) sponsored or maintained by the
Company or such corporation (or any corporation controlled by the Company) and
any Person which beneficially owned, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of the then outstanding
shares of common stock thereof or 20% or more of the combined voting power of
the then outstanding securities thereof entitled to vote generally in the
election of directors and (C) at least 66-2/3% of the members of the board of
directors thereof were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for such
sale or other disposition.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Date of Termination" means (1) the effective date on
which the Executive's employment by the Company or the Subsidiary terminates as
specified in a prior written notice by the Company or the Executive, as the case
may be, to the other, delivered pursuant to Section 11 or (2) if the Executive's
employment by the Company and the Subsidiary terminates by reason of death, the
date of death of the Executive.
(f) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(g) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company or the Subsidiary immediately prior
to such Change in Control, (ii) a change in the Executive's reporting
responsibilities, titles or offices with the Company or the Subsidiary as in
effect immediately prior to such Change in Control, (iii) any removal or
involuntary termination of the Executive from the Company or the Subsidiary
otherwise than as expressly permitted by this Agreement or any failure to
re-elect the Executive to any position with the Company or the Subsidiary held
by the Executive immediately prior to such Change in Control or (iv) any breach
by the Company or the Subsidiary of any employment agreement among the Company
and/or the Subsidiary and the Executive then in effect;
(2) a reduction by the Company or the Subsidiary in the
Executive's rate of annual base salary as in effect
-4-
<PAGE>
immediately prior to such Change in Control or as the same may be increased from
time to time thereafter;
(3) any requirement of the Company or the Subsidiary that the
Executive be based anywhere other than at the facility where the Executive is
located at the time of the Change in Control;
(4) the failure of the Company or the Subsidiary to (i)
continue in effect any employee benefit plan or compensation plan in which the
Executive is participating immediately prior to such Change in Control, unless
the Executive is permitted to participate in other plans providing the Executive
with substantially comparable benefits, or the taking of any action by the
Company or the Subsidiary which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any such
plan, (ii) provide the Executive and the Executive's dependents welfare benefits
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies, (iii) provide fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive immediately prior to such
Change in Control or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company and
its affiliated companies, (iv) provide the Executive with paid vacation in
accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for the Executive
immediately prior to such Change in Control or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies, or (v) reimburse
the Executive promptly for all reasonable employment expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive immediately prior to such Change in Control, or if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
-5-
<PAGE>
For purposes of this Agreement, any good faith determination
of Good Reason made by the Executive shall be conclusive; provided, however,
that an isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive shall not constitute Good Reason.
(h) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company or the Subsidiary for Cause, (2) by
the Executive for any reason other than a Good Reason, (3) as a result of the
Executive's death or (4) by the Company and the Subsidiary due to the
Executive's absence from his duties with the Company and the Subsidiary on a
full-time basis for at least 180 consecutive days as a result of the Executive's
incapacity due to physical or mental illness.
(i) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earliest to occur of (1) the
Executive's death and (2) two years following such Change in Control.
2. Obligations of the Executive. The Executive agrees that in
the event any person or group attempts a Change in Control, he shall not
voluntarily leave the employ of the Company or the Subsidiary without Good
Reason (a) until such attempted Change in Control terminates or (b) if a Change
in Control shall occur, until 90 days following such Change in Control. For
purposes of the foregoing subsection (a), Good Reason shall be determined as if
a Change in Control had occurred when such attempted Change in Control became
known to the Board.
3. Payments Upon Termination of Employment.
(a) If during the Termination Period the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
then the Company shall pay to the Executive (or the Executive's beneficiary or
estate), as compensation for services rendered to the Company and the
Subsidiary:
(1) within 30 days following the Date of Termination, a
lump-sum cash amount equal to the sum of:
(i) the Executive's full annual base salary from the Company
and its affiliated companies through the Date of Termination, to the extent not
theretofore paid,
(ii) the Executive's annual bonus in an amount at least equal
to the average annualized (for any fiscal year consisting of less than 12 full
months) bonus paid or payable, including by reason of any deferral, to the
Executive by the Company and its affiliated companies in respect of the three
fiscal years of the Company immediately preceding the fiscal year in which the
Change
-6-
<PAGE>
in Control occurs, multiplied by a fraction, the numerator of which is the
number of days in the fiscal year in which the Date of Termination occurs
through the Date of Termination and the denominator of which is 365 or 366, as
applicable, and
(iii) any compensation previously deferred by the Executive
(together with any interest and earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid; plus
(2) within 30 days following the Date of Termination, a
lump-sum cash amount in an amount equal to the Executive's highest annual base
salary from the Company and its affiliated companies in effect during the
12-month period prior to the Date of Termination; provided, however, that any
amount paid pursuant to this Section 3(a)(2) shall be paid in lieu of any other
amount of severance relating to salary or bonus continuation to be received by
the Executive upon termination of employment of the Executive under any
severance plan, policy or arrangement of the Company.
(b) (1) For a period of one year commencing on the Date of
Termination, the Company shall continue to keep in full force and effect all
medical, dental, accident, disability and life insurance plans with respect to
the Executive and his dependents with the same level of coverage, upon the same
terms and otherwise to the same extent as such plans shall have been in effect
immediately prior to the Date of Termination. Notwithstanding the foregoing
sentence, if any of the medical, dental, accident, disability or life insurance
plans then in effect generally with respect to other peer executives of the
Company and its affiliated companies would be more favorable to the Executive,
such plan coverage shall be substituted for the analogous plan coverage provided
to the Executive immediately prior to the Date of Termination, and the Company
or the Subsidiary, as the case may be, and the Executive shall share the costs
of such plan coverage in the same proportion as such costs were shared
immediately prior to the Date of Termination. The obligation of the Company and
the Subsidiary to continue coverage of the Executive and the Executive's
dependents under such plans shall cease at such time as the Executive and the
Executive's dependents obtain comparable coverage under another plan, including
a plan maintained by a new employer. Execution of this Agreement by the
Executive shall not be considered a waiver of any rights or entitlements the
Executive and the Executive's dependents may have under applicable law to
continuation of coverage under the group medical plan maintained by the Company
or its affiliated companies.
(2) The Company shall reimburse the Executive for Executive's
expenditures for obtaining outplacement services, provided that the Company
shall have no obligation to reimburse the Executive in an amount which exceeds
10% of the Executive's
-7-
<PAGE>
highest annual base salary from the Company and its affiliated companies in
effect during the 12-month period prior to the Date of Termination.
(c) If during the Termination Period the employment of the
Executive shall terminate by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive within 30 days following the Date of
Termination, a lump-sum cash amount equal to the sum of (1) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid and (2) any compensation
previously deferred by the Executive (together with any interest and earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid.
4. Certain Reductions in Payments.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or its affiliated companies to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any adjustment required under this Section 4) (in the aggregate, the "Total
Payments") would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), and if it is determined that (A) the amount remaining
after the Total Payments are reduced by an amount equal to the Excise Tax is
less than (B) the maximum amount that may be paid or distributed to or for the
benefit of the Executive without resulting in the imposition of the Excise Tax,
then the payments due hereunder shall be reduced so that the Total Payments are
One Dollar ($1) less than such maximum amount.
(b) All determinations required to be made under this Section
4, including whether and when a reduction in the amount payable hereunder
pursuant to Section 4(a) is required and the amount of any such reduction and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company's public accounting firm (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by the Company or the
Executive. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change in Control, the
Executive shall appoint another nationally recognized public accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion
-8-
<PAGE>
that failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company, the Subsidiary and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that the reduction in the
amount payable hereunder pursuant to Section 4(a) will not have been made
consistent with the calculations required to be made hereunder. In that event
the Executive thereafter shall promptly pay to the Company the amount of the
required reduction.
5. Withholding Taxes. The Company may withhold, or in the
event of payments made by the Subsidiary, the Subsidiary may withhold, from all
payments due to the Executive (or his beneficiary or estate) hereunder all taxes
which, by applicable federal, state, local or other law, the Company or the
Subsidiary, as the case may be, is required to withhold therefrom.
6. Reimbursement of Expenses. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or the Subsidiary or involving the failure or refusal of the
Company or the Subsidiary to perform fully in accordance with the terms hereof,
the Company shall reimburse the Executive on a current basis, for all legal fees
and expenses, if any, incurred by the Executive in connection with such contest
or dispute, together with interest at a rate equal to the Prime Rate as
published in the "Money Rates" section of The Wall Street Journal, but in no
event higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive's statement
for such fees and expenses through the date of payment thereof; provided,
however, that in the event the resolution of any such contest or dispute
includes a finding denying, in total, the Executive's claims in such contest or
dispute, the Executive shall be required to reimburse the Company, over a period
of 12 months from the date of such resolution, for all sums advanced to the
Executive pursuant to this Section 6.
7. Operative Event. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company and
the Subsidiary.
8. Termination of Agreement.
(a) This Agreement shall be effective on the date hereof and
shall continue until terminated by the Company as provided in paragraph (b) of
this Section 8; provided, however, that this Agreement shall terminate in any
event upon the first
-9-
<PAGE>
to occur of (i) the Executive's death and (ii) termination of the Executive's
employment with the Company prior to a Change in Control.
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 180 days after notice thereof is given by the Company to the Executive in
accordance with Section 11; provided, however, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and provided further, that in no event
shall this Agreement be terminated in the event of a Change in Control.
9. Scope of Agreement. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries, and if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under this Agreement; provided, however, that any termination of the Executive's
employment following a Change in Control shall be subject to all of the
provisions of this Agreement.
10. Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
10, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his beneficiary or estate),
all of the obligations of the Company hereunder. Failure of the Company to
obtain such assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any
-10-
<PAGE>
such merger, consolidation or transfer becomes effective shall be deemed the
Date of Termination.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts would be payable to the Executive
hereunder had the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by the Executive to
receive such amounts or, if no person is so appointed, to the Executive's
estate.
11. Notice.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed (1) if to the Executive, to his residence as reflected on the books
and records of the Company and if to the Company, to Bell Sports Corp., 6350 San
Ignacio Avenue, San Jose, California 95119 attention President, with copies to
the Secretary and the Chairman of the Compensation Committee of the Board of
Directors of Bell Sports Corp., or (2) to such other address as a party may have
furnished to the others in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
(b) A written notice of the Executive's Date of Termination by
the Company or the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
12. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make any payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action
-11-
<PAGE>
which the Company may have against the Executive or others. In no event shall
the Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause, that the
determination by the Executive of the existence of Good Reason was not made in
good faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall
pay all amounts, and provide all benefits, to the Executive and his dependents
or other beneficiaries, as the case may be, that the Company would be required
to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by the Executive with Good
Reason; provided, however, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.
13. Employment with Subsidiaries. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. Governing Law; Validity. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of California without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which other provisions
shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
16. Joint and Several Obligation. Each duty and obligation of
the Company hereunder shall be the joint and several duty and obligation of the
Company and the Subsidiary.
-12-
<PAGE>
17. Miscellaneous. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive, by a duly authorized officer of the Company and by
a duly authorized officer of the Subsidiary. No waiver by a party hereto at any
time of any breach by another party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. Failure by the Executive, the Company or the
Subsidiary to insist upon strict compliance with any provision of this Agreement
or to assert any right the Executive, the Company or the Subsidiary may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement. The rights
of, and benefits payable to, the Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, the Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
-13-
<PAGE>
IN WITNESS WHEREOF, the Company and the Subsidiary have each
caused this Agreement to be executed by a duly authorized officer of the Company
or the Subsidiary, as the case may be, and the Executive has executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By: /s/ Terry G. Lee
----------------------------
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
BELL SPORTS CANADA INC.
By: /s/ Terry G. Lee
----------------------------
Terry G. Lee
Chairman
/s/ Robert Alan McCaughen
-----------------------------
Robert Alan McCaughen
-14-
BELL SPORTS MEMORANDUM 6350 San Ignacio Avenue, San Jose, CA 95119, USA.
(408) 574-3400; FAX (408) 224-9129
DATE: 10 April 1997
TO: Al McCaughen
FROM: Mary George
REF: Employment Contract Outline for Al McCaughen
- --------------------------------------------------------------------------------
Based on our conversations, we have agreed to the following compensation
package.
* Title will continue to be President, Canada reporting to me.
* Salary will increase to $150,000 US effective July 1, 1997.
* Eligible for 50% bonus level under the current company bonus plan.
* Bell Sports agrees to make a lump sum payment of $80,000 US at the
conclusion of relocation to cover all costs associated with your move.
* Agreement will be in effect through June 30, 1999.
* An additional bonus plan, details to be developed between Mary George and
Al McCaughen.
/s/ R. A. McCaughen April 21, 1997
- ------------------------------- --------------
Al McCaughen Date
BELL SPORTS CORP.
EXHIBIT 11 - STATEMENT RE:
COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Amounts)
June 28, June 29, July 1,
1997 1996 1995
-------- -------- --------
Net loss $(18,188) $(12,375) $ (3,443)
Net effect of convertible subordinated
debentures (using the if-converted method) 2,427 2,427 2,609
-------- -------- --------
Adjusted net loss $(15,761) $ (9,948) $ (834)
======== ======== ========
Weighted average number of common and common
equivalent shares outstanding - primary 13,808 13,838 8,178
Additional shares assuming conversion of
convertible subordinated debentures 1,595 1,595 1,595
-------- -------- --------
Adjusted average shares outstanding for
fully diluted computation 15,403 15,433 9,773
======== ======== ========
Per share amount - fully diluted $ (1.02) $ (0.64) $ (0.09)
======== ======== ========
BELL SPORTS CORP.
EXHIBIT 21 - SUBSIDIARIES OF
THE REGISTRANT
1. Bell Sports, Inc., a California corporation (a wholly owned subsidiary)
2. Euro Bell S.A., a French corporation (99% owned by Bell Sports, Inc.)
3. American Recreation Company Holdings, Inc. ("AMRE"), a Delaware
corporation (a wholly owned subsidiary)
4. American Recreation Company, Inc., a Delaware corporation (a wholly owned
subsidiary of AMRE)
5. Bell Sports Canada, Inc., a Canadian corporation (50% owned subsidiary of
Bell Sports, Inc. and 50% owned by American Recreation Company, Inc.)
6. Giro Sport Design International, Inc., a California corporation (a wholly
owned subsidiary of Bell Sports, Inc.)
7. Giro Ireland Limited, an Ireland corporation (a wholly owned subsidiary of
Giro Sport Design International, Inc.)
8. Bell Sports Australia Pty Limited, an Australian corporation (a wholly
owned subsidiary of Bell Sports, Inc.)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-53634, No. 33-53636, No. 33-53638, No. 33-56366,
No. 33-56368, No. 33-77134, No. 33-77136, No. 33-94296, No. 33-94298, No.
333-4468, No. 333-4470, No. 333-4472, and No. 333-22879) of Bell Sports Corp. of
our report dated August 15, 1997 appearing on page 19 of this Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page S-1 of the Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
September 25, 1997
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> JUN-28-1997
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<CASH> 29,008
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<RECEIVABLES> 80,935
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<COMMON> 143
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<TOTAL-LIABILITY-AND-EQUITY> 268,754
<SALES> 259,534
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<INTEREST-EXPENSE> 7,289
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