SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarterly period ended March 28, 1998
---------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19873
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
incorporation or organization) identification no.)
6350 San Ignacio Avenue, San Jose, California 95119
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(Address of principal executive offices) (Zip Code)
(408) 574-3400
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(Registrant's telephone number, including area code)
N/A
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Former name, former address and former fiscal year, if
changed since last report.
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) Yes _X_ No __ and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No __.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Common Stock, $.01 par value April 27, 1998 13,893,328
- ---------------------------- -------------- ----------------
Class Date Number of shares
1
<PAGE>
BELL SPORTS CORP.
INDEX TO FORM 10-Q
PART I
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Bell Sports Corp. and Subsidiaries Consolidated Balance Sheets
as of March 28, 1998 and June 28, 1997 3
Bell Sports Corp. and Subsidiaries Consolidated Statements of Operations
for the nine months and three months ended March 28, 1998 and
March 29, 1997 4
Bell Sports Corp. and Subsidiaries Consolidated Condensed Statements of
Cash Flows for the nine months ended March 28, 1998
and March 29, 1997 5
Notes to Consolidated Financial Statements 6 - 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 16
PART II
Items 1 to 6 17
Signatures 18
</TABLE>
2
<PAGE>
PART 1. Financial Information
Item 1. Financial Statements
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 28, June 28,
1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,265 $ 29,008
Accounts receivable 65,318 75,915
Inventories 52,601 46,549
Deferred taxes and other current assets 11,228 16,048
--------- ---------
Total current assets 154,412 167,520
Property, plant and equipment 20,225 23,738
Goodwill 54,760 56,471
Intangibles and other assets 17,933 21,025
--------- ---------
Total assets $ 247,330 $ 268,754
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 10,289 $ 11,299
Accrued compensation and employee benefits 3,847 3,998
Accrued expenses 15,932 20,209
Notes payable and current maturities of long-term debt and capital lease obligations 1,816 1,337
--------- ---------
Total current liabilities 31,884 36,843
Long-term debt 86,578 106,454
Capital lease obligations and other liabilities 5,275 6,492
--------- ---------
Total liabilities 123,737 149,789
--------- ---------
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:
14,377,254 and 13,882,182 shares at March 28, 1998, respectively, and
14,248,114 and 13,753,042 shares at June 28, 1997, respectively
144 143
Additional paid-in capital 143,604 142,486
Cumulative foreign currency translation adjustments (1,028) (407)
Accumulated deficit (13,909) (18,039)
--------- ---------
128,811 124,183
Treasury stock, at cost, 495,072 shares (5,218) (5,218)
--------- ---------
Total stockholders' equity 123,593 118,965
--------- ---------
Total liabilities and stockholders' equity $ 247,330 $ 268,754
========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
3
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
---------------------- ----------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 138,554 $ 189,267 $ 52,332 $ 70,575
Cost of sales 93,591 135,037 34,132 49,862
--------- --------- --------- ---------
Gross profit 44,963 54,230 18,200 20,713
Selling, general and administrative expenses 34,499 45,342 11,858 15,417
(Recovery) Loss on disposal of product line (1,300) 25,360 25,360
Amortization of goodwill and intangible assets 1,735 2,592 533 864
Restructuring charges 1,228 4,142 2,675
Net investment income (1,381) (2,610) (476) (323)
Interest expense 3,539 5,467 1,189 1,943
--------- --------- --------- ---------
Income (loss) before income taxes 6,643 (26,063) 5,096 (25,223)
Provision (benefit) for income taxes 2,524 (3,649) 1,936 (3,280)
--------- --------- --------- ---------
Net income (loss) $ 4,119 $ (22,414) $ 3,160 $ (21,943)
========= ========= ========= =========
Basic EPS $ 0.30 $ (1.63) $ 0.23 $ (1.60)
========= ========= ========= =========
Diluted EPS $ 0.29 $ (1.63) $ 0.22 $ (1.59)
========= ========= ========= =========
Weighted average shares outstanding:
Basic 13,827 13,713 13,861 13,736
Diluted 14,176 13,764 14,245 13,774
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
March 28, March 29,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net cash provided by (used in) operating activities $ 5,070 $ (26,568)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Capital expenditures (3,610) (5,768)
Net sales of marketable securities 8,105
Acquisition of other businesses (519)
Proceeds from the sale of SportRack 13,427
--------- ---------
Net cash provided by investing activities 9,817 1,818
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,119
Payments on notes payable, long-term debt and capital leases (495) 831
Net (repayments)/borrowings on line of credit agreement (18,708) 27,603
--------- ---------
Net cash provided by (used in) financing activities (18,084) 28,434
--------- ---------
Effect of exchange rate changes on cash (546) (69)
--------- ---------
Net increase (decrease) in cash and cash equivalents (3,743) 3,615
Cash and cash equivalents at beginning of period 29,008 23,140
--------- ---------
Cash and cash equivalents at end of period $ 25,265 $ 26,755
========= =========
</TABLE>
See accompanying notes to these consolidated financial statements
5
<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,
automotive racing helmets, and snowboard and ski helmets.
Consolidation
- -------------
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.
Accounting Period
- -----------------
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.
Unaudited Information and Basis of Presentation
- -----------------------------------------------
The consolidated balance sheet as of March 28, 1998 and consolidated statements
of operations and condensed cash flows for all periods included in the
accompanying financial statements have not been audited. In the opinion of
management these financial statements include all normal and recurring
adjustments necessary for a fair presentation of such financial information. The
results of operations for the interim periods are not necessarily indicative of
the results of operations to be expected for the full year.
The financial information included herein has been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The interim financial
information and the notes thereto should be read in conjunction with the audited
financial statements for the fiscal years ended June 28, 1997, June 29, 1996 and
July 1, 1995 which are included in the Company's 1997 Annual Report to
Stockholders.
Investment Income
- -----------------
Investment income reported for the first quarter of fiscal 1997 included
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 losses to sell certain securities, were
$1.3 million.
Accounts Receivable
- -------------------
Accounts receivable at March 28, 1998 and June 28, 1997 are net of allowances
for doubtful accounts of $2.3 million and $5.0 million, respectively.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment at March 28, 1998 and June 28, 1997 are net of
accumulated depreciation of $20.5 million and $17.1 million, respectively.
6
<PAGE>
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.
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" ("SFAS 139"). SFAS 130 establishes standards for the reporting of
comprehensive income and its components in a full set of general-purpose
financial statements and is required to be adopted for fiscal years 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. SFAS 131 is required to be adopted for fiscal years beginning after
December 15, 1997.
The Company will adopt SFAS 130 and SFAS 131 in fiscal 1999.
NOTE 2 - INVENTORIES
Inventories consist of the following components (in thousands):
March 28, June 28,
1998 1997
--------- ---------
Raw materials $ 5,151 $ 5,865
Work in process 2,614 2,125
Finished goods 44,836 38,559
--------- ---------
Total $ 52,601 $ 46,549
========= =========
7
<PAGE>
NOTE 3 - PRODUCT LIABILITY 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 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
such claims at the purchaser's expense. If the purchaser is for any reason
unable to pay any potential judgment, settlement amount or defense costs arising
out of any such 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 any such claim.
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.
In March 1998, the Company secured a ten year policy for insurance coverage for
motorcycle helmets manufactured or licensed prior to June 1991. The policy
covers up to a maximum of $25 million per occurrence and $25 million in the
aggregate in excess of the Company's self-insured retention of $1 million per
occurrence in excess of all previous payments made on existing claims, $2
million aggregate for known claims or $4 million aggregate for incurred but not
reported claims and new occurrences. The policy covers all known claims, except
the judgments described below, and any incurred but not reported claims and new
occurrences.
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.
On February 20, 1998 a Wilkes-Barre, Pennsylvania jury returned a verdict
against the Company relating to injuries sustained in a 1993 motorcycling
accident. The judgment totaled $6.8 million, excluding any interest, fees or
costs which may be assessed.
The Company intends to file post-trial motions to set aside the jury's verdict
and to appeal any judgment against the Company that might be entered in the
action. Because the ultimate outcome of the matter, and amounts, if any, that
the Company might be required to pay cannot be determined, no reserves have been
established.
8
<PAGE>
Shareholder Litigation
- ----------------------
In February 1998, a purported stockholder of the Company filed a lawsuit, on his
own behalf and on behalf of a purported class of all Company stockholders,
against the Company, HB Acquisition Corporation, Chase Capital Partners, CB
Capital Investors and the Company's directors in the Chancery Court of the State
of Delaware. The complaint alleges, among other things, that the proposed merger
is unfair to the Company's public stockholders and that certain defendants who
are expected to exchange a portion of their Bell equity interest for equity in
HB Acquisition Corporation in connection with the transaction have a conflict of
interest which has caused them, and the Company's directors, to breach their
fiduciary duties to the Company's stockholders. This class action lawsuit has
been withdrawn by the plaintiff, without prejudice to refile.
Two additional purported class action lawsuits have been filed in Delaware
Chancery Court which seek to enjoin the merger. The complaints in these two
actions name the Company, HB Acquisition Corporation, Chase Capital Partners and
the Company's directors as defendants. The allegations in these complaints are
substantially similar, alleging, among other things, that the defendants have
breached their fiduciary duties to the Company's stockholders in connection with
the proposed merger. The Company believes that the allegations contained in the
complaints are without merit and intends to vigorously defend these actions.
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 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 to be appropriate. The Pollution Control
Board 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.
In addition to the State's claim, 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 disposal site owner has altered
its argument in support of its cross-claim by asserting that if it is required
to meet any new or enhanced closure requirements as a result of the State's
claim against the landfill, which is still pending, the costs of such additional
closure requirements should be imposed on the Company. At this time, it is not
possible to determine the outcome of the cross-claim or whether the disposal
site owner will be required to meet any new or enhanced closure requirements.
NOTE 4 - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company has a total of approximately $89.5 million in notes payable,
long-term debt and capital lease obligations outstanding at March 28, 1998. Of
this amount, $86.25 million relates to the outstanding balance on the Company's
4-1/4% convertible subordinated debentures. Maturing November 15, 2000, the
debentures are convertible at any time prior to maturity into common stock at a
conversion price of $54.06 per share. Interest on the debentures is payable
semi-annually. The debentures are redeemable at the Company's option at any time
on or after November 15, 1996, at specified redemption prices.
In April 1997, the Company entered into a $60.0 million multicurrency secured
revolving line of credit ("Credit Agreement"). The 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 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.
9
<PAGE>
Borrowings under the Credit Agreement were reduced approximately $20.0 million
during the fiscal 1998 first quarter using the proceeds received from the sale
of SportRack (see Note 7) and the collection of receivables, including those
related to the Service Cycle/Mongoose business. At March 28, 1998, there were no
outstanding borrowings under the Credit Agreement.
The Credit Agreement expires in December 1999 and is classified as a long-term
liability. Based on the provisions of the Credit Agreement at March 28, 1998 the
Company could borrow a maximum of $36.8 million.
The 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 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 March 28, 1998, the quarterly commitment fee was
0.30% per annum.
The 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 March 28, 1998 and
June 28, 1997, the Company was in compliance with all of the Credit Agreement
covenants.
NOTE 5 - COMMON STOCK
The Company granted its executive officers, non-employee directors and certain
other employees options to purchase shares of the Company's Common Stock. At
March 28, 1998, options to purchase approximately 2.3 million shares of Common
Stock were outstanding.
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. To date, the Company has 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 6 - EARNINGS PER SHARE
In December 1997, the Company adopted SFAS No. 128, "Earnings Per Share. All
historical earnings per share information has been restated as required by SFAS
128.
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average common shares
outstanding for the period. Diluted earnings per share reflects the
weighted-average common shares outstanding plus the potential effect of
securities or contracts which are convertible to common shares such as options,
warrants, and convertible debt and preferred stock. In computing Diluted EPS,
the average stock price for the period is used in determining the number of
shares assumed to be purchased from exercise of stock options rather than the
higher of the average or ending stock price as used in the computation of fully
diluted EPS.
10
<PAGE>
The following is a reconciliation between the components of the basic and
diluted net income (loss) per share calculations for the periods presented below
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended:
March 28, 1998 March 29, 1997
------------------------------ -------------------------------
Income Shares Per Loss Shares Per
Share Share
Amount Amount
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic income (loss) per share
Net income (loss) $ 4,119 13,827 $ 0.30 $(22,414) 13,713 $ (1.63)
======== ========
Effect of dilutive securities
Stock options 349 51
-------- -------- -------- --------
Diluted net income (loss) per share
Net income (loss) plus assumed
exercises and conversions $ 4,119 14,176 $ 0.29 $(22,414) 13,764 $ (1.63)
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended:
March 28, 1998 March 29, 1997
------------------------------ -------------------------------
Income Shares Per Loss Shares Per
Share Share
Amount Amount
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic income (loss) per share
Net income (loss) $ 3,160 13,861 $ 0.23 $(21,943) 13,736 $ (1.60)
======== ========
Effect of dilutive securities
Stock options 384 38
-------- -------- --------- --------
Diluted net income (loss) per share
Net income (loss) plus assumed
exercises and conversions $ 3,160 14,245 $ 0.22 $(21,943) 13,774 $ (1.59)
======== ======== ======== ======== ======== ========
</TABLE>
The 4-1/4% convertible subordinated debentures are excluded from the above table
since their effect would be antidilutive.
11
<PAGE>
NOTE 7 - DISPOSITIONS
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 $13.5 million to an affiliate of Advance
Accessory System Canada, Inc. There was no material gain or loss associated with
this transaction.
NOTE 8 - LOSS (RECOVERY) ON DISPOSAL OF PRODUCT LINE
In April 1997, the Company disposed of the Service Cycle/Mongoose business but
retained the related accounts receivable of approximately $19 million. At the
date of the disposition, the Company recorded a reserve of $2.5 million for
estimated uncollectible receivables. The Company subsequently collected a
majority of the receivables and accordingly, the Company reversed $1.3 million
of uncollectible receivable reserves during its fiscal 1998 second quarter.
NOTE 9 - RESTRUCTURING CHARGES
In November 1997, the Company formed and approved a plan to restructure its
European operations. In connection with this plan, the Company closed its Paris,
France sales and marketing office in December, 1997 and consolidated these
functions with its Roche La Moliere, France facility. The key management
positions of Giro Ireland and EuroBell were also consolidated. Included in
fiscal 1998 second quarter pre-tax income are $1.2 million of estimated
restructuring charges related to this plan, including facility closing costs and
severance benefits.
NOTE 10 - MERGER
In April 1998, the Company announced it had entered into an amended definitive
recapitalization and merger agreement with HB Acquisition Corporation, providing
for a cash merger in which the shares of common stock of Bell Sports Corp.
outstanding immediately prior to the merger will be converted into the right to
receive $10.25 per share in cash. HB Acquisition Corporation is a newly
organized corporation formed by Harvard Private Capital Holdings, Inc. and
Brentwood Associates Buyout Fund II, L.P. It is currently expected that Mary J.
George, President of Bell Sports Corp., and Chase Capital Partners will invest
in the new corporation by exchanging, prior to the merger, a portion of the
shares, stock options or other stock based awards of Bell Sports Corp. held by
them for capital shares of HB Acquisition Corporation.
The definitive agreement has been approved by the Board of Directors of Bell
Sports Corp., based upon the unanimous recommendation of a special committee of
its independent directors.
The consummation of the merger is subject to certain conditions, including
regulatory approvals, the approval of the Company's stockholders and the receipt
by HB Acquisition Corporation of certain necessary financing.
12
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION AND LIQUIDITY
The Company's current ratio increased to 4.8 to 1 at March 28, 1998 from 4.5 to
1 at June 28, 1997. Cash and cash equivalents decreased $3.7 million to $25.3
million at March 28, 1998 from $29.0 million at June 28, 1997. The decrease in
cash and cash equivalents is primarily due to the Company's reduction of its
outstanding borrowings, mainly financed by the proceeds received from the sale
of the SportRack business in July 1997 (the "Sale of SportRack).
Accounts receivable at March 28, 1998 decreased $10.6 million to $65.3 million
from $75.9 million at June 28, 1997. The decrease is attributable to the
approximate $6.0 million in receivables collected related to the Service
Cycle/Mongoose business and the $5.0 million decrease in receivables resulting
from the Sale of SportRack. Although the Service Cycle/Mongoose business was
sold in April 1997, the Company retained the receivables related to the business
unit.
Inventories increased $6.1 million to $52.6 million at March 28, 1998 compared
to $46.5 million at June 28, 1997. This increase is attributed to the normal
business cycle build-up of inventory to meet anticipated increased sales demands
in the last quarter of the fiscal year. The increase was partially offset by the
Sale of SportRack, which accounted for approximately $4.2 million in inventory
at June 28, 1997.
In April 1997, the Company entered into a $60.0 million multicurrency, secured
revolving line of credit ("Credit Agreement"). The 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 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 Credit Agreement were reduced approximately $20.0 million
during the fiscal 1998 first quarter using the proceeds received from the Sale
of SportRack and the collection of receivables, including those related to the
Service Cycle/Mongoose business. At March 28, 1998, there were no outstanding
borrowings under the Credit Agreement.
The Credit Agreement expires in December 1999 and is classified as a long-term
liability. Based on the provisions of the Credit Agreement at March 28, 1998 the
Company could borrow a maximum of $36.8 million.
The 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 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 March 28, 1998, the quarterly commitment fee was
0.30% per annum.
The 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 March 28, 1998 and
June 28, 1997, the Company was in compliance with all of the Credit Agreement
covenants.
Capital expenditures were $3.5 million for the first nine months of fiscal 1998.
The Company expects to spend an additional $1.5 million on capital expenditures
during the fiscal 1998 fourth quarter, primarily for new product tooling.
The Company announced in September 1997 that it retained Nations Banc Montgomery
Securities LLC as its financial advisor to assist the Company in evaluating
strategic alternatives designed to enhance stockholder value. As a part of
13
<PAGE>
such study, Nations Banc Montgomery Securities LLC solicited indications of
interest in the Company from various potentially interested parties. In February
1998, the Company entered into a definitive recapitalization and merger
agreement with HB Acquisition Corporation which was amended in April 1998. The
amendment provides for a cash merger in which the shares of common stock of Bell
Sports Corp. outstanding immediately prior to the merger will be converted into
the right to receive $10.25 per share in cash. HB Acquisition Corporation is a
newly organized corporation formed by Harvard Private Capital Holdings, Inc. and
Brentwood Associates Buyout Fund II, L.P. It is currently contemplated that Mary
J. George, President of Bell Sports Corp., and Chase Capital Partners will
invest in the new corporation by exchanging, prior to the merger, a portion of
the shares, stock options or other stock based awards of Bell Sports Corp. held
by them for capital shares of HB Acquisition Corporation.
The definitive agreement has been approved by the Board of Directors of Bell
Sports Corp., based upon the unanimous recommendation of a special committee of
its independent directors.
The consummation of the merger is subject to certain conditions, including
regulatory approvals, the approval of the Company's stockholders and the receipt
by HB Acquisition Corporation of certain necessary financing.
The Company believes its available cash flows from operations and the 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.
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 litigation, competitive actions, loss of
significant customers, timing of major customer shipments, adverse weather
conditions, retail environment, economic conditions and currency fluctuations.
RESULTS OF OPERATIONS
The Company completed the sale of Service Cycle/Mongoose on April 28, 1997 (the
"Sale of Service Cycle/Mongoose"), and the Sale of SportRack on July 2, 1997.
Accordingly, to enhance the comparability of the current year and prior year
amounts, certain prior year amounts (where noted below) have been adjusted to
exclude the activity of the Service Cycle/Mongoose and SportRack businesses.
Net Sales. Net sales decreased $18.3 million to $52.3 million during
the three months ended March 28, 1998 as compared to $70.6 million in the same
period of fiscal 1997 -- primarily the result of the Sale of Service
Cycle/Mongoose and the Sale of SportRack. Net sales for the third quarter of
fiscal 1998 decreased by 6% when compared to net sales of $55.4 million for the
same period of fiscal 1997 after adjusting for the Sale of Service
Cycle/Mongoose and the Sale of SportRack. Sales to mass merchants decreased 14%
for the quarter partially due to the Company's planned elimination of selected
low margin products from its sales mix. Sales to the specialty retail channel
for the quarter increased 5% due to strong demand for specialty helmets. On a
year-to-date basis net sales decreased 27% to $138.6 million from $189.3 million
in the previous year. After adjusting for the Sale of Service Cycle/Mongoose and
the Sale of SportRack, net sales year-to-date have decreased only 2% from the
prior year. Year-to-date sales to the specialty retail channel increased 6% from
the prior year, but were offset by an 8% decrease in mass merchant sales. This
decrease was caused by an inventory adjustment made by a mass merchant customer
in the first quarter of fiscal 1998 to reduce stock from a five week to three
week supply, as well as the elimination of certain low margin products.
14
<PAGE>
The product line sales mix, excluding the sales of the Service Cycle/Mongoose
and SportRack businesses, for the nine month and three month periods are as
follows:
Nine months ended Three months ended
---------------------- ----------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------- --------- --------- ---------
Product Line Sales Mix:
Bicycle accessories 52% 55% 50% 53%
Bicycle helmets 45% 43% 48% 45%
Auto Racing helmets 3% 2% 2% 2%
The Company anticipates lower net sales in fiscal 1998 than those achieved in
fiscal 1997, due to the Sale of Service Cycle/Mongoose and the Sale of
SportRack, which combined contributed $50.8 million to net sales during fiscal
1997. In addition, the Company expects comparable sales to slightly decrease due
to the Company's planned elimination of selected low margin products from its
sales mix.
Gross Margin. Gross margins were 35% of net sales in the third quarter
compared to 29% for the same period in the prior year. The increase is primarily
due to the Sale of Service Cycle/Mongoose, which carried lower margins than the
Company's other core businesses. Gross margins, when adjusted for the Sale of
Service Cycle/Mongoose and the Sale of SportRack, were 32% of net sales in the
third quarter of fiscal 1997. The increase is also partially attributed to the
elimination of selected low margin products from the Company's sales mix. Gross
margins for the first nine months of fiscal 1998 were 32% compared to 29% for
the same period in the prior year. Gross margins, when adjusted for the Sale of
Service Cycle/Mongoose and the Sale of SportRack, were 31% of net sales for the
first nine months of fiscal 1997. Year-to-date, gross margins for bicycle
accessories increased 100 basis points due to lower freight and product costs,
and the elimination of certain low margin products. These increases were offset
by a decrease in helmet margins caused by a mix shift of sales volumes to lower
price point helmets. The Company anticipates gross margins will remain in the
low 30% range for the foreseeable future.
Selling, General and Administrative. Selling, general and
administrative costs increased to 23% of net sales in the third quarter of
fiscal 1998, as compared to 22% in the third quarter of fiscal 1997. After
adjusting for the Sale of Service Cycle/Mongoose and the Sale of SportRack, the
year-to-date adjusted selling, general and administrative costs were 25% for
fiscal 1998, as compared to 26% for the prior year. The year-to-date improvement
is a result of the Company's restructuring activities and management's concerted
effort to reduce the Company's overall cost structure. Actual selling, general
and administrative expenses were 22% of net sales, or $15.4 million, for the
third quarter of fiscal 1997, and 24% of net sales, or $45.4 million, for the
first nine months of fiscal 1997.
As a result of the seasonality of the Company's business, sales are generally
higher in the last half of the fiscal year. Although some selling, general and
administrative expenses are variable with sales, such as distribution expenses
and commissions, most expenses are incurred evenly throughout the year.
Accordingly, the Company expects that selling, general and administrative
expenses will continue to decrease as a percent of net sales during the fourth
quarter of fiscal 1998.
Amortization of intangibles. Amortization of goodwill and intangible
assets decreased to $533,000 in the third quarter and $1.7 million year-to-date
during fiscal 1998 compared to $864,000 in the second quarter and $2.6 million
year-to-date during fiscal 1997. The decrease is a result of the Sale of Service
Cycle/Mongoose and the Sale of SportRack.
Restructuring Charges. Restructuring charges of $1.2 million related to
the European operations impacted the second quarter fiscal 1998 results. The
Company closed its Paris, France sales and marketing office in December, 1997
and consolidated these functions with its Roche La Moliere, France facility. The
key management positions of Giro Ireland and EuroBell were also consolidated.
15
<PAGE>
Restructuring charges of $4.1 million related to the fiscal 1996 organizational
and office consolidations impacted the results for the first nine months of
fiscal 1997. These consolidation activities were substantially completed during
the second quarter of fiscal 1997 and yielded an estimated $5.0 million in
annual cost savings.
Loss (Recovery) on Disposal of Product Line . In April 1997, the
Company disposed of the Service Cycle/Mongoose business but retained the related
accounts receivable of approximately $19 million. At the date of the
disposition, the Company recorded a reserve of $2.5 million for estimated
uncollectible receivables. The Company subsequently collected a majority of the
receivables and accordingly, the Company reversed $1.3 million of uncollectible
receivable reserves during its fiscal 1998 second quarter.
Net investment income and interest expense. Net investment income of
$476,000 for the third quarter of fiscal 1998 was relatively stable in
comparison to the $323,000 of net investment income earned during the third
quarter of fiscal 1997. Year-to-date, however, net investment income decreased
to $1.4 million in the first nine months of fiscal 1998, compared to $2.6
million in the first nine months of fiscal 1997. The decrease is due to the
settlement of an arbitration case related to the handling of certain marketable
securities by an outside investment advisor in fiscal 1997. The settlement
proceeds, net of related expenses and losses to sell certain securities, of $1.3
million were included in net investment income in the fiscal 1997 first quarter.
Interest expense decreased to $1.2 million for the third quarter and $3.5
million for the first nine months of fiscal 1998, compared to $1.9 million and
$5.5 million for the comparable prior year periods. The declines are a result of
lower levels of debt outstanding during fiscal 1998.
Income taxes. The effective tax rate was 38% for the third quarter and
first nine months of fiscal 1998, and 39% and 40%, respectively, for the third
quarter and first nine months of fiscal 1997.
Net income and weighted average shares. Net income for the fiscal 1998
third quarter was $3.2 million (or $0.23 per share) compared to a net loss of
$21.9 million (or $1.60 per share) for the prior year third quarter. For the
nine month period ended March 28, 1998, net income was $4.1 million (or $0.30
per share) compared to a net loss of $22.4 million (or $1.63 per share) for the
same period of the prior year. The improvement in quarterly and year-to-date net
income is attributable to a $25.4 million loss on the Sale of Service
Cycle/Mongoose in the fiscal 1997 third quarter, as well as restructuring
charges of $2.3 million and $4.1 million, respectively, for the fiscal 1997
third quarter and the first nine months of fiscal 1997.
The weighted average number of shares outstanding for the three month periods
ended March 28, 1998 and March 29, 1997 were 13.9 million and 13.7 million,
respectively. Year-to-date outstanding shares for fiscal 1998 and fiscal 1997
were 13.8 million and 13.7 million, respectively.
16
<PAGE>
BELL SPORTS CORP.
PART II
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit Index Page 18
(b) Current Report on Form 8-K dated February 17, 1998
Current Report on Form 8-K dated April 8, 1998
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: April 30, 1998
BELL SPORTS CORP.
/s/ Linda K. Bounds
----------------------
Linda K. Bounds
Senior Vice President and Chief Financial Officer
(Principal financial and accounting officer)
18
<PAGE>
BELL SPORTS CORP.
INDEX TO EXHIBITS
Exhibit
Number Description
- --------------------------------------------------------------------------------
10.1* Amended and Restated Employment Agreement dated February 17, 1998
between Registrant, Bell Sports, Inc. and Terry G. Lee.
10.2* Amended and Restated Employment Agreement dated February 17, 1998
between Registrant, Bell Sports, Inc. and Mary J. George.
10.3* Memorandum of Understanding dated January 28, 1998 between the
Registrant and Linda K. Bounds
10.4* Promissory Note dated April 8, 1998 between Bell Sports, Inc., and Bill
Bracy.
10.5* Collateral Pledge Agreememt dated April 8, 1998 between Bell Sports,
Inc. and Bill Bracy.
27* Financial Data Schedule
- ----------------------------------
* Filed herewith
19
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of February 17,
1998 and effective as of and simultaneous with the Merger (the "Effective
Date"), is among Terry G. Lee (the "Executive"), Bell Sports Corp., a Delaware
corporation (the "Holding Company"), and Bell Sports, Inc., a California
corporation (the "Operating Company"). The Holding Company and the Operating
Company are collectively referred to herein as the "Company".
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, pursuant to an Agreement and Plan of Merger dated February 17,
1998 (the "Recapitalization Agreement") between the Company and HB Acquisition
Corporation, a Delaware corporation ("Newco"), Newco will merge with and into
(the "Merger") the Company and the Company will continue as the surviving
corporation;
WHEREAS, the Executive currently serves as the Chairman of the Board,
President and Chief Executive Officer of the Holding Company and the Operating
Company, pursuant to the terms of an Employment Agreement dated as of June 13,
1995 (the "Prior Employment Agreement");
WHEREAS, the Executive and the Company are parties to a Severance
Agreement dated January 5, 1995, as amended on December 8, 1997 (the "Severance
Agreement") and a Noncompetition Agreement dated December 8, 1997 (the
"Noncompetition Agreement" and together with the Severance Agreement, the "Prior
Agreements");
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 amend and restate the
Prior Employment Agreement in its entirety in the form of this Agreement to
provide for the continued employment of the Executive by the Company upon the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereby agree as follows:
<PAGE>
Section 1. Employment; Term; Extensions.
1.1. Employment. The Company hereby employs the Executive and the
Executive hereby agrees to be employed by the Company upon the terms and subject
to the conditions contained in this Agreement.
1.2. Term. The term of this Agreement shall commence on the Effective
Date and shall continue until the second anniversary of the Effective Date (the
"Term") unless earlier terminated pursuant to Section 4 hereof. For purposes of
this Agreement, the term "Employment Period" shall mean the period from the
Effective Date until the earlier to occur of (i) the expiration of the Term or
(ii) the termination of employment pursuant to Section 4 hereof.
Section 2. Position; Duties; Responsibilities.
2.1. Position and Duties. During the Employment Period, the Company
shall employ the Executive as the Chairman of the Board of the Holding Company
and the Operating Company. For the period commencing on the Effective Date and
continuing until six months thereafter (the "Initial Period"), the Executive
shall be employed by the Company on a full-time basis and shall perform such
duties and responsibilities, commensurate with the Executive's position, on
behalf of the Company and its affiliates as shall be designated from time to
time by the Board or the Chief Executive Officer. From and after the end of the
Initial Period and continuing through the end of the Employment Period, the
Executive shall be employed by the Company on a part-time basis and shall
perform such duties and responsibilities, commensurate with the Executive's
position, on behalf of the Company and its affiliates as shall be designated
from time to time by the Board or the Chief Executive Officer. The Executive
shall faithfully and loyally perform to the best of his abilities all the duties
reasonably assigned to him hereunder, shall devote such of his business time,
attention and effort to the affairs of the Company as is reasonably necessary
for the proper performance of such duties and shall use his reasonable best
efforts to promote the interests of the Company. Notwithstanding the foregoing,
during the Employment Period, the Executive may serve as a director, officer or
paid consultant of business corporations other than the Company or civic or
community organizations or entities, provided that such activities do not
violate the terms of any of the covenants set forth in Section 7 hereof;
provided, however, that during the Initial Period such activities must be
approved prior to the commencement thereof by any two members of the Board of
Directors of the Holding Company (the "Board") who are not full-time employees
of the Holding Company or the Operating Company or any of its controlled
affiliates. The Executive's ownership interest in and participation in the
operation and management of Mission Leasing, Hayden Leasing, Lee Family
Enterprises, and affiliates thereof, and the Executive's service as a director
of Reliable Holding Corp., are hereby approved pursuant to this Section 2.1.
2.2. Directorship. The Company shall take all actions reasonably
necessary to elect the Executive to the Board of Directors of the Holding
Company and the Operating Company and to maintain the Executive's position as a
director during the Employment Period.
-2-
<PAGE>
Section 3. Compensation.
3.1. Base Salary. During the Initial Period, the Company shall
compensate the Executive at a base salary of $415,000 per annum. From the end of
the Initial Period and continuing through the end of the Employment Period, the
Company shall compensate the Executive at an annual base salary of $207,500 per
annum. All compensation paid to the Executive shall be payable in accordance
with the Company's executive payroll policy. The Executive's base salary, as in
effect at any particular time, is referred to herein as the "Base Salary."
3.2. Execution Bonus. On the Effective Date, as an incentive to induce
the Executive to enter into this Agreement, the Company shall pay the Executive
a lump sum cash bonus equal to $860,800.
3.3. Annual Performance Bonus.
(a) The Executive shall be entitled to receive an annual
performance bonus payable in cash for each of the fiscal years
ended June 30, 1998 (the "1998 Fiscal Year") and June 30, 1999
(the "1999 Fiscal Year"), in accordance with the formula set
forth in this Section 3.3. The annual performance bonus to
which the Executive is entitled pursuant to this Section 3.3
is referred to herein as the "Bonus."
(b) The amount of the Bonus to which the Executive shall be
entitled for the 1998 Fiscal Year shall be determined in
accordance with the following formula:
<TABLE>
<CAPTION>
Amount of Net Operating Income Amount of Bonus
- ------------------------------ ---------------
<S> <C>
Equal to or greater than 80% but less than 25% of Base Salary in that fiscal year
90%, of Plan Net Operating Income
Equal to or greater than 90% but less than 50% of Base Salary in that fiscal year
100%, of Plan Net Operating Income
Equal to or greater than 100%, but less than 75% of Base Salary in that fiscal year
110%, of Plan Net Operating Income
Equal to or greater than 110%, but less than 85% of Base Salary in that fiscal year
125%, of Plan Net Operating Income
Equal to or greater than 125% of Plan Net 125% of Base Salary in that fiscal year
Operating Income
</TABLE>
-3-
<PAGE>
(c) The amount of the Bonus to which the Executive shall be
entitled for the 1999 Fiscal Year shall be determined in
accordance with the following formula; provided, however, that
if the Company's return on assets does not equal or exceed a
target to be determined and defined by the Board of Directors
for the 1999 Fiscal Year, the Executive shall not be entitled
to a Bonus:
<TABLE>
<CAPTION>
Net Operating Income Amount of Bonus
-------------------- ---------------
<S> <C>
Equal to or greater than 80% but less than 12.5% of Base Salary in that fiscal year
90%, of Plan Net Operating Income
Equal to or greater than 90% but less than 25% of Base Salary in that fiscal year
100%, of Plan Net Operating Income
Equal to or greater than 100%, but less than 37.5% of Base Salary in that fiscal year
110%, of Plan Net Operating Income
Equal to or greater than 110%, but less than 42.5% of Base Salary in that fiscal year
125%, of Plan Net Operating Income
Equal to or greater than 125% of Plan Net 62.5% of Base Salary in that fiscal year
Operating Income
</TABLE>
(d) As used in this Section 3.3, the following terms have the
meanings set forth below:
"Net Operating Income" means, for any period, gross profit minus
selling, general and administrative expenses. "Selling, general and
administrative expenses" means the sum of (i) sales and marketing expenses, (ii)
general and administrative expenses, (iii) corporate affairs expenses and (iv)
research and development expenses. In determining Net Operating Income, no
amounts other than selling, general and administrative expenses shall be
deducted from gross profit. In particular, amortization of goodwill and
intangible assets, consolidation costs (including (x) one-time expenses
attributable to the merger of a subsidiary of the Company and American
Recreation Company Holdings, Inc., a Delaware corporation, and related
transactions contemplated by the merger agreement relating thereto and (y) any
expenses attributable to any new basis of accounting resulting from such
merger), net investment income, interest expense, income taxes (including
federal, state, local and foreign income taxes, whether paid or deferred),
extraordinary items and cumulative effect of changes in accounting principles,
shall not be deducted from gross profit in determining Net Operating Income. All
such amounts shall be determined in accordance with generally accepted
accounting principles consistently applied by the Company.
-4-
<PAGE>
"Plan Net Operating Income" means, for any period, the amount specified
as Net Operating Income contained in the Company's business plan for such
period, as approved by the Board.
The terms "Net Operating Income" and "Operating Income" are used
interchangeably by the Company; and when used by the Company with respect to
this Agreement, the term "Operating Income" has the same meaning as "Net
Operating Income" set forth in this Section 3.3(d).
(e) The payment of each Bonus shall be made within 30 days
after the Company's independent accountants shall have
certified the Company's consolidated financial statements for
the fiscal year to which such Bonus relates.
(f) If the Company's fiscal year changes, the provisions of
this Section 3.3 shall be changed in an equitable manner to
ensure that the Executive's opportunity to earn the Bonis is
not materially and adversely affected.
3.4. Stock Options. In the discretion of the Company's Management Stock
Incentive Committee, the Executive shall be eligible to receive options to
purchase shares of equity of the Company pursuant to the terms of the Bell
Sports Management Stock Incentive Plans or any successor plans thereto.
3.5. 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, (ii) the use of the Company's
office facilities located in Scottsdale, Arizona and (iii) reimbursement of the
capital assessments of the country club of which the Executive is currently a
member.
3.6. Reimbursement of Expenses. The Company shall reimburse the
Executive for all expenses necessarily and reasonably incurred by him in
connection with the business of the Company, upon presentation of proper
receipts or other proof of expenditure and subject to such reasonable guidelines
or limitations provided to the Executive and applied prospectively, as
established by the Company; provided that after the end of the Initial Period,
the Company may, at its option, either offset any amounts owed by the Company to
the Executive by an amount equal to 50% of the expenses incurred in connection
with the Executive's employment of a secretary, or receive reimbursement from
the Executive for 50% of such expenses.
3.7. Vacation. During the Employment Period, the Executive shall be
entitled each calendar year to no fewer than six weeks of paid vacation and sick
leave combined.
3.8. Aircraft Lease. The Company will take all commercially reasonable
action necessary to keep in effect throughout the Employment Period the Lease of
Aircraft dated April
-5-
<PAGE>
10, 1997 between Hayden Leasing, L.C. and BSI and shall make the aircraft leased
thereunder available for the Executive's reasonable use until the end of the
Employment Period.
3.9. Participation in Benefit Plans. During the Employment Period, the
Executive shall be entitled to participate in any profit sharing plan,
retirement plan, group life insurance plan or other insurance plan or medical
expense plan maintained by the Company for its senior executives generally,
which plans shall not differ in value in any manner materially adverse to the
Executive from those in which the Executive currently participates. Family
coverage under the Company's medical and dental plans shall be made available to
the Executive at a nominal charge. 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.
Section 4. Termination.
4.1. Death. Upon the death of the Executive, the Employment Period
shall automatically terminate and all rights of the Executive and his heirs,
executors and administrators to compensation and other benefits hereunder shall
cease, except for (i) compensation which shall have accrued to the date of
death, including accrued Base Salary, prorated Bonus, plus four months of Base
Salary and Bonus and (ii) the rights to indemnification under Section 5 hereof.
4.2. Disability. The Company may terminate the Employment Period upon
written notice to the Executive if the Executive, because of physical or mental
incapacity or disability, fails in any material respect to perform the services
required of him hereunder for a continuous period of 90 days or any 180 days out
of any 12-month period. Upon such termination, all obligations of the Company
hereunder shall cease, except for (i) compensation which shall have accrued to
the date of termination, including accrued Base Salary and prorated Bonus, (ii)
Base Salary which shall be paid by the Company for the duration of the
Employment Period, minus any amounts payable to, or received by, the Executive
pursuant to the terms of any disability plan covering the Executive (whether or
not such plan is sponsored by the Company), and (iii) the rights to
indemnification under Section 5 hereof. In the event of any dispute regarding
the existence of the Executive's incapacity hereunder, the matter shall be
resolved by the determination of a majority of three physicians qualified to
practice medicine in the state of the Executive's residence, one to be selected
by each of the Executive and the Board and the third to be selected by such two
designated physicians. For this purpose, the Executive shall submit to
appropriate medical examinations.
4.3. Cause.
(a) The Company may, at its option, terminate the Executive's
employment under this Agreement for "Cause" (as hereinafter
defined). A termination for Cause shall not take effect until
and unless the Company complies with this Section 4.3. The
Executive shall be given written notice by the Board of the
intention to terminate his employment hereunder for Cause (the
"Cause Notice").
-6-
<PAGE>
The Cause Notice shall state the particular action(s) or
inaction(s) giving rise to termination for Cause. The
Executive shall have 10 days after the Cause Notice is given
to cure the particular action(s) or inaction(s), to the extent
a cure is possible. If the Executive so effects a cure, the
Cause Notice shall be deemed rescinded and of no force or
effect. As used in this Agreement, the term "Cause" shall mean
any one or more of the following:
(1) the Executive's refusal to perform specific
directives of the Board which are consistent
with the scope and nature of the Executive's
duties and responsibilities as set forth
herein;
(2) the Executive's admission or conviction of a
felony or of any crime involving moral
turpitude, fraud, embezzlement, theft or
misrepresentation;
(3) any gross or willful misconduct of the
Executive resulting in substantial loss to
the Company or substantial damage to the
Company's reputation;
(4) any breach by the Executive of any one or
more of the covenants contained in Section 6
or 7 hereof, other than an inadvertent and
unintentional breach of a covenant contained
in Section 6 having an inconsequential
effect on the Company any of its controlled
affiliates.
(b) The exercise of the right of the Company to terminate this
Agreement pursuant to this Section 4.3 shall not abrogate the
rights or remedies of the Company in respect of the breach
giving rise to such termination.
(c) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to:
(1) accrued Base Salary through the date of the
termination of his employment;
(2) any Bonus owing but not yet paid for any
fiscal year ended on or before the
Executive's termination of employment for
Cause;
(3) any amounts owing but not yet paid pursuant
to Section 3.7; and
(4) other or additional benefits in accordance
with applicable plans and programs of the
Company and his rights to indemnification
under Section 5.
-7-
<PAGE>
(d) Notwithstanding anything to the contrary contained in this
Agreement, if, following a termination of the Executive's
employment for Cause, a court of competent jurisdiction, in a
final determination, determines that the Executive was not
guilty of the conduct that formed the basis for the
termination, the Executive shall be entitled to the payments
and the economic equivalent of the benefits he would have
received had his employment been terminated by the Company
without Cause.
4.4. Termination Without Cause. If the Board terminates the Employment
Period for any reason other than a reason set forth in Section 4.1, 4.2 or 4.3:
(a) concurrent with such termination, the Company shall pay to
the Executive an amount equal to his Base Salary and prorated
Bonus, in each case accrued through the date of termination;
(b) the Company shall continue to pay the Executive his Base
Salary, Bonus and all other benefits which would otherwise be
payable hereunder for the remainder of the Term;
(c) all of the Executive's options to purchase equity of the
Company whether or not vested shall become immediately
exercisable in full;
(d) the Executive shall be entitled to any amounts owing but
not yet paid pursuant to Section 3.7; and
(e) the Executive shall be entitled to his rights to
indemnification under Section 5 hereof.
The Company will use its reasonable efforts to structure the payments
and benefits specified by Sections 4.4(a) through 4.4(e) in a manner which is
tax-efficient for the Executive.
4.5. Termination for Good Reason. The Executive may terminate his
employment under this Agreement for Good Reason (as hereinafter defined), upon
notice to the Company setting forth in reasonable detail the nature of such Good
Reason. In the event the Executive terminates this Agreement for Good Reason,
the Executive shall be entitled to the payments and benefits specified by
Sections 4.4(a) through 4.4(e). For purposes of this Agreement, "Good Reason"
shall mean, without the Executive's express written consent, the occurrence of
any one or more of the following events:
(a) the a material breach of this Agreement by the Company;
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(b) the failure to elect or re-elect the Executive to any of
the positions described in Section 2.1 hereof, removal of the
Executive from any such position or any change in the
Executive's responsibilities described in Section 2.1 in any
respect which is materially adverse to the Executive;
(c) other than as contemplated by Section 2.1 hereof, a
diminution of any of the Executive's significant duties or the
assignment to the Executive of any duties inconsistent with
his duties or the material impairment of the Executive's
ability to function in the positions described in Section 2.1
hereof, in each case only after the Company shall have had an
opportunity to cure (any cure to be effected within 30 days
after appropriate written notice of the basis for Good Reason
is given to the Company by the Executive);
(d) a material reduction of any benefit or perquisite enjoyed
by the Executive or the failure to continue the Executive's
participation in any incentive compensation plan, unless a
plan providing a substantially similar economic opportunity is
substituted or all senior executives suffer a substantially
similar reduction or failure;
(e) the relocation of the Executive's office to a location
more than 50 miles from Scottsdale, Arizona.
4.6. Voluntary Termination. If, during the Employment Period, the
Executive voluntarily terminates his employment hereunder for any reason other
than Good Reason, he shall be entitled to the payments specified by Sections
4.3(c)(l) through 4.3(c)(4) hereof, inclusive.
Section 5. Indemnification. To the fullest extent permitted by law, the Restated
Certificate of Incorporation of the Holding Company and the Articles of
Incorporation of the Operating Company, the Executive (and his heirs, executors
and administrators) shall be indemnified by the Company and its successors and
assigns. The obligations of the Company pursuant to this Section 5 shall survive
the termination of the Employment Period.
Section 6. Confidentiality. The Executive shall at all times during the
Employment Period and thereafter hold in confidence any and all Confidential
Information (as hereinafter defined) that may have come or may come into his
possession or within his knowledge concerning the products, services, processes,
businesses, suppliers, customers and clients of the Company or its controlled
affiliates. The Executive agrees that neither he nor any person or enterprise
controlled by him will for any reason directly or indirectly, for himself or any
other person, use or disclose any Confidential Information provided that the
Executive may disclose Confidential Information which has become generally
available to the public other than as a result of a breach of this Agreement by
the Executive or pursuant to an order of a court of competent jurisdiction or of
a governmental agency, department or commission. Upon termination of his
employment under
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this Agreement, the Executive shall promptly surrender to the Company all
documents he believes contain Confidential Information and that are within his
possession or control, other than documents to which the Executive is or was a
party or that relate to the Executive or the basis, or purported basis, on which
his employment was terminated. For purposes of this Agreement, the term
"Confidential Information" shall mean any trade secrets, proprietary or
confidential information, inventions, manufacturing or industrial processes or
procedures, patents, trademarks, trade names, customer lists, service marks,
service names, copyrights, applications for any of the foregoing, or licenses of
other rights in respect thereof, owned or used by, or licensed to, the Company
or any of its controlled affiliates.
Section 7. Restricted Activities.
7.1. Noncompetition. The Executive agrees that for five years following
the Effective Date (the "Noncompete Period"), he shall not, directly or
indirectly, engage in any manner in any activity that is directly or indirectly
competitive or potentially competitive with the Company or any of its affiliates
as conducted or planned to be conducted during the Term and neither the
Executive nor any person or enterprise controlled by him will become a
stockholder, co-venturer, lender, director, officer, agent or employee of a
corporation or member of or lender to a partnership, engage as a sole proprietor
in any business, act as a consultant to any of the foregoing or otherwise engage
directly or indirectly in any business, that is in competition with the business
then conducted by the Company or any of its controlled affiliates in any state
in the United States or any other country in which the Company or any of its
controlled affiliates has engaged in such business during the term of the
Executive's employment under this Agreement; provided, however, that the
foregoing shall not prohibit the Executive from owning less than two percent of
the outstanding securities of any class of capital stock of a corporation the
securities of which are regularly traded or quoted on a national securities
exchange or on an inter-dealer quotation system. In consideration of the
agreements and covenants contained in this Section 7, the Company shall pay the
Executive $1,500,000, in equal installments of $500,000 payable on each of the
Effective Date, the first anniversary of the Effective Date and the second
anniversary of the Effective Date.
7.2. Non-solicitation. The Executive agrees that while he is employed
by the Company and during the Noncompete Period, neither he nor any person or
enterprise controlled by him will (i) solicit for employment or employ any
employee of the Company or any of its affiliates or any person who was employed
by the Company or any of its affiliates at any time within one year prior to the
time of the act of solicitation, (ii) in any way cause, influence, induce,
encourage or attempt to persuade any employee of the Company or any of its
affiliates or any person who was employed by the Company or any of its
affiliates at any time within one year prior to the time of such act to
terminate his employment relationship with the Company or any of its affiliates
or (iii) in any way, cause, influence, induce, encourage or attempt to persuade
any customer or vendor of the Company or any of its affiliates to terminate or
diminish its relationship or violate any agreement with any of them.
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7.3. Relief, Reformation; Severability. The Executive acknowledges that
he has carefully read and considered all terms and conditions of this Agreement,
including the restraints imposed by Section 7 hereof. The Executive acknowledges
that there is no adequate remedy at law for a breach of this Section 7 and that,
in the event of such a breach or attempted breach, the Company shall be entitled
to injunctive or other equitable relief to prevent any such breach, attempted
breach or continuing breach, without prejudice to any other remedies for damages
or otherwise. The Executive agrees that the covenants contained in this
Agreement are separate and are reasonable in their nature, subject matter,
geographic limitation, scope and duration and that the Executive shall not raise
any issue of reasonableness as a defense in any proceeding to enforce any of
such covenants. Notwithstanding the foregoing, in the event that a covenant
contained in this Agreement shall be deemed by any court to be unreasonably
broad in any respect, the parties agree that the court may modify such covenant
for the purpose of making such covenant reasonable in scope and duration. The
validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected by any such modification.
Section 8. Inventions. The Executive hereby assigns to the Company his entire
right, title and interest in and to all discoveries and improvements, patentable
or otherwise, trade secrets and ideas, writings and copyrightable material,
which may be conceived by the Executive or developed or acquired by him during
the term of his employment by the Company, which may pertain directly or
indirectly to the Company's business. The Executive agrees to disclose fully all
such developments to the Company upon its request, which disclosure shall be
made in writing promptly following any such request. The Executive shall, upon
the Company's request, execute, acknowledge and deliver to the Company all
instruments and do all other acts which are necessary or desirable to enable the
Company to file and prosecute applications for, and to acquire, maintain and
enforce, all patents, trademarks and copyrights in all countries.
Section 9. Remedies. The Executive acknowledges that any material breach of this
Agreement will cause irreparable harm to the Company, that such harm will be
difficult if not impossible to ascertain, and that the Company shall be entitled
to equitable relief, including injunction, against any actual or threatened
breach hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief nor the obtaining
of any such relief shall be exclusive of or preclude the Company from any other
remedy.
Section 10. Insurance. The Company may, at its election and for its benefit,
ensure the Executive against disability, accidental loss or death and the
Executive shall submit to such physical examinations and supply such information
as may be required in connection therewith.
Section 11. Expenses. The Company will reimburse the Executive for his
reasonable out of pocket costs and expenses of obtaining independent legal
advice relating to the negotiation of this Agreement and the Executive's equity
participation in Newco and the Surviving Corporation; provided that the maximum
payment under this Section 12 shall not exceed $10,000.
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<PAGE>
Section 12. 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 inure to the benefit of, the
successors and assigns of the Company, and the heirs, executors and
administrators of the Executive, and shall be assignable by the Company to any
entity acquiring substantially all of the assets of the Company, whether by
merger, consolidation, sale of assets or similar transactions.
Section 13. 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 his address as set forth in the records of the Company,
with a copy to Robert F. Wall, Esq., Winston & Strawn, 35 West Wacker Drive,
Suite 4700, Chicago, Illinois 60601, and if to the Company, to the address of
its principal executive offices, attention: Chief Financial Officer, or to any
other address designated by any party hereto by notice similarly given.
Section 14. Waiver of Breach. A waiver by the Company or the Executive of any
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any other or subsequent breach by the other
party.
Section 15. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof. This Agreement may be
modified only by an agreement in writing signed by the parties hereto.
Section 16. Applicable Law. The terms of this Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflict of
laws provisions) of the State of Arizona.
Section 17. Termination of Prior Agreements. The Prior Agreements are hereby
terminated. This Agreement supersedes all prior agreements between the Executive
and the Company concerning the Executive's employment with the Company, and none
of such agreements shall
[The remainder of this page is intentionally left blank.]
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be of any force or effect whatsoever and neither the Company nor the Executive
shall have any rights or obligations under the Prior Agreements.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BELL SPORTS CORP.
By
-------------------------------
BELL SPORTS, INC.
By
-------------------------------
EXECUTIVE:
/s/ Terry G. Lee
----------------------------------
Terry G. Lee
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of February 17,
1998 and effective as of and simultaneous with the Merger (the "Effective
Date"), is 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"). The Holding Company and the Operating
Company are collectively referred to herein as the "Company."
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, pursuant to an Agreement and Plan of Recapitalization (the
"Recapitalization Agreement") between the Company and HB Acquisition
Corporation, a Delaware corporation ("Newco"), Newco will merge with and into
(the "Merger") the Company and the Company will continue as the surviving
corporation (the "Surviving Corporation");
WHEREAS, the Executive currently serves as the President, North America
of the Operating Company pursuant to the terms of an Employment Agreement dated
April 11, 1997, as amended on August 29, 1997 (the "Prior Employment
Agreement");
WHEREAS, the Executive and the Company are parties to a Phantom Stock
Unit Agreement dated as of September 23, 1997 (the "Phantom Stock Agreement");
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 amend and restate the
Prior Employment Agreement in its entirety in the form of this Agreement to
provide for the employment of the Executive by the Company upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereby agree as follows:
1. Employment; Term.
The Company hereby employs the Executive and the Executive hereby
agrees to be employed by the Company upon the terms and subject to the
conditions contained in this
<PAGE>
Agreement. The term of this Agreement shall commence as of the Effective Date
and shall continue until the fifth anniversary of the Effective Date (the
"Term"), unless earlier terminated pursuant to Section 4 hereof. As used herein,
the term "Employment Period" shall mean the period from the Effective Date until
the earlier to occur of (i) the expiration of the Term or (ii) the earlier
termination of Executive's employment hereunder pursuant to Section 4 hereof.
2. Position; Duties; Responsibilities.
2.1 Position; Duties. The Company shall employ the Executive
as the President and Chief Executive Officer of the Holding Company and the
Operating Company. The Executive shall faithfully and loyally perform to the
best of her abilities all the duties reasonably assigned to her by the Board of
Directors, shall devote such business time, attention and effort to the affairs
of the Company as is reasonably necessary for the proper performance of such
duties and shall use her reasonable best efforts to promote the interests of the
Company. Notwithstanding the foregoing, the Executive may serve as a director,
officer or paid consultant of business corporations other than the Company or
civic or community organizations or entities, provided that such activities do
not violate the terms of any of the covenants set forth in Section 7 hereof and
such activities are approved prior to the commencement thereof by the Board of
Directors of Holding Company.
2.2 Responsibilities. The Executive shall have direct and
general supervision, direction and control of the management, officers, business
and affairs of the Company, including the power and authority to make policy
decisions, including those which (i) relate to the Company's goals and plans,
(ii) have a substantial effect on the operation of the Company and its financial
position or results of operations or (iii) relate to its relations with
governmental bodies, consumers or the public generally.
2.3 Directorship. The Company shall take all actions
reasonably necessary to elect the Executive to the Board of Directors of the
Operating Company and the Holding Company and to maintain the Executive's
position as a director during the Employment Period.
3. Compensation.
3.1 Base Salary. During the Employment Period, the Company
shall pay to the Executive an annual base salary at the rate of $350,000 per
annum, payable in accordance with the Company's executive payroll policy. Such
base salary shall be reviewed annually, commencing on the first anniversary of
the Effective Date, and may be increased (but shall not be decreased) annually,
in the sole discretion of the Board of Directors of the Company. The Executive's
base salary, as such base salary may be increased annually hereunder, is
referred to herein as the "Base Salary."
<PAGE>
3.2 Annual Performance Bonus.
(a) The Executive shall be entitled to receive an
annual performance bonus payable in cash for each full fiscal year of
the Company during the Employment Period in accordance with the
Company's management incentive program, as in effect from time to time.
For the Company's fiscal year ended June 30, 1998, the Company's
management incentive program shall be the Company's management
incentive program as in effect on the date hereof. As of the Company's
fiscal year ended June 30, 1999, the Company shall amend its current
management incentive program to include an additional measure for
determining the Executive's bonus based on the Company's Return on
Assets. The Company's Return on Assets in any fiscal year shall be
determined and defined by the Board of Directors of the Company. The
annual performance bonus to which the Executive is entitled pursuant to
this Section 3(a) is referred to herein as the "Bonus."
(b) The payment of each Bonus shall be made within 30
days after the Company's independent accountants shall have certified
the Company's consolidated financial statements for the fiscal year to
which such Bonus relates.
(c) If the Company's fiscal year changes, the
Executive's opportunity to earn the Bonus shall not be materially and
adversely affected.
3.3 Stock Options. Upon the Effective Date, the Company shall
grant the Executive options to purchase shares of common equity of the Company
up to 41.76% of the Management Option Pool (the "Awarded Options"). The Awarded
Options shall have a term of ten years. The Management Option Pool shall
represent equity in the Company equal to twelve percent (12%) of the
fully-diluted common equity of the Company as of the Effective Date. Fifty
percent (50%) of the Awarded Options shall vest and be exercisable equally over
a five year period with 20% vesting beginning on the date that is one year after
the Effective Date (the "Time Vested Options"); fifty percent (50%) of the
Awarded Options shall vest and be exercisable over a five year period according
to annual performance criteria established by the Compensation Committee of the
Board of Directors of the Company (the "Performance Options"). To the extent not
inconsistent with anything contained in this Agreement, the terms and conditions
of the Awarded Options shall be determined by the Compensation Committee of the
Board of Directors of the Company. Notwithstanding the foregoing, the Company
and the Executive agree to cooperate to restructure the Awarded Options as
restricted stock subject to repurchase, which shall have the same economic terms
as the Awarded Options.
3.4 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.
3.5 Reimbursement of Expenses. During the Employment Period,
the
<PAGE>
Company shall reimburse the Executive for all expenses necessarily and
reasonably incurred by her in connection with the business of the Company, upon
presentation of proper receipts or other proof of expenditure and subject to
such reasonable guidelines or limitations provided to the Executive and applied
prospectively, as established by the Company.
3.6 Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation and sick leave in accordance with Company
policy.
3.7 Participation in Benefit Plans. During the Employment
Period, the Executive shall be entitled to participate in any profit sharing
plan, retirement plan, group life insurance plan or other insurance plan or
medical expense plan maintained by the Company for its senior executives
generally, which plans shall not differ in value in any manner materially
adverse to the Executive from those in which the Executive currently
participates. 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.
4. Termination.
4.1 Death. Upon the death of the Executive, the Employment
Period shall automatically terminate and all rights of the Executive and her
heirs, executors and administrators to compensation and other benefits hereunder
shall cease, except for (i) Base Salary and any prorated Bonus earned by the
Executive which shall have accrued to the date of death, (ii) any Awarded
Options which shall be immediately 100% vested and exercisable and (iii) for
rights to indemnification under Section 6 hereof.
4.2 Disability. The Company may, at its option, terminate the
Employment Period upon written notice to the Executive if the Executive, because
of physical or mental incapacity or disability, fails in any material respect to
perform the services required of her hereunder for a continuous period of 120
days or any 180 days out of any 12-month period. Upon such termination, all
obligations of the Company hereunder shall cease, except for (i) Base Salary and
any prorated Bonus earned by the Executive which shall have accrued to the date
of termination, (ii) any Awarded Options which shall be immediately 100% vested
and exercisable and (iii) for the rights to indemnification under Section 6
hereof. In the event of any dispute regarding the existence of the Executive's
incapacity hereunder, the matter shall be resolved by the determination of a
majority of three physicians qualified to practice medicine in the state of the
Executive's residence, one to be selected by each of the Executive and the Board
and the third to be selected by such two designated physicians. For this
purpose, the Executive shall submit to appropriate medical examinations.
4.3 Cause.
(a) The Company may, at its option, terminate the
Executive's employment under this Agreement for "Cause" (as hereinafter
defined). A termination for Cause shall not take effect until and
unless the Company complies with this Section 4.3(a). The Executive
shall be given written notice by the Board of the intention to
<PAGE>
terminate her employment hereunder for Cause (the "Cause Notice"). The
Cause Notice shall state the particular action(s) or inaction(s) giving
rise to termination for Cause. The Executive shall have 10 days after
the Cause Notice is given to cure the particular action(s) or
inaction(s), to the extent a cure is possible. If the Executive so
effects a cure, the Cause Notice shall be deemed rescinded and of no
force or effect.
(b) As used in this Agreement, the term "Cause" shall
mean any one or more of the following:
(i) the Executive's refusal to perform
specific directives of the Board which are consistent
with the scope and nature of the Executive's duties
and responsibilities as set forth herein;
(ii) the Executive's admission or conviction
of a felony or of any crime involving moral
turpitude, fraud, embezzlement, theft or
misrepresentation;
(iii) any gross or willful misconduct of the
Executive resulting in substantial loss to the
Company or substantial damage to the Company's
reputation; or
(iv) any breach by the Executive of any one
or more of the covenants contained in Section 7 or 8
hereof, other than an inadvertent and unintentional
breach of a covenant contained in Section 7 having an
inconsequential effect upon the Company or any of its
controlled affiliates.
(c) The exercise of the right of the Company to
terminate this Agreement pursuant to this Section 4.3 shall not
abrogate the rights or remedies of the Company in respect of the breach
giving rise to such termination.
(d) If the Company terminates the Executive's
employment for Cause, she shall be entitled to:
(i) accrued Base Salary through the date of
the termination of her employment;
(ii) any Bonus owing but not yet paid for
any fiscal year ended on or before the Executive's
termination of employment for Cause;
(iii) any amounts owing but not yet paid
pursuant to Sections 3.4 and 3.5; and
(iv) other or additional benefits in
accordance with applicable plans and programs of the
Company and her rights to indemnification under
Section 6 hereof.
<PAGE>
(e) Notwithstanding anything to the contrary
contained in this Agreement, if, following a termination of the
Executive's employment for Cause, a court of competent jurisdiction, in
a final determination, determines that the Executive was not guilty of
the conduct that formed the basis for the termination, the Executive
shall be entitled to the payments and the economic equivalent of the
benefits she would have received had her employment been terminated by
the Company without Cause.
4.4 Termination Without Cause. If the Board terminates the
employment of the Executive hereunder for any reason other than a reason set
forth in Section 4.1, 4.2 or 4.3:
(a) such termination shall be effective 90 days
following written notice thereof by the Company to the Executive;
(b) concurrent with such termination, the Company
shall pay to the Executive an amount equal to her Base Salary accrued
and any prorated Bonus earned by the Executive through the date of
termination;
(c) the Company shall continue to pay the Executive
her Base Salary and all other benefits (excluding Bonus) which would
otherwise be payable hereunder for a period of 18 months following the
date of termination;
(d) all of the Executive's Awarded Options that are
vested at the time of such termination shall be immediately 100%
exercisable and that portion of Time Vested Options which would vest
and be exercisable within twelve months from the date of termination
shall vest and be immediately 100% exercisable and, if the criteria for
the Performance Options has been met for the fiscal year during which
the termination occurs (calculated on an annualized basis as of the
date of such termination) that portion of the Performance Options which
would vest and be exercisable in such fiscal year (but for the
Termination) shall vest and be 100% exercisable;
(e) the Executive shall be entitled to any amounts
owing but not yet paid pursuant to Section 3.4 or 3.5; and
(f) the Executive shall be entitled to her rights to
indemnification under Section 6 hereof.
4.5 Voluntary Termination. If, during the Employment Period,
the Executive voluntarily terminates her employment hereunder for any reason
whatsoever, such termination shall be effective 90 days following written notice
thereof by the Executive to the Company and the Executive shall be entitled to
the payments specified by Sections 4.4(b), (c), (e) and (f) hereof, inclusive.
4.6 Termination for Good Reason. The Executive may terminate
her employment under this Agreement for Good Reason (as hereinafter defined),
upon notice to the
<PAGE>
Company setting forth in reasonable detail the nature of such Good Reason. In
the event the Executive terminates this Agreement for Good Reason, the Executive
shall be entitled to the payments and benefits specified by Sections 4.4(a)
through 4.4(f). For purposes of this Agreement, "Good Reason" shall mean,
without the Executive's express written consent, the occurrence of any one or
more of the following events:
(a) the material breach of this Agreement by the
Company;
(b) a material diminution of any of the Executive's
significant duties or the assignment to the Executive of any duties
inconsistent with her duties or the material impairment of the
Executive's ability to function in the positions described in Section
2.1 hereof, in each case only after the Company shall have had an
opportunity to cure (any cure to be effected within 30 days after
appropriate written notice of the basis for Good Reason is given to the
Company by the Executive); or
(c) a material reduction of any benefit or perquisite
enjoyed by the Executive or the failure to continue the Executive's
participation in any incentive compensation plan, unless a plan
providing a substantially similar economic opportunity is substituted
or all senior executives suffer a substantially similar reduction or
failure.
5. Options to Purchase.
5.1 Call Option. Upon any termination of the employment of the
Executive, the Company (or its designee) shall have the right to purchase and
upon exercise of such right the Executive shall have the obligation to sell, any
equity interests in the Company held by the Executive and exercisable at the
time of such termination on the following terms (the "Call Option"); it being
understood that all options and other restricted securities not exercisable at
the time of such termination of employment (in accordance with this Agreement)
will be terminated. Upon written notice delivered within one year of
termination, the Company (or its designee) may purchase all or any portion of
any such equity interests in the Company then held by the applicable Executive
at a price equal to the Fair Market Value of such securities.
5.2 Put Right. Upon the termination of the employment of the
Executive, the Executive shall have the right to sell to the Company, and upon
exercise of such right the Company (or its designee) shall have the obligation
to purchase, all or any portion of the equity interests in the Company held by
the Executive it being understood that all options and other restricted
securities not exercisable at the time of such termination of employment (in
accordance with this Agreement) will be terminated at a price equal to the Fair
Market Value of such securities (the "Put Option"). Notice of an intention to
sell securities pursuant to the Put Option must be delivered to the Company
within one year of the termination of the Executive's employment. The Company
shall have no obligation to purchase any securities pursuant to this Section 5.2
if such purchase is prohibited by or would give rise to any default or event of
default under the Company's financing documents; provided, however, that in such
circumstances the obligation to purchase securities pursuant to the Put Option
shall be extended until such time as such circumstances no longer exist.
<PAGE>
5.3 Determination of Fair Market Value. For purposes of this
Section 5, the term "Fair Market Value" shall mean, as of any date, the fair
value as of the applicable date on the basis of a sale in an arms length private
sale between a willing buyer and a willing seller, neither acting under
compulsion (or, in the case of an option, the fair value of the shares of
capital stock that may then be purchased upon exercise thereof minus the
exercise price applicable thereto), as determined by the Board.
5.4 Termination. The provisions of this Section 5 will
terminate upon an initial public offering of the Company's equity securities.
6. Indemnification. To the fullest extent permitted by law, the
Restated Certificate of Incorporation of the Holding Company and the Articles of
Incorporation of the Operating Company, the Executive (and her heirs, executors
and administrators) shall be indemnified by the Company and its successors and
assigns. The obligations of the Company pursuant to this Section 6 shall survive
the termination of the Employment Period.
7. Confidentiality. The Executive shall at all times during the
Employment Period and thereafter hold in confidence any and all Confidential
Information (as hereinafter defined) that may have come or may come into her
possession or within her knowledge concerning the products, services, processes,
businesses, suppliers, customers and clients of the Company or its controlled
affiliates. The Executive agrees that neither he nor any person or enterprise
controlled by her will for any reason directly or indirectly, for herself or any
other person, use or disclose any Confidential Information, provided that the
Executive may disclose Confidential Information which has become generally
available to the public other than as a result of a breach of this Agreement by
the Executive or pursuant to an order of a court of competent jurisdiction or of
a governmental agency, department or commission. Upon termination of her
employment under this Agreement, the Executive shall promptly surrender to the
Company all documents he believes contain Confidential Information and that are
within her possession or control, other than documents to which the Executive is
or was a party or that relate to the Executive or the basis, or purported basis,
on which her employment was terminated. For purposes of this Agreement, the term
"Confidential Information" shall mean any trade secrets, proprietary or
confidential information, inventions, manufacturing or industrial processes or
procedures, patents, trademarks, trade names, customer lists, service marks,
service names, copyrights, applications for any of the foregoing, or licenses of
other rights in respect thereof, owned or used by, or licensed to, the Company
or any of its controlled affiliates.
8. Restricted Activities.
8.1 Noncompetition. The Executive agrees that for two years
following the end of the Employment Period (the "Noncompete Period"), she shall
not, directly or indirectly, engage in any manner in any activity that is
directly or indirectly competitive or potentially competitive with the Company
or any of its affiliates or the business of the Company or any of its affiliates
as conducted or planned to be conducted during the Term and neither the
Executive nor any person or enterprise controlled by her will become a
stockholder, co-venturer, lender,
<PAGE>
director, officer, agent or employee of a corporation or member of or lender to
a partnership, engage as a sole proprietor in any business, act as a consultant
to any of the foregoing or otherwise engage directly or indirectly in any
business, that is in competition with the business then conducted by the Company
or any of its affiliates in any state in the United States or any other country
in which the Company or any of its controlled affiliates has engaged in such
business during the term of the Executive's employment under this Agreement;
provided, however, that the foregoing shall not prohibit the Executive from
owning less than two percent of the outstanding securities of any class of
capital stock of a corporation the securities of which are regularly traded or
quoted on a national securities exchange or on an inter-dealer quotation system.
8.2 Non-solicitation. The Executive agrees that while she is
employed by the Company and during the Noncompete Period, neither she nor any
person or enterprise controlled by her will (i) solicit for employment or employ
any employee of the Company or any of its affiliates or any person who was
employed by the Company or any of its affiliates at any time within one year
prior to the time of the act of solicitation, (ii) in any way cause, influence,
induce, encourage or attempt to persuade any employee of the Company or any of
its affiliates or any person who was employed by the Company or any of its
affiliates at any time within one year prior to the time of such act to
terminate her employment relationship with the Company or any of its affiliates
or (iii) in any way, cause, influence, induce, encourage or attempt to persuade
any customer or vendor of the Company or any of its affiliates to terminate or
diminish its relationship or violate any agreement with any of them.
8.3 Relief, Reformation; Severability. The Executive
acknowledges that she has carefully read and considered all terms and conditions
of this Agreement, including the restraints imposed by Section 8 hereof. The
Executive acknowledges that there is no adequate remedy at law for a breach of
this Section 8 and that, in the event of such a breach or attempted breach, the
Company shall be entitled to injunctive or other equitable relief to prevent any
such breach, attempted breach or continuing breach, without prejudice to any
other remedies for damages or otherwise. The Executive agrees that the covenants
contained in this Agreement are separate and are reasonable in their nature,
subject matter, geographic limitation, scope and duration and that the Executive
shall not raise any issue of reasonableness as a defense in any proceeding to
enforce any of such covenants. Notwithstanding the foregoing, in the event that
a covenant contained in this Agreement shall be deemed by any court to be
unreasonably broad in any respect, the parties agree that the court may modify
such covenant for the purpose of making such covenant reasonable in scope and
duration. The validity, legality or enforceability of the remaining provisions
of this Agreement shall not be affected by any such modification.
9. Inventions. The Executive hereby assigns to the Company her entire
right, title and interest in and to all discoveries and improvements, patentable
or otherwise, trade secrets and ideas, writings and copyrightable material,
which may be conceived by the Executive or developed or acquired by her prior to
and during the term of the Employment Period, which may pertain directly or
indirectly to the Company's business. The Executive agrees to disclose fully all
such developments to the Company upon its request, which disclosure shall be
made in writing promptly following any such request. The Executive shall, upon
the Company's request,
<PAGE>
execute, acknowledge and deliver to the Company all instruments and do all other
acts which are necessary or desirable to enable the Company to file and
prosecute applications for, and to acquire, maintain and enforce, all patents,
trademarks and copyrights in all countries.
10. Remedies. The Executive acknowledges that any material breach of
this Agreement will cause irreparable harm to the Company, that such harm will
be difficult if not impossible to ascertain, and that the Company shall be
entitled to equitable relief, including injunction, against any actual or
threatened breach hereof, without bond and without liability should such relief
be denied, modified or vacated. Neither the right to obtain such relief nor the
obtaining of any such relief shall be exclusive of or preclude the Company from
any other remedy.
11. Insurance. The Company may, at its election and for its benefit,
ensure the Executive against disability, accidental loss or death and the
Executive shall submit to such physical examinations and supply such information
as may be required in connection therewith.
12. Expenses. The Company will reimburse the Executive for her
reasonable out of pocket costs and expenses of obtaining independent legal
advice relating to the negotiation of this Agreement and the Executive's equity
participation in Newco and the Surviving Corporation; provided that the maximum
payment under this Section 12 shall not exceed $10,000.
13. 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 inure to the benefit of, the
successors and assigns of the Company, and the heirs, executors and
administrators of the Executive, and shall be assignable by the Company to any
entity acquiring substantially all of the assets of the Company, whether by
merger, consolidation, sale of assets or similar transactions.
14. 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 her address as set forth in the records of the Company with
a copy to Robert F. Wall, Esq., 35 West Wacker Drive, Suite 4700, Chicago,
Illinois 60601, and if to the Company, to the address of its principal executive
offices, attention: Chief Financial Officer, or to any other address designated
by any party hereto by notice similarly given.
15. Waiver of Breach. A waiver by the Company or the Executive of any
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any other or subsequent breach by the other
party.
16. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof. This Agreement may be
modified only by an agreement in writing signed by the parties hereto.
17. Applicable Law. The terms of this Agreement shall be governed by
and construed
<PAGE>
in accordance with the internal laws (as opposed to the conflict of laws
provisions) of the State of Illinois.
18. Prior Agreements. This Agreement supersedes all prior agreements
between the Executive and the Company concerning the Executive's employment with
the Company,
[The remainder of this page is intentionally left blank.]
<PAGE>
including the Phantom Stock Agreement, and none of such agreements shall be of
any further force or effect whatsoever.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BELL SPORTS CORP.
By
-------------------------------
Title:
BELL SPORTS, INC.
By
-------------------------------
Title:
EXECUTIVE:
/s/ Mary J. George
----------------------------------
Mary J. George
BELL
SPORTS CONFIDENTIAL
TERRY G. LEE
CHAIRMAN & CHIEF EXECUTIVE OFFICER
January 28, 1998
Ms. Linda K. Bounds
Chief Financial Officer
Bell Sports
6350 San Ignacio
San Jose, CA 95119
Dear Linda:
This letter will confirm our mutual understanding regarding your
employment situation and employment agreement.
You will continue to work in your current capacity as Chief Financial
Officer until December 31, 1998, or such earlier date as the Company shall
determine. The Company will begin a search for a new CFO. You will assist the
new CFO during a transition period, to be determined by the Company, as long as
such transition period does not extend beyond December 31, 1998.
On December 31, 1998, or such earlier date as determined by the Company
(as discussed above), you will be Terminated without Cause and become entitled
to the termination benefits set forth in Section 4(d)(i) through 4(d)(v) of your
Employment Agreement dated April 25, 1997. All other terms and conditions of
your Employment Agreement shall continue in full force and effect.
Notwithstanding the final date of termination, you will be eligible to receive
your full year FY98 management bonus payment.
Please confirm your understanding of the above by signing below and
returning one (1) copy to my attention.
Sincerely,
/s/ Terry G. Lee
Terry G. Lee
Chairman & CEO
ACKNOWLEDGED AND ACCEPTED:
/s/ Linda Bounds 1/28/98
- ------------------------------ --------------
Linda K. Bounds Date
Senior Vice President & CFO
15170 N. Hayden Rd. * Suite 1 * Scottsdale, AZ 85260
Ph: (602) 951-0033 * Fax: (602) 951-0511
PROMISSORY NOTE
(Interim Loan)
$150,000.00 April 8, 1998
San Jose, California
FOR VALUE RECEIVED, the undersigned promises to pay to Bell Sports,
Inc., a California corporation ("Payee"), the principal sum of One Hundred and
Fifty Thousand Dollars. No interest shall accrue or be payable on the principal
balance provided that the principal balance is timely paid in accordance with
the following terms.
Interest will be imputed at the rate of six percent (6%) per annum, and
shall be added to the W-2 of the undersigned employee. The undersigned employee
will pay all taxes on interest so imputed.
The balance of the note is payable as follows:
(1) Fifty percent (50%) of any bonus (if any) awarded to the
undersigned by Payee after the date hereof shall be applied by Payee to reduce
the balance hereof;
(2) The entire principal balance hereof is due and payable
upon the earlier of the following: (a) the termination, for whatever reason, of
the undersigned as an employee of the Payee; (b) the dissolution or liquidation
of the Payee; or (c) the third anniversary of this promissory note as reflected
by the date at the top hereof.
In the event that the note is not paid strictly in accordance with all
of the above terms, then and thereafter the principal balance will bear interest
at the maximum legal rate until paid in full.
This Note is secured by a Collateral Pledge Agreement of even date
herewith, the terms of which are incorporated herein by reference. This Note
shall for all purposes be governed by and construed in accordance with the laws
of the State of California.
IN WITNESS WHEREOF, the undersigned have caused this Promissory Note to
be executed as of the day and year first above written.
/s/ Bill Bracy
-----------------------------------
Bill Bracy
I join the act and deed of Employee, my husband/wife, and agree to
joint and several liability of all obligations hereinabove imposed.
/s/ Chris Bracy
-----------------------------------
Chris Bracy
<PAGE>
COLLATERAL PLEDGE AGREEMENT
THIS COLLATERAL PLEDGE AGREEMENT ("Agreement") is made this 8th day of
April, 1998, by and among BILL BRACY, a resident of the State of California
("Pledgor") and BELL SPORTS, INC., a California corporation (BELL).
1. Pledge.
As security for Pledgor's promissory note ("Note") to BELL of
even date herewith, which Note evidences the indebtedness of the Pledgor to
BELL, Pledgor hereby pledges, mortgages, hypothecates, assigns, transfers,
delivers, sets over and confirms unto BELL, its successors and assigns, the
following property, to wit:
Any and all options to purchase shares or equity investment in BELL or
any of its affiliates, however received or whenever granted, either
registered to or exercisable by the Pledgor, together with all proceeds
thereof, additions thereto and substitutions therefor, including
without limitation any other securities, cash or other properties
distributed with respect to the foregoing options to purchase stock or
equity investment other securities subject to this Agreement, whether
as a result of merger, consolidation, dissolution, reorganization,
recapitalization, interest payment, stock split, stock dividend,
reclassification or redemption or any other change declared or made in
the capital structure of BELL, or otherwise,
as collateral security for the payment in full when due of any and all
obligations and indebtedness of Pledgor to BELL, whether direct, indirect or
contingent, whether now existing or hereafter incurred and whether or not
otherwise secured (hereinafter collectively referred to as the "Obligations"),
including, without limitation, all obligations and indebtedness of Pledgor under
the Note and any extensions, amendments and renewals thereto. In the event of a
conflict or inconsistency between the terms hereof and the terms of the Note,
the terms of the Note shall control. Pledgor warrants and represents that
Pledgor has the right to pledge, mortgage, hypothecate, assign, transfer,
deliver, set over and confirm unto BELL all of the foregoing options to purchase
shares or equity investment free of any encumbrance subject
<PAGE>
only to the terms of any plan or plans by or pursuant to which such options or
investment were issued or awarded.
Pledgor hereby agrees promptly to pledge and deposit hereunder with
BELL any stock, securities, or other property with respect to any of the options
or securities represented thereby, whether taken in substitution for or in
addition to the above described property. Such stock, other securities and
property shall stand pledged and assigned for the Obligations in the same manner
as the property described in the first paragraph hereof. All of the property
described in this Section 1 and in the first and second paragraphs hereof is
hereinafter called the "Pledged Property."
2. Voting Power, Dividends, Etc.
(a) Unless and until an Event of Default (as hereinafter
defined) or an event which, with the passage of time or giving of notice or both
would constitute an Event of the Default, has occurred, the Pledgor shall have
the right to exercise all voting, consensual and other powers of ownership
pertaining to the Pledged Property, and the Pledgor shall be entitled to receive
and retain any dividends on the Pledged Property paid in cash out of earned
surplus on BELL to the extent such dividends are reasonable in amount and paid
in the ordinary course of business. To the extent not so permitted, such sums
shall be applied to the amount owing under the Note.
(b) Pledgor hereby irrevocably appoints the President of BELL
as Pledgor's proxy holder with respect to the Pledged Property with full power
and authority to vote such Pledged Property and otherwise act with respect to
such Pledged Property on behalf of Pledgor, provided that this proxy shall be
operative only upon an Event of Default. This Proxy shall be irrevocable for so
long as any of the Obligations remain in existence, and shall be coupled with an
interest. If any Event of Default shall have occurred, then whether or not any
holder of the Note, or the Obligations, exercises any available options to
declare the note or the Obligations due and payable or seeks or pursues any
other relief or remedy available to such holder under this Pledge Agreement or
the Obligations:
(i) The President of BELL, or his nominee or
nominees, shall forthwith, without further action on the part of any person,
have the sole and exclusive right to exercise the proxy granted above and all
voting, consensual and other powers of ownership pertaining to the Pledged
Property and shall exercise such powers in such manner as such person, in his
sole reasonable discretion, shall determine to be necessary, appropriate or
advisable, and, if BELL shall so request in writing, the
<PAGE>
Pledgor agrees to execute and deliver to BELL such other and additional powers,
authorizations, proxies, dividends and such other documents as BELL may
reasonably request to secure to BELL the rights, powers and authorities intended
to be conferred upon BELL by this Subsection (b); and
(ii) All dividends and other distributions on the
Pledged Property shall be deposited in a sinking fund to be established for the
benefit of BELL, and, if BELL shall so request in writing, the Pledgor agrees to
execute and deliver to BELL appropriate additional dividend, distribution and
other orders and documents to that end.
3. Sale of Pledged Property After an Event of Default.
If any Event of Default shall have occurred, then, unless the Note and
the Obligations shall have been paid in full at or before the time BELL gives
Pledgor the notice provided for in Subsection (a) of this Section 3 or at or
before the time the suit provided for in Subsection (b) of this Sections 3 shall
be begun, BELL may, in its sole discretion, without further demand,
advertisement or notice, except as expressly provided for in Subsection (a) of
this section 3, (i) apply the cash, if any, then held by him as collateral
hereunder, for the purposes and in the manner provided in Section 4 hereof, and
(ii) if there shall be no such cash or the cash so applied shall be insufficient
to make in full all payments provided in Subsections (a) and (b) of Sections 4
hereof:
(a) Sell the Pledged Property, or any part thereof, in one or
more sales, at public or private sale, conducted by any officer or agent or
auctioneer or attorney for, BELL, at BELL's place of business or elsewhere, for
cash, upon credit or future delivery, and at such price or prices as BELL shall,
in its sole discretion, determine, and BELL may be the purchaser of any or all
of the Pledged Property so sold and shall hold the same thereafter in its own
right, free from any claims of Pledgor or any right of redemption of Pledgor.
Upon any such sale BELL shall have the right to deliver, assign and transfer to
the Purchaser thereof the Pledged Property so sold. Each purchaser (including
BELL) at any such sale shall hold the Pledged Property so sold including,
without limitation, any equity or right of redemption of the Pledgor, which the
Pledgor hereby specifically waives, to the extent he may lawfully do so, and all
rights of redemption, stay or appraisal which he has or may have under any rule
of law of statute now existing or hereafter adopted. BELL shall give the Pledgor
at least five (5) days' written notice, in case of public or private sale. Any
such public sale shall be held at such time or times within ordinary business
hours as BELL shall fix in the notice of such sale. At any such sale the Pledged
Property may be sold in one lot as an entity or in separate parcels. BELL shall
not be obligated to make any sale
<PAGE>
pursuant to any notice. BELL may, without notice or publication, adjourn any
public or private sale from time to time by announcement at the time and place
fixed for such sale, or any adjournment thereof, and any such sale my be made at
any time or place to which the same may be so adjourned without further notice
or publication. In case of any sale of all or any part of the Pledged Property
for credit or for future delivery, the Pledged Property so sold may be retained
by BELL until the selling price is paid by the purchaser thereof, but BELL shall
not incur any liability in case of the failure of such purchaser to take up and
pay for the Pledged Property so sold, and in case of any such failure, such
Pledged Property may again be sold under and pursuant to the provisions hereof;
or
(b) Proceed by a suit or suits at law or in equity to
foreclose upon this Agreement and sell the Pledged Property, or any portion
thereof, under a judgment or decree of a court of courts of competent
jurisdiction.
The President of BELL, as attorney-in-fact pursuant to section 5 hereof
may, in the name and stead of the Pledgor, make and execute all conveyances,
assignments and transfers of the Pledged Property sold pursuant to Subsection
(a) or (b) of this Section 3. The Pledgor shall, if so requested by BELL, ratify
and confirm any sale or sales by executing and delivering to BELL or to such
purchaser or purchasers all such instruments as may, in the sole judgment of
BELL, be advisable.
4. Application of Proceeds.
If an Event of Default exists, the proceeds of any sale, or of
collection, of all or any part of the Pledged Property shall be applied by BELL,
without any marshaling of assets, in the following order:
(a) first, to the payment of all of the costs and expenses of
such sale, including, without limitation, reasonable compensation to BELL and
its agents, attorneys and counsel, and all other reasonable expenses,
liabilities and advances made or incurred by BELL in connection therewith; and
(b) second, to the payment of the principal of and premium, if
any, and interest on the Note, and all obligations of the Pledgor under the Note
and this Agreement and then to pay any other Obligations; and
(c) finally, to the payment to the Pledgor, his successors or
assigns, or their respective heirs, executors or administrators, or to
whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, or any surplus remaining from such
<PAGE>
proceeds after payments of the character referred to in Subsections (a) and (b)
of this Section 4 shall have been made.
5. President of BELL Appointed Attorney-in-Fact; Indemnity.
Upon an Event of Default, the President of BELL, his successors and
assigns, is hereby appointed attorney-in-fact, with full power of substitution,
of the Pledgor for the purpose of carrying out the provisions of the Pledge
Agreement and taking any action and executing any instruments which such
attorney-in-fact may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with an
interest. The Pledgor will indemnify and save harmless such person from and
against any liability or damage which he may incur, in good faith and without
gross negligence, in the exercise and performance of any of its or his powers
and duties specifically set forth herein.
6. No Waiver.
No failure on the part of BELL to exercise, and no delay on the part of
BELL in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by BELL of any right,
power or remedy hereunder preclude any other or further right, power or remedy.
The remedies herein provided are cumulative and are not exclusive of any
remedies provided by law or equity.
7. Termination of Pledge.
When all of the Obligations, including, without limitation, the
indebtedness evidenced or secured by the Note or this Agreement, shall have been
paid in full, this Agreement shall terminate. BELL shall forthwith assign,
transfer and deliver to the Pledgor or his assignees, without representation,
warranty or recourse, against appropriate receipts, all the Pledged Property, if
any, then held by him in pledge hereunder.
8. Representations and Warranties.
The Pledgor hereby represents and warrants that, when the Pledged
Property is pledged hereunder:
(a) Ownership of Pledged Property. Pledgor is the legal and
equitable owner of the Pledged Property free and clear of all liens, charges,
encumbrances and security interests of every kind and nature, other that those
created hereunder.
<PAGE>
(b) Authority to Pledge. Pledgor has taken all action
necessary to make this Pledge and all obligations hereunder fully enforceable
against Pledgor.
(c) Continuous Security Interest. Pledgor hereby agrees that,
until payment of principal, interest, and all other sums owing pursuant to the
Note in accordance with the terms thereof and performance in full of all of the
Obligations and the covenants, conditions and agreements to Pledgor hereunder,
all rights, powers and remedies granted to BELL hereunder shall continue to
exist and may be exercised by BELL.
(d) Right to Transfer. Pledgor hereby represents and warrants
that on the date of this Agreement he has the absolute right and authority to
enter into this Agreement and thereby to create in favor of BELL a valid and
binding security interest in the Pledged Property, subject to no liens, charges,
encumbrances or rights of others.
(e) No Transfer, Further Encumbering, Etc. Pledgor hereby
agrees not to directly or indirectly assign, transfer or convey or further
encumber the Pledged Property or any part thereof or interest therein without
the prior written consent of BELL.
9. Governing Law.
This Agreement shall in all respects be construed and interpreted in
accordance with and governed by the laws of the State of California applicable
to agreements made and to be performed entirely in California by California
residents.
10. Successor and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
respective successors and assign of the Pledgor and BELL, and any subsequent
holder of the Note or the Obligations.
11. Additional Instruments and Assurance.
The Pledgor hereby agrees, at his own expense, to execute and deliver,
from time to time, any and all further or other instruments, and to perform such
acts, as BELL may reasonably request for purposes of this Agreement and to
secure to BELL, and to all persons who may from time to time be the holder of
the Note or the Obligations, the benefits of all rights, authorities and
remedies conferred upon BELL by the terms of this Agreement.
<PAGE>
12. Notices.
All notices and other communications provided for hereunder shall be in
writing (including telegraphic communication) and mailed or telegraphed or
delivered, if to the Pledgor, at his address at ___________________________
____________________________________________________ or if to BELL, at 6350 San
Ignacio, San Jose, CA 95119 ATTN: Chief Financial Officer, or, as to each party,
at such other address as shall be designated by such party in a written notice
to the other party, complying with the foregoing terms. All such notices and
communications shall, when mailed or telegraphed, be effective when deposited in
the United States Mail, postage prepaid, certified, registered or express,
return receipt requested, or delivered to the telegraph company or overnight
courier, charges prepaid, respectively, addressed as aforesaid.
13. Severability.
In case any one or more of the provisions of this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had not been included.
14. Events of Default.
The Pledgor shall be in default under this Agreement upon the
occurrence of any one of the following events (herein referred to as an "Event
of Default"):
(a) Default by the Pledgor in the due observance or
performance of any covenant or agreement contained herein or breach by the
Pledgor of any representation or warranty herein contained; or
(b) any default by Pledgor in the payment or performance when
due of any of the Obligations, including, without limitation, the payment of the
principal of, or interest on, any indebtedness of Pledgor to BELL, as set forth
in the Note; or
(c) the occurrence of any event of default under the
provisions of the Note, and any other instrument, document or agreement securing
the indebtedness evidenced by the Note.
15. Heading.
<PAGE>
The headings of the Sections of this Agreement have been inserted for
convenience of reference only and shall in no way affect the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have entered into this Collateral
Pledge Agreement as of the date first above written.
PLEDGOR:
/s/ Bill Bracy
------------------------------------
Bill Bracy
BELL SPORTS, INC.
By /s/ Linda Bounds
---------------------------------
Linda Bounds
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> MAR-28-1998
<EXCHANGE-RATE> 1
<CASH> 25,265
<SECURITIES> 0
<RECEIVABLES> 67,639
<ALLOWANCES> 2,321
<INVENTORY> 52,601
<CURRENT-ASSETS> 154,412
<PP&E> 40,696
<DEPRECIATION> 20,471
<TOTAL-ASSETS> 247,330
<CURRENT-LIABILITIES> 31,884
<BONDS> 91,853
0
0
<COMMON> 144
<OTHER-SE> 123,449
<TOTAL-LIABILITY-AND-EQUITY> 247,330
<SALES> 138,554
<TOTAL-REVENUES> 138,554
<CGS> 93,591
<TOTAL-COSTS> 93,591
<OTHER-EXPENSES> 34,781
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,539
<INCOME-PRETAX> 6,643
<INCOME-TAX> (2,524)
<INCOME-CONTINUING> 4,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,119
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.38
</TABLE>
