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 December 27, 1997
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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
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BELL SPORTS CORP.
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(Exact name of registrant as specified in its charter)
Delaware 36-3671789
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(State or other jurisdiction of (I.R.S. employer
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 January 15, 1997 13,855,205
- ---------------------------- ---------------- ----------
Class Date Number of shares
<PAGE>
BELL SPORTS CORP.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I
Page
Number
------
<S> <C>
Bell Sports Corp. and Subsidiaries Consolidated Balance Sheets
as of December 27, 1997 and June 28, 1997 3
Bell Sports Corp. and Subsidiaries Consolidated Statements of Operations
for the six months and three months ended December 27, 1997 and
December 28, 1996 4
Bell Sports Corp. and Subsidiaries Consolidated Condensed Statements of
Cash Flows for the six months ended December 27, 1997
and December 28, 1996 5
Notes to Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 15
PART II
Items 1 to 6 16
Signatures 17
</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>
December 27, June 28,
1997 1997
----------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 36,992 $ 29,008
Accounts receivable 47,750 75,915
Inventories 49,143 46,549
Deferred taxes and other current assets 14,586 16,048
----------------- ----------------
Total current assets 148,471 167,520
Property, plant and equipment 20,426 23,738
Goodwill 55,220 56,471
Intangibles and other assets 18,361 21,025
----------------- ----------------
Total assets $242,478 $268,754
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 9,083 $ 11,299
Accrued compensation and employee benefits 3,665 3,998
Accrued expenses 15,101 20,209
Notes payable and current maturities of long-term debt and capital lease obligations 1,932 1,337
----------------- ----------------
Total current liabilities 29,781 36,843
Long-term debt 86,734 106,454
Capital lease obligations and other liabilities 5,527 6,492
----------------- -----------------
Total liabilities 122,042 149,789
----------------- ----------------
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:
14,347,521 and 13,852,449 shares at December 27, 1997, respectively, and
14,248,114 and 13,753,042 shares at June 28, 1997, respectively 143 143
Additional paid-in capital 143,366 142,486
Cumulative foreign currency translation adjustments (775) (407)
Accumulated deficit (17,080) (18,039)
----------------- ----------------
125,654 124,183
Treasury stock, at cost, 495,072 shares (5,218) (5,218)
----------------- ----------------
Total stockholders' equity 120,436 118,965
----------------- ----------------
Total liabilities and stockholders' equity $242,478 $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>
Six Months Ended Three Months Ended
------------------------------------ --------------------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
--------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 86,222 $118,691 $42,590 $56,623
Cost of sales 59,459 85,177 29,304 40,617
--------------- ------------------ ----------------- -----------------
Gross profit 26,763 33,514 13,286 16,006
Selling, general and administrative expenses 22,641 29,926 11,566 14,647
Disposal of product line adjustment (1,300) (1,300)
Amortization of goodwill and intangible assets 1,202 1,729 566 867
Restructuring charges 1,228 1,466 1,228 108
Net investment income (905) (2,292) (476) (500)
Interest expense 2350 3,526 1,183 1,730
--------------- ------------------ ----------------- -----------------
Income (loss) before income taxes 1,547 (841) 519 (846)
Provision (benefit) for income taxes 588 (369) 197 (371)
--------------- ------------------ ----------------- -----------------
Net income (loss) $ 959 $ (472) $ 322 $ (475)
=============== ================== ================= =================
Basic EPS $ 0.07 $ (0.03) $ 0.02 $ (0.03)
=============== ================= ================= =================
Diluted EPS $ 0.07 $ (0.03) $ 0.02 $ (0.03)
=============== ================== ================= =================
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
December 27, December 28,
1997 1996
------------------- ------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $15,163 $ (7,353)
------------------- ------------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Capital expenditures (2,206) (4,479)
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 11,221 3,107
------------------- ------------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of stock 1,001
Payments on notes payable, long-term debt and capital leases (358) (784)
Net payments on line of credit agreement (18,633) 10,186
------------------- ------------------
Net cash provided by (used in) financing activities (17,990) 9,402
------------------- ------------------
Effect of exchange rate changes on cash (410) 128
------------------- ------------------
Net increase in cash and cash equivalents 7,984 5,284
Cash and cash equivalents at beginning of period 29,008 23,140
------------------- ------------------
Cash and cash equivalents at end of period $36,992 $28,424
=================== ==================
</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
and automotive racing 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 December 27, 1997 and 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
- -----------------
The investment income reported for the first quarter of fiscal 1997 includes
proceeds from the settlement of an arbitration case related to the handling of
certain marketable securities by an outside investment advisor. The settlement
proceeds, net of related expenses and expected losses to sell certain
securities, were $1.3 million.
Accounts Receivable
- -------------------
Accounts receivable at December 27, 1997 and June 28, 1997 are net of allowances
for doubtful accounts of $2.4 million and $5.0 million, respectively.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment at December 27, 1997 and June 28, 1997 are net of
accumulated depreciation of $19.3 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 February 1997, SFAS No. 128, "Earnings per Share" ("SFAS 128") was issued.
Under SFAS 128, primary earnings per share is replaced by basic earnings per
share and fully diluted earnings per share is replaced by diluted earnings per
share.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") was
issued. SFAS 130 establishes standards for the reporting of comprehensive income
and its components in a full set of general-purpose financial statements for
periods beginning after December 15, 1997. Reclassification of financial
statements for earlier periods for comparative purposes is required.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") was issued. SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers.
The Company adopted SFAS 128 in the second quarter of fiscal 1998 and SFAS 130
and SFAS 131 in fiscal 1999 and does not expect such adoptions to have a
material effect on the consolidated financial statements and footnotes.
NOTE 2 - INVENTORIES
Inventories consist of the following components (in thousands):
December 27, June 28,
1997 1997
--------------- ----------------
Raw materials $ 5,717 $ 5,865
Work in process 2,396 2,125
Finished goods 41,030 38,559
--------------- ----------------
Total $49,143 $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 cost of product liability insurance fluctuated greatly in past years and the
Company opted to self-insure claims for certain periods. The Company has been
covered by product liability insurance since July 1, 1991. This insurance is
subject to a self-insured retention. There is no assurance that insurance
coverage will be available or economical in the future.
The Company sold its motorcycle helmet manufacturing business in June 1991 in a
transaction in which the purchaser assumed all responsibility for product
liability claims arising out of helmets manufactured prior to the date of
disposition and the Company agreed to use its in-house defense team to defend
these claims at the purchaser's expense. If the purchaser is for any reason
unable to pay the judgment, settlement amount or defense costs arising out of
this or any other claim, the Company could be held responsible for the payment
of such amounts or costs. The Company believes that the purchaser does not
currently have the financial resources to pay any significant judgment,
settlement amount, or defense costs arising out of this or any other claim.
On February 2, 1996, a Toronto, Canada jury returned a verdict against Bell
based on injuries arising out of a 1986 motorcycle accident. The jury found that
Bell was 25% responsible for the injuries with the remaining 75% of the fault
assigned to the plaintiff and the other defendant. If the judgment is upheld,
the amount of the claim for which Bell would be responsible and the legal fees
and tax implications associated therewith are estimated to be between $3.0 and
$4.0 million.
The Company has filed an appeal of the Canadian verdict. Although the Company
cannot predict the outcome of an appeal, the Company currently has adequate cash
balances and sources of capital available to satisfy the judgment if the appeal
is unsuccessful. Accordingly, the Company currently does not believe the claim
will have a material adverse effect on liquidity or the financial condition of
the Company. Although the Company maintains product liability insurance, this
claim arose during a period in which the Company was self-insured. The Company
currently does not have a reserve for this judgment.
Environmental Litigation
- ------------------------
In the ordinary course of its business, the Company is required to
dispose of certain waste at off-site locations. During 1993, the Company became
aware of an investigation by the Illinois Environmental Protection Agency (the
"Illinois Agency") of a waste disposal site, owned by a third party, which was
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 disposal site owner
filed a cross-claim against the Company that seeks to have penalties assessed
against the Company and not against the disposal site owner. Any penalties as a
result of the cross-claim would be payable to the State. The Pollution Control
Board approved a settlement between the State and the Company pursuant to which
the Company paid $69,000 to the State and disposed of certain materials in a
container at the waste disposal site at an authorized disposal facility. The
cross-claim by the landfill owner is still pending, and the outcome of the
cross-claim cannot presently be determined.
8
<PAGE>
Additionally, the Illinois Agency has been negotiating with the disposal site
owner with respect to the procedures and actions necessary to close the disposal
site. The extent and nature of any actions which may be taken against the
Company with respect to this matter cannot presently be determined.
NOTE 4 - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company has a total of approximately $89.7 million in notes payable,
long-term debt and capital lease obligations outstanding at December 27, 1997.
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.
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 December 27, 1997, 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 December 27, 1997
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 December 27, 1997, 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 December 27, 1997
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
December 27, 1997, 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.
9
<PAGE>
NOTE 6 - EARNINGS PER SHARE
In February 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which is effective for financial statements for both interim and annual
periods ending after December 15, 1997. The new standard eliminates primary and
fully dilutive earnings per share and requires presentation of basic and diluted
earnings per share with disclosures of the methods used to compute the per share
amounts.
Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders 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. The adoption of this
standard is not expected to have a material impact on earnings per share of the
Company. 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.
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>
Six Months Ended:
December 27, 1997 December 28, 1996
---------------------------- -------------------------------
Income Shares Per Share Income Shares Per Share
Amount Amount
------ -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic income (loss) per share
Net income (loss) $959 13,810 $0.07 $(472) 13,701 $(0.03)
========== ==========
Effect of dilutive securities
Stock options 331 58
------ -------- ------- --------
Diluted net income (loss) per share
Net income (loss) plus assumed
exercises and conversions $959 14,141 $0.07 $(472) 13,759 $(0.03)
====== ======== ========== ======= ======== ==========
Three Months Ended:
December 27, 1997 December 28, 1996
---------------------------- -------------------------------
Income Shares Per Share Income Shares Per Share
Amount Amount
------ -------- ---------- ------- -------- ----------
Basic income (loss) per share
Net income (loss) $322 13,851 $0.02 $(475) 13,701 $(0.03)
========== ==========
Effect of dilutive securities
Stock options 357 64
------ -------- ------- --------
Diluted net income (loss) per share
Net income (loss) plus assumed
exercises and conversions $322 14,208 $0.02 $(475) 13,765 $(0.03)
====== ======== ========== ======= ======== ==========
</TABLE>
The 4-1/4% convertible subordinated debentures are excluded from the above table
since their effect would be antidilutive.
10
<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 - DISPOSAL OF PRODUCT LINE ADJUSTMENT
In April 1997, the Company disposed of the Service Cycle/Mongoose business but
retained the related accounts receivables of approximately $19 million. At the
date of the disposition, the Company recorded a reserve of $2.5 million for
uncollectible receivables. The Company has collected a majority of the
receivables and has determined a reserve of $1.2 million was more appropriate.
Accordingly, the Company reversed $1.3 million from the 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 restructuring
charges related to this plan, including facility closing costs and severance
benefits.
11
<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 5.0 to 1 at December 27, 1997 from 4.5
to 1 at June 28, 1997. Cash and cash equivalents increased $8.0 million to $37.0
million at September 27, 1997 from $29.0 million at June 28, 1997. The increase
in cash and cash equivalents is primarily due to strong receivables collections
and the proceeds received from the sale of the SportRack business in July 1997
(the "Sale of SportRack"). The increase was partially offset by the Company
utilizing a portion of its cash position to reduce outstanding borrowings.
Accounts receivable at December 27, 1997 decreased $28.2 million to $47.7
million from $75.9 million at June 28, 1997. The decrease is attributable to
strong collections and a normal seasonal net sales decrease from the fourth
quarter of fiscal 1997 to the first half of fiscal 1998. Approximately $6.0
million in receivables were collected related to the Service Cycle/Mongoose
business. Although the Service Cycle/Mongoose business was sold in April 1997,
the Company retained the receivables related to the business unit. An additional
$5.0 million decrease in receivables resulted from the Sale of SportRack.
Inventories increased $2.6 million to $49.1 million at December 27, 1997
compared to $46.5 million at June 28, 1997. This increase is attributed to the
normal business cycle build-up of inventory in the first half of the fiscal year
to meet anticipated increased sales demands in the second half 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 December 27, 1997, 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 December 27, 1997
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 December 27, 1997, 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 December 27, 1997
and June 28, 1997, the Company was in compliance with all of the Credit
Agreement covenants.
Capital expenditures were $2.2 million for the first half of fiscal 1998. The
Company expects to spend approximately $5.0 million on capital expenditures in
fiscal year 1998. The largest planned expenditures are for new product tooling.
12
<PAGE>
The Company announced in September 1997 that it retained Montgomery Securities
as its financial advisor to assist the Company in evaluating strategic
alternatives designed to enhance stockholder value. Such alternatives may
include, but will not be limited to, a merger, sale, joint venture or other
business combination, repurchase of outstanding debt or equity securities, or
continuing to pursue a corporate growth strategy. There can be no assurance that
a transaction will occur as a result of this evaluation.
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 $14.0 million to $42.6 million during
the three months ended December 27, 1997 as compared to $56.6 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 second quarter of
fiscal 1998 increased by 9.8% when compared to net sales of $38.8 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 and to the
specialty retail channel for the quarter increased 14% and 6%, respectively,
strengthened by a 32% rise in overall sales to the international sector. On a
year-to-date basis net sales decreased 27% to $86.2 million from $118.7 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 increased 1% from the prior
year. Year-to-date sales to the specialty retail channel increased 7% from the
prior year, but were offset by a 5% 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.
The product line sales mix, excluding the sales of the Service Cycle/Mongoose
and SportRack businesses, for the six month and three month periods are as
follows:
<TABLE>
<CAPTION>
Six months ended Three months ended
----------------------------------- ---------------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Product Line Sales Mix:
Bicycle accessories 54% 56% 50% 50%
Bicycle helmets 44% 42% 47% 47%
Auto Racing helmets 2% 2% 3% 3%
</TABLE>
13
<PAGE>
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.
Due to the mature nature of the U.S. market for bicycle related products, the
Company expects overall modest sales growth in fiscal 1998.
Gross Margin. Gross margins were 31% of net sales in the second quarter
and in the first half of fiscal 1998, in comparison to 28% for the same periods
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 31% of net sales in the second quarter and first
half of fiscal 1997. Year-to-date, gross margins for bicycle accessories
increased 100 basis points due to lower freight and product costs. 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 decreased to 27% of net sales in the second quarter of
fiscal 1998, as compared to 30% in the second 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 26% for
fiscal 1998, as compared to 28% for the prior year. The 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 26% of net sales, or $14.6 million, for the second
quarter of fiscal 1997, and 25% of net sales, or $29.9 million, for the first
half of fiscal 1997.
As a result of the seasonality of the Company's business, sales are generally
higher in the second 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 decrease as a percent of net sales during the third and fourth
quarters of fiscal 1998.
Amortization of intangibles. Amortization of goodwill and intangible
assets decreased to $566,000 in the second quarter and $1.2 million year-to-date
during fiscal 1998 compared to $867,000 in the second quarter and $1.7 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.
Restructuring charges of $1.5 million related to the fiscal 1996 organizational
and office consolidations impacted the results for the first half 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.
Disposal of Product Line Adjustment. In April 1997, the Company
disposed of the Service Cycle/Mongoose business but retained the related
accounts receivables of approximately $19 million. At the date of the
disposition, the Company recorded a reserve of $2.5 million for uncollectible
receivables. The Company has collected a majority of the receivables and has
determined a reserve of $1.2 million was more appropriate. Accordingly, the
Company reversed $1.3 million from the uncollectible receivable reserves during
its fiscal 1998 second quarter.
14
<PAGE>
Net investment income and interest expense. Net investment income of
$476,000 for the second quarter of fiscal 1998 was relatively stable in
comparison to the $500,000 of net investment income earned during the second
quarter of fiscal 1997. Year-to-date, however, the net investment income has
decreased to $905,000 in the first half of fiscal 1998, as compared to $2.3
million in the first half 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. The settlement proceeds, net of related
expenses and expected losses to sell certain securities, of $1.3 million are
included in net investment income in the first quarter of fiscal 1997. Interest
expense decreased over 30% to $1.2 million for the second quarter and $2.3
million for the first half of fiscal 1998, compared to $1.7 million and $3.5
million for the comparable prior year periods, due to lower levels of debt
outstanding during fiscal 1998.
Income taxes. The effective tax rate was 38% for the second quarter and
first half of fiscal 1998, and 44% for the second quarter and first half of
fiscal 1997.
Net income and weighted average shares. Net income for the fiscal 1998
second quarter was $322,000 (or $0.02 per share) compared to net loss of
$475,000 (or $0.03 per share) for the prior year second quarter. For the six
month period ended December 27, 1997, net income was $959,000 (or $0.07 per
share) compared to net loss of $472,000 (or $0.03 per share) for the same period
of the prior year.
The weighted average number of shares outstanding for the three month and six
month periods ended December 27, 1997 and December 28, 1996 were 13.8 million
and 13.7 million, respectively.
15
<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
(a) The 1997 Annual Meeting of Stockholders of
Bell Sports Corp. was held November 19, 1997
(b) Not required
(c) The following matters were voted upon and
approved at the meeting:
(i) The re-election of Class III Directors
to serve until the 2000 Annual Meeting;
nominees were Arnold L. Chavkin, Phillip
D. Matthews and Christopher Wright
(ii) The appointment of Price Waterhouse as
the independent public accountants for
the Company for its fiscal year ending
June 27, 1998
Summary of proxies voted:
<TABLE>
<CAPTION>
Broker
------
Proposal For Against Withheld Non-votes
-------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C>
(i) Chavkin 11,297,709 --- 184,396 ---
(i) Matthews 11,295,731 --- 186,374 ---
(i) Wright 11,296,387 --- 185,718 ---
(ii) Accountants 11,397,968 66,457 17,600 80
Total shares voted 11,482,106
Total shares unvoted 2,405,057
</TABLE>
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit Index Page 18
(b) None
16
<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: January 22, 1998
BELL SPORTS CORP.
/s/ Linda K. Bounds Senior Vice President and Chief Financial Officer
- ------------------------- (Principal financial officer)
Linda K. Bounds
/s/ John A. Williams Vice President of Finance and Corporate Controller
- ------------------------- (Principal accounting officer)
John A. Williams
17
<PAGE>
BELL SPORTS CORP.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.1* Amendment to Severance Agreement dated December 8, 1997 between the Registrant,
Bell Sports, Inc. and Terry G. Lee
10.2* Noncompetition Agreement dated December 8, 1997 between the Registrant, Bell
Sports, Inc. and Terry G. Lee
10.3* Amendment to Severance Agreement dated December 8, 1997 between the Registrant,
Bell Sports, Inc. and Howard A. Kosick
10.4* Memorandum of Understanding dated December 10, 1997 between Registrant, Bell
Sports, Inc. and Howard A. Kosick
10.5* Amendment to Severance Agreement dated December 8, 1997 between the Registrant,
Bell Sports, Inc. and Robert Alan McCaughen
10.6* Memorandum reference Employment Outline for Bill Bracy dated November 26, 1997
10.7* Severance Agreement dated December 1, 1997 between the Registrant, Bell Sports,
Inc. and Bill Bracy
11* Statement re: computation of per share earnings
27* Financial Data Schedule
</TABLE>
- ----------------------------------
* Filed herewith
18
AMENDMENT TO SEVERANCE AGREEMENT
This Amendment dated as of December 8, 1997 to Severance
Agreement dated as of January 3, 1995 (the "Severance Agreement") is entered
into among Bell Sports Corp., a Delaware corporation (the "Company"), Bell
Sports, Inc., a California corporation and a wholly-owned subsidiary of the
Company (the "Subsidiary"), and Terry G. Lee (the "Executive"). Capitalized
terms not defined herein shall have the respective meanings set forth in the
Severance Agreement.
WHEREAS, the Company and the Executive desire to amend the
Severance Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree that the Severance
Agreement shall be amended as set forth below.
1. Section 1(k) of the Severance Agreement is hereby amended
to read in its entirety as follows:
"(k) "Window Period" means the 30-day period commencing
[90] days after the date of a Change in Control."
2. Section 3(a)(2) of the Severance Agreement is hereby
deleted in its entirety.
3. Section 4(a) of the Severance Agreement is hereby amended
to read in its entirety as follows:
<PAGE>
"(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company or its affiliated
companies to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without
regard to any adjustment required under this Section 4) (in
the aggregate, the "Total Payments") would be subject to the
excise tax imposed by Section 4999 of the Code (the "Excise
Tax"), and if it is determined that (A) the amount remaining,
after the Total Payments are reduced by an amount equal to all
applicable federal and state taxes (computed at the highest
applicable marginal rate), including the Excise Tax, is less
than (B) the amount remaining, after taking into account all
applicable federal and state taxes (computed at the highest
applicable marginal rate), after payment or distribution to or
for the benefit of the Executive of
<PAGE>
the maximum amount that may be paid or distributed to or for
the benefit of the Executive without resulting in the
imposition of the Excise Tax, then the payments due hereunder
shall be reduced so that the Total Payments are One Dollar
($1) less than such maximum amount."
IN WITNESS WHEREOF, the Company and the Subsidiary have each
caused this Agreement to be executed by a duly authorized officer of the Company
or the Subsidiary, as the case may be, and the Executive has executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By:________________________________
Linda K. Bounds
Senior Vice President and
Chief Financial Officer
BY: _____________________________
Phillip D. Matthews, Chairman
Compensation Committee
BELL SPORTS, INC.
By:________________________________
Linda K. Bounds
Senior Vice President and
Chief Financial Officer
EXECUTIVE:
___________________________________
Terry G. Lee
NONCOMPETITION AGREEMENT
THIS AGREEMENT is entered into as of the 8th day of December,
1997 among Bell Sports Corp., a Delaware corporation (the "Company"), Bell
Sports, Inc., a California corporation and a wholly-owned subsidiary of the
Company (the "Subsidiary"), and Terry G. Lee (the "Executive").
WHEREAS, the Company and the Subsidiary are engaged primarily
in the business of designing, manufacturing, producing, distributing, marketing,
advertising and selling auto racing helmets, bicycle helmets, bicycle
accessories and related products;
WHEREAS, the Executive serves as the Chairman of the Board and
Chief Executive Officer of the Company pursuant to the terms of an Employment
Agreement dated as of June 13, 1995;
WHEREAS, the Executive's abilities and services are unique and
essential to the prospects of the Company; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the Company, the Subsidiary
and the Executive hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by the Executive of
those duties and responsibilities of the Executive which do not differ in any
material respect from the duties and responsibilities of the Executive during
the 90-day period immediately prior to a Change in Control (other than as a
result of incapacity due to physical or mental illness) which is demonstrably
willful and deliberate on the Executive's part, which is committed in bad faith
or without reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of time after receipt
of written notice from the Company specifying such breach or (2) the commission
by the Executive of a felony involving moral turpitude.
<PAGE>
(c) "Change in Control" means:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of subsection
(3) of this Section (1)(c) shall be satisfied; and provided further that, for
purposes of clause (B), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the Company
and such Person shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least
66-2/3% of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the vote
of at least 66-2/3% of the directors then comprising the Incumbent Board shall
be deemed to have been a member of the Incumbent Board; and provided further,
that no individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on behalf of any
Person other than the Board shall be deemed to have been a member of the
Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case, immediately
after such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 60% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
-2-
<PAGE>
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation and in substantially the same
proportions relative to each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company) and any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of such corporation or
20% or more of the combined voting power of the then outstanding securities of
such corporation entitled to vote generally in the election of directors and
(iii) at least 66-2/3% of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such reorganization, merger or
consolidation; or
(4) approval by the stockholders of the Company of (i) a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 60% of the then outstanding shares of common stock
thereof and more than 60% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their ownership,
immediately prior to such sale or other disposition, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may be,
(B) no Person (other than the Company, any employee benefit plan (or related
trust) sponsored or maintained by the Company or such corporation (or any
corporation controlled by the Company) and any Person which beneficially owned,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or the Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of the then outstanding shares of common stock thereof
or 20% or more of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors and (C) at least
66-2/3% of the members of the board of directors thereof were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition.
(d) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
-3-
<PAGE>
(e) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company or the Subsidiary immediately prior
to such Change in Control, (ii) a change in the Executive's reporting
responsibilities, titles or offices with the Company or the Subsidiary as in
effect immediately prior to such Change in Control, (iii) any removal or
involuntary termination of the Executive from the Company or the Subsidiary
otherwise than as expressly permitted by this Agreement or any failure to
re-elect the Executive to any position with the Company or the Subsidiary held
by the Executive immediately prior to such Change in Control or (iv) any breach
by the Company or the Subsidiary of the Employment Agreement among the Company,
the Subsidiary and the Executive, as amended, or any successor agreement thereto
(the "Employment Agreement");
(2) a reduction by the Company or the Subsidiary in the
Executive's rate of annual base salary as in effect immediately prior to such
Change in Control or as the same may be increased from time to time thereafter
or the failure by the Company to increase such rate of base salary each year
after such Change in Control by an amount which at least equals, on a percentage
basis, the mean average percentage increase in the rates of base salary for all
officers (within the meaning of Rule 3b-2 promulgated under the Exchange Act) of
the Company during the two full fiscal years of the Company immediately
preceding such Change in Control;
(3) any requirement of the Company or the Subsidiary that the
Executive (i) be based anywhere other than at the facility where the Executive
is located at the time of the Change in Control or (ii) travel on business to an
extent substantially more burdensome than the travel obligations of the
Executive immediately prior to such Change in Control;
(4) the failure of the Company or the Subsidiary to (i)
continue in effect any employee benefit plan or compensation plan in which the
Executive is participating immediately prior to such Change in Control, unless
the Executive is permitted to participate in other plans providing the Executive
with substantially comparable benefits, or the taking of any action by the
Company or the Subsidiary which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any such
plan, (ii) provide the Executive and the Executive's dependents welfare benefits
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies, (iii) provide fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive immediately prior to such
Change in Control or, if more favorable to the Executive, as
-4-
<PAGE>
in effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies, (iv) provide an office or offices
of a size and with furnishings and other appointments, together with exclusive
personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to the Executive by the Company and its affiliated
companies immediately prior to such Change in Control or, if more favorable to
the Executive, as provided generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies, (v) provide
the Executive with paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive immediately prior to such Change in Control or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies, or (vi) reimburse the Executive promptly for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control, or if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 8(b).
For purposes of this Agreement, any good faith determination
of Good Reason made by the Executive shall be conclusive; provided, however,
that an isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive shall not constitute Good Reason.
(f) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company or the Subsidiary for Cause, (2) by
the Executive for any reason other than a Good Reason, (3) as a result of the
Executive's death or (4) by the Company and the Subsidiary due to the
Executive's absence from his duties with the Company and the Subsidiary on a
full-time basis for at least 180 consecutive days as a result of the Executive's
incapacity due to physical or mental illness; provided, however, that a
termination of the Executive's employment by the Executive for any reason
whatsoever during the "Window Period" (hereinafter defined) shall not constitute
a Nonqualifying Termination.
(g) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earliest to occur of (1) the
Executive's 70th birthday, (2) the Executive's death, and (3) two years
following such Change in Control.
(h) "Window Period" means the 30-day period commencing 90 days
after the date of a Change in Control.
-5-
<PAGE>
2. Noncompetition.
If during the Termination Period the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
then the Executive shall be bound by the following noncompetition covenants:
(a) Commencing on the date of such termination of employment
and continuing for a period of two years (the "Noncompetition Period"), neither
the Executive nor any person or enterprise controlled by him will become a
stockholder, 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, the Subsidiary or any of their controlled
affiliates in any state in the United States or any other country in which the
Company, the Subsidiary of any of their controlled affiliates has engaged in
such business during the term of the Executive's employment; 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.
(b) The Executive acknowledges that there is no adequate
remedy at law for a breach of this Section 2 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 Section 2 are separate and
are reasonable in their 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 Section 2 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 other provisions of this Agreement
shall not be affected by any such modification.
(c) The Executive acknowledges that any material breach of
this Section 2 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 such relief shall be exclusive of or preclude the Company from any
other remedy.
-6-
<PAGE>
3. Compensation. As compensation for the covenants contained
in Section 2 of this Agreement, the Company shall pay to the Executive, within 5
days following the date of the commencement of the Noncompetition Period, a
lump-sum cash amount equal to (i) three (3) times the Executive's highest annual
base salary from the Company, the Subsidiary and their affiliated companies in
effect during the 12-month period prior to the date of termination of the
Executive's employment, plus (ii) three (3) times the Executive's average annual
bonus paid or payable, including by reason of deferral, from the Company, the
Subsidiary and their affiliated companies over the five fiscal years of the
Company (or such portion thereof during which the Executive performed services
for the Company if the Executive shall have been employed by the Company for
less than such five fiscal year period) immediately preceding the fiscal year in
which the Change in Control occurs.
4. Reimbursement of Expenses. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or the Subsidiary or involving the failure or refusal of the
Company or the Subsidiary to perform fully in accordance with the terms hereof,
the Company shall reimburse the Executive on a current basis, for all legal fees
and expenses, if any, incurred by the Executive in connection with such contest
or dispute, together with interest at a rate equal to the Prime Rate as
published in the "Money Rates" section of The Wall Street Journal, but in no
event higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive's statement
for such fees and expenses through the date of payment thereof; provided,
however, that in the event the resolution of any such contest or dispute
includes a finding denying, in total, the Executive's claims in such contest or
dispute, the Executive shall be required to reimburse the Company, over a period
of 12 months from the date of such resolution, for all sums advanced to the
Executive pursuant to this Section 4.
5. Operative Event. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control.
6. Termination of Agreement.
(a) This Agreement shall be effective on the date hereof and
shall continue until terminated by the Company as provided in paragraph (b) of
this Section 6; provided, however, that this Agreement shall terminate in any
event upon the termination of the Executive's employment with the Company prior
to a Change in Control.
-7-
<PAGE>
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 180 days after notice thereof is given by the Company to the Executive in
accordance with Section 9; provided, however, that no such action shall be taken
by the Board during any period of time when the Board has knowledge that any
person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and provided further, that in no event
shall this Agreement be terminated in the event of a Change in Control.
7. Scope of Agreement. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries, and if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under this Agreement; provided, however, that any termination of the Executive's
employment following a Change in Control shall be subject to all of the
provisions of this Agreement.
8. Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
8, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive, all of the obligations of the
Company hereunder.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
9. Notices.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed (1) if to the Executive, to Terry G. Lee, 6416 E. Horseshoe Road,
Paradise Valley, Arizona 85253, and if to the Company or the Subsidiary, to Bell
Sports Corp., 6350 San Ignacio Avenue, San Jose, California 95119, attention
President with copies to the Secretary and the Chairman of the Compensation
Committee of the Board of Directors of
-8-
<PAGE>
Bell Sports Corp., or (2) to such other address as a party may have furnished to
the others in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
(b) A written notice of the Executive's date of termination of
employment by the Company or the Executive, as the case may be, to the other,
shall (i) indicate the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than three days after the giving of such
notice by the Executive of termination during the Window Period and which date
shall not be less than 15 days after the giving of such notice under other
circumstances). The failure by the Executive or the Company to set forth in such
notice any fact or circumstance which contributes to a showing of Good Reason or
Cause shall not waive any right of the Executive or the Company hereunder or
preclude the Executive or the Company from asserting such fact or circumstance
in enforcing the Executive's or the Company's rights hereunder.
10. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make any payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause, that the
determination by the Executive of the existence of Good Reason was not made in
good faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive under Section 3, the Company shall pay all
amounts to the Executive that the Company would be required to pay or provide
pursuant to Section 3 as though such termination were by the Company without
Cause or by the Executive with Good Reason; provided, however, that the Company
shall not be required to pay any disputed amounts pursuant to this paragraph
except upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such court not
to be entitled.
11. Employment with Subsidiaries. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
-9-
<PAGE>
12. Governing Law; Validity. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which other provisions
shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
14. Joint and Several Obligation. Each duty and obligation of
the Company hereunder shall be the joint and several duty and obligation of the
Company and the Subsidiary.
15. Miscellaneous. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive, by a duly authorized officer of the Company and by
a duly authorized officer of the Subsidiary. No waiver by a party hereto at any
time of any breach by another party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. Failure by the Executive, the Company or the
Subsidiary to insist upon strict compliance with any provision of this Agreement
or to assert any right the Executive, the Company or the Subsidiary may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the Company and the Subsidiary have each
caused this Agreement to be executed by a duly authorized officer of the Company
or the Subsidiary, as the case may be, and the Executive has executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By:___________________________
Linda K. Bounds
Senior Vice President and
Chief Financial Officer
By:__________________________
Phillip D. Matthews
Chairman, Compensation Committee
BELL SPORTS, INC.
By:___________________________
Linda K. Bounds
Senior Vice President and
Chief Financial Officer
EXECUTIVE:
______________________________
Terry G. Lee
-11-
AMENDMENT TO SEVERANCE AGREEMENT
This Amendment dated as of December 8, 1997 to Severance
Agreement dated as of January 3, 1995 (the "Severance Agreement") is entered
into among Bell Sports Corp., a Delaware corporation (the "Company"), Bell
Sports, Inc., a California corporation and a wholly-owned subsidiary of the
Company (the "Subsidiary"), and Howard A. Kosick (the "Executive"). Capitalized
terms not defined herein shall have the respective meanings set forth in the
Severance Agreement.
WHEREAS, the Company and the Executive desire to amend the
Severance Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree that Section 4(a)
of the Severance Agreement is hereby amended to read in its entirety as follows:
"(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or its affiliated companies to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any adjustment required under this Section 4) (in the aggregate, the "Total
Payments") would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), and if it is determined that (A) the amount remaining,
after the Total Payments are reduced by an amount equal to all applicable
federal and state taxes (computed at the highest applicable marginal rate),
including the Excise Tax, is less than (B) the amount remaining, after taking
into account all applicable federal and state taxes (computed at the highest
applicable marginal rate), after payment or distribution to or for the benefit
of the Executive of the maximum amount that may be paid or distributed to or for
the benefit of the Executive without resulting in the imposition of the Excise
Tax, then the payments due hereunder shall be reduced so that the Total Payments
are One Dollar ($1) less than such maximum amount."
IN WITNESS WHEREOF, the Company and the Subsidiary have each
caused this Agreement to be executed by a duly authorized officer of the Company
or the Subsidiary, as the case may be, and the Executive has executed this
Agreement as of the day and year first above written.
- 1 -
<PAGE>
BELL SPORTS CORP.
By:________________________________
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
BELL SPORTS, INC.
By:________________________________
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
___________________________________
Howard A. Kosick
- 2 -
[GRAPHIC OMITTED] memorandum
CONFIDENTIAL
To: Terry Lee
CC: Phil Matthews
Linda Bounds
From: Howard Kosick
Subject: Howard A. Kosick Employment Agreement
Date: December 10, 1997
================================================================================
I have enjoyed serving in the role of the U.S. Group President since the U.S.
reorganization program announced on April 1, 1997. This is notice of my
employment termination date of January 31, 1998.
Per my previous memo of September 25, 1997, I am terminating my employment
pursuant to Section 4(e)(i) of my Employment Agreement for "Good Reason" (as
defined in Section 4(e)(ii)(E) of my Employment Agreement) and, as a result of
such termination, I will be entitled to certain payments and benefits specified
by that Section, except as expressly provided in the following paragraph of this
Memorandum. Upon the termination of my employment pursuant to Section 4(e)(i),
consistent with past practice for severed employees, my stock options will fully
vest and remain exercisable through the severance period (the two-year period
commencing on my termination of employment) and for 90 days thereafter. In
addition, my unvested restricted stock grants and phantom stock units as of the
date of my termination of employment would become fully vested. (This would
apply to options to purchase 2,361 shares and to 5,441 phantom stock units.)
I acknowledge that the Company has paid me a bonus of $100,000 on December 5,
1997. This bonus payment is in lieu of any further bonus payments which may
become due pursuant to my Employment Agreement (including the bonus payments
specified by Sections 4(d)(i) and 4(d)(ii) thereof) or my Severance Agreement
dated January 3, 1995 upon the event of my termination of employment.
<PAGE>
Memorandum to Terry Lee
December 10, 1997
Page Two
I have thoroughly enjoyed my eight years with Bell and wish you and the Company
the best of luck in the future. Please acknowledge receipt and acceptance of
this notice of termination of employment by executing this Memorandum in the
space provided below and return a copy thereof to me.
-----------------------------
Howard A. Kosick
Acknowledged and agreed:
BELL SPORTS CORP.
BELL SPORTS, INC.
- ---------------------------
By: Terry G. Lee
AMENDMENT TO SEVERANCE AGREEMENT
This Amendment dated as of December 8, 1997 to Severance
Agreement dated as of January 3, 1995 (the "Severance Agreement") is entered
into among Bell Sports Corp., a Delaware corporation (the "Company"), Bell
Sports, Inc., a California corporation and a wholly-owned subsidiary of the
Company (the "Subsidiary"), and Robert Alan McCaughen (the "Executive").
Capitalized terms not defined herein shall have the respective meanings set
forth in the Severance Agreement.
WHEREAS, the Company and the Executive desire to amend the
Severance Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree that Section 4(a)
of the Severance Agreement is hereby amended to read in its entirety as follows:
"(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or its affiliated companies to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any adjustment required under this Section 4) (in the aggregate, the "Total
Payments") would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), and if it is determined that (A) the amount remaining,
after the Total Payments are reduced by an amount equal to all applicable
federal and state taxes (computed at the highest applicable marginal rate),
including the Excise Tax, is less than (B) the amount remaining, after taking
into account all applicable federal and state taxes (computed at the highest
applicable marginal rate), after payment or distribution to or for the benefit
of the Executive of the maximum amount that may be paid or distributed to or for
the benefit of the Executive without resulting in the imposition of the Excise
Tax, then the payments due hereunder shall be reduced so that the Total Payments
are One Dollar ($1) less than such maximum amount."
<PAGE>
IN WITNESS WHEREOF, the Company and the Subsidiary have each
caused this Agreement to be executed by a duly authorized officer of the Company
or the Subsidiary, as the case may be, and the Executive has executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By:________________________________
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
BELL SPORTS, INC.
By:________________________________
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
___________________________________
Robert Alan McCaughen
- 2 -
26 November 1997
Dear Bill,
This letter will confirm our offer to you to become US Group President at our
San Jose facility effective January 5, 1998.
The following benefits are provided as a part of the overall benefits package:
1. Your base compensation will be at an annual rate of $250,000 (pay periods
bi-weekly).
2. Bonus opportunity of up to 50% of your annual salary. Bonus will be in
accordance with current Bell Sports policy and is based on meeting
profitability goals. For FY 98 you are eligible for 50% payout of total
bonus opportunity.
3. A one-time bonus of $50,000, less applicable state and federal tax
withholdings, will be paid 30 days following your date of hire. This bonus
will fully vest within one year of employment.
4. Use of a company leased car until you purchase your own. Upon purchasing a
car, an auto allowance of $400 per month will be paid through payroll.
5. A performance review will be completed six (6) months from your date of
hire. Salary reviews are normally conducted on an annual basis.
6. You will accrue vacation at the rate of three weeks per year.
7. You become eligible for the Bell Sports health and dental insurance program
effective immediately. You have a choice of two programs. The first is a
group health and dental program through General American as a payroll
deduction of $6.00 per week for individual coverage and $17.00 per week for
family. The second is a Point of Service plan (which is similar to an HMO)
through General American at a cost for medical and dental to you of $7.42
per week for individual, $27.74 for single plus one and $37.96 per week for
family coverage.
<PAGE>
8. You become eligible for the Bell Sports 401(k) Retirement program on the
next January 1st, April 1st, July 1st or October 1st, following six months
of service. This plan features a rollover provision which would allow you
to immediately rollover any 401(k) funds that you may have into the Bell
Sports Plan.
9. This offer is contingent upon your agreeing to and signing the Bell Sports
standard "Confidentiality and Non-Competition Agreement" and "Statement of
Company Policy Prohibiting Insider Trading in the Company's Stock".
10. Bell Sports will loan you up to $150,000 to assist in the purchase of a
home in the San Jose area. Interest on the loan will be computed at a 6%
annual rate and reported as income on the W-2 for tax purposes. You are
responsible for all taxes on imputed interest. A minimum of fifty percent
(50%) of any bonus awarded shall be applied to the loan starting FY 1999.
The entire balance is due and payable upon the earliest of the following:
(a) the termination, for whatever reason, of your employment with Bell
Sports, (b) the dissolution or liquidation of Bell Sports or (c) three
years from the date of loan.
11. Due to the strategic review currently being managed by Montgomery
Securities, it is quite possible our financial structure will change in the
next six months. If there is a change of control and your employment
continues, appropriate performance based incentive arrangements will be
established following that time, consistent with your status and position.
If no change in control occurs, we will grant you a total of 75,000 stock
options at fair market value under our current option program which vest
over a three year period in equal increments and provide an opportunity to
share in the value you help to create.
12. Taxes, by law, are required to be withheld on all forms of compensation and
benefits provided to you by Bell Sports. If you have any questions
regarding your tax implications, you should consider contacting your tax
advisor/tax preparer.
Please understand that Bell Sports reserves the right to employ at will, and
therefore this letter does not constitute a yearly employment contract. This
letter constitutes our entire agreement.
As you know, I am extremely excited about the opportunities here at Bell Sports
and sincerely hope that you will become a part of this dynamic organization.
I look forward to having the opportunity of working with you.
Sincerely,
Mary George
Chief Operating Officer
My signature confirms acceptance of the position.
- ------------------------------------------------- --------------------------
Bill Bracy Date
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of December,
1997 among Bell Sports Corp., a Delaware corporation (the "Company"), Bell
Sports, Inc., a California corporation and a wholly-owned subsidiary of the
Company (the "Subsidiary"), and William Bracy (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive currently serves as the U.S. Group
President of Bell Sports, Inc. and his services and knowledge are valuable to
the Company and the Subsidiary in connection with the management of the
operating facilities, divisions and departments of the U.S. Group Divisions of
Bell Sports, Inc.; and
WHEREAS, the Board (as defined in Section 1) has determined
that it is in the best interests of the Company and its stockholders to secure
the Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, without concern as
to whether the Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control, and to
encourage the Executive's full attention and dedication to the Company, the
Board has authorized the Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, the Company, the
Subsidiary and the Executive hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a material breach by the Executive of
those duties and responsibilities of the Executive which do not differ in any
material respect from the duties and responsibilities of the Executive during
the 90-day period immediately prior to a Change in Control (other than as a
result of incapacity due to physical or mental illness) which is demonstrably
willful and deliberate on the Executive's part, which is committed in bad faith
or without reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of time after receipt
of written notice from the Company specifying such breach or (2) the commission
by the Executive of a felony involving moral turpitude.
(c) "Change in Control" means:
<PAGE>
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change in Control: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or exchangeable
securities), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, (D) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of subsection
(3) of this Section (1)(c) shall be satisfied; and provided further that, for
purposes of clause (B), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the Company
and such Person shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least
66-2/3% of such Board; provided, however, that any individual who becomes a
director of the Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by the vote
of at least 66-2/3% of the directors then comprising the Incumbent Board shall
be deemed to have been a member of the Incumbent Board; and provided further,
that no individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on behalf of any
Person other than the Board shall be deemed to have been a member of the
Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case, immediately
after such reorganization, merger or consolidation, (i) more than 60% of the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 60% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the
-2-
<PAGE>
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation and in
substantially the same proportions relative to each other as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities,
as the case may be, (ii) no Person (other than the Company, any employee benefit
plan (or related trust) sponsored or maintained by the Company or the
corporation resulting from such reorganization, merger or consolidation (or any
corporation controlled by the Company) and any Person which beneficially owned,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of the then outstanding shares of common
stock of such corporation or 20% or more of the combined voting power of the
then outstanding securities of such corporation entitled to vote generally in
the election of directors and (iii) at least 66-2/3% of the members of the board
of directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the execution
of the initial agreement or action of the Board providing for such
reorganization, merger or consolidation; or
(4) approval by the stockholders of the Company of (i) a plan
of complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company other than
to a corporation with respect to which, immediately after such sale or other
disposition, (A) more than 60% of the then outstanding shares of common stock
thereof and more than 60% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such sale or other disposition and in
substantially the same proportions relative to each other as their ownership,
immediately prior to such sale or other disposition, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may be,
(B) no Person (other than the Company, any employee benefit plan (or related
trust) sponsored or maintained by the Company or such corporation (or any
corporation controlled by the Company) and any Person which beneficially owned,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or the Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of the then outstanding shares of common stock thereof
or 20% or more of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors and (C) at least
66-2/3% of the members of the board of directors thereof were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
-3-
<PAGE>
(e) "Date of Termination" means (1) the effective date on
which the Executive's employment by the Company or the Subsidiary terminates as
specified in a prior written notice by the Company or the Executive, as the case
may be, to the other, delivered pursuant to Section 11 or (2) if the Executive's
employment by the Company and the Subsidiary terminates by reason of death, the
date of death of the Executive.
(f) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(g) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company or the Subsidiary immediately prior
to such Change in Control, (ii) a change in the Executive's reporting
responsibilities, titles or offices with the Company or the Subsidiary as in
effect immediately prior to such Change in Control, (iii) any removal or
involuntary termination of the Executive from the Company or the Subsidiary
otherwise than as expressly permitted by this Agreement or any failure to
re-elect the Executive to any position with the Company or the Subsidiary held
by the Executive immediately prior to such Change in Control or (iv) any breach
by the Company or the Subsidiary of any employment agreement among the Company
and/or the Subsidiary and the Executive then in effect;
(2) a reduction by the Company or the Subsidiary in the
Executive's rate of annual base salary as in effect immediately prior to such
Change in Control or as the same may be increased from time to time thereafter;
(3) any requirement of the Company or the Subsidiary that the
Executive be based anywhere other than at the facility where the Executive is
located at the time of the Change in Control;
(4) the failure of the Company or the Subsidiary to (i)
continue in effect any employee benefit plan or compensation plan in which the
Executive is participating immediately prior to such Change in Control, unless
the Executive is permitted to participate in other plans providing the Executive
with substantially comparable benefits, or the taking of any action by the
Company or the Subsidiary which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any such
plan, (ii) provide the Executive and the Executive's dependents welfare benefits
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies, (iii) provide fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the
-4-
<PAGE>
Executive immediately prior to such Change in Control or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies, (iv) provide
the Executive with paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive immediately prior to such Change in Control or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies, or (v) reimburse the Executive promptly for all reasonable employment
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive immediately prior to such Change in Control, or if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
For purposes of this Agreement, any good faith determination
of Good Reason made by the Executive shall be conclusive; provided, however,
that an isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive shall not constitute Good Reason.
(h) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company or the Subsidiary for Cause, (2) by
the Executive for any reason other than a Good Reason, (3) as a result of the
Executive's death or (4) by the Company and the Subsidiary due to the
Executive's absence from his duties with the Company and the Subsidiary on a
full-time basis for at least 180 consecutive days as a result of the Executive's
incapacity due to physical or mental illness.
(i) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earliest to occur of (1) the
Executive's death and (2) two years following such Change in Control.
2. Obligations of the Executive. The Executive agrees that in
the event any person or group attempts a Change in Control, he shall not
voluntarily leave the employ of the Company or the Subsidiary without Good
Reason (a) until such attempted Change in Control terminates or (b) if a Change
in Control shall occur, until 90 days following such Change in Control. For
purposes of the foregoing subsection (a), Good Reason shall be determined as if
a Change in Control had occurred when such attempted Change in Control became
known to the Board.
-5-
<PAGE>
3. Payments Upon Termination of Employment.
(a) If during the Termination Period the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
then the Company shall pay to the Executive (or the Executive's beneficiary or
estate), as compensation for services rendered to the Company and the
Subsidiary:
(1) within 30 days following the Date of Termination, a
lump-sum cash amount equal to the sum of:
(i) the Executive's full annual base salary from the Company
and its affiliated companies through the Date of Termination, to the extent not
theretofore paid,
(ii) the Executive's annual bonus in an amount at least equal
to the average annualized (for any fiscal year consisting of less than 12 full
months) bonus paid or payable, including by reason of any deferral, to the
Executive by the Company and its affiliated companies in respect of the three
fiscal years of the Company immediately preceding the fiscal year in which the
Change in Control occurs, multiplied by a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination occurs
through the Date of Termination and the denominator of which is 365 or 366, as
applicable, and
(iii) any compensation previously deferred by the Executive
(together with any interest and earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid; plus
(2) within 30 days following the Date of Termination, a
lump-sum cash amount in an amount equal to the Executive's highest annual base
salary from the Company and its affiliated companies in effect during the
12-month period prior to the Date of Termination; provided, however, that any
amount paid pursuant to this Section 3(a)(2) shall be paid in lieu of any other
amount of severance relating to salary or bonus continuation to be received by
the Executive upon termination of employment of the Executive under any
severance plan, policy or arrangement of the Company.
(b) (1) For a period of one year commencing on the Date of
Termination, the Company shall continue to keep in full force and effect all
medical, dental, accident, disability and life insurance plans with respect to
the Executive and his dependents with the same level of coverage, upon the same
terms and otherwise to the same extent as such plans shall have been in effect
immediately prior to the Date of Termination. Notwithstanding the foregoing
sentence, if any of the medical, dental, accident, disability or life insurance
plans then in effect generally with respect to other peer executives of the
Company and its affiliated companies would be more favorable to the Executive,
such plan coverage shall be substituted for the analogous plan coverage provided
to the Executive immediately prior to the Date of Termination, and the Company
or the Subsidiary, as the case may be, and the Executive shall share the costs
of such
-6-
<PAGE>
plan coverage in the same proportion as such costs were shared immediately prior
to the Date of Termination. The obligation of the Company and the Subsidiary to
continue coverage of the Executive and the Executive's dependents under such
plans shall cease at such time as the Executive and the Executive's dependents
obtain comparable coverage under another plan, including a plan maintained by a
new employer. Execution of this Agreement by the Executive shall not be
considered a waiver of any rights or entitlements the Executive and the
Executive's dependents may have under applicable law to continuation of coverage
under the group medical plan maintained by the Company or its affiliated
companies.
(2) The Company shall reimburse the Executive for Executive's
expenditures for obtaining outplacement services, provided that the Company
shall have no obligation to reimburse the Executive in an amount which exceeds
10% of the Executive's highest annual base salary from the Company and its
affiliated companies in effect during the 12-month period prior to the Date of
Termination.
(c) If during the Termination Period the employment of the
Executive shall terminate by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive within 30 days following the Date of
Termination, a lump-sum cash amount equal to the sum of (1) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid and (2) any compensation
previously deferred by the Executive (together with any interest and earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid.
4. Certain Reductions in Payments.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or its affiliated companies to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any adjustment required under this Section 4) (in the aggregate, the "Total
Payments") would be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), and if it is determined that (A) the amount remaining,
after the Total Payments are reduced by an amount equal to all applicable
federal and state taxes (computed at the highest applicable marginal rate),
including the Excise Tax, is less than (B) the amount remaining, after taking
into account all applicable federal and state taxes (computed at the highest
applicable marginal rate), after payment or distribution to or for the benefit
of the Executive of the maximum amount that may be paid or distributed to or for
the benefit of the Executive without resulting in the imposition of the Excise
Tax, then the payments due hereunder shall be reduced so that the Total Payments
are One Dollar ($1) less than such maximum amount.
(b) All determinations required to be made under this Section
4, including whether and when a reduction in the amount payable hereunder
pursuant to Section 4(a) is required and the amount of any such reduction and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company's public accounting firm (the "Accounting
-7-
<PAGE>
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company or the Executive. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group effecting the
Change in Control, the Executive shall appoint another nationally recognized
public accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company, the
Subsidiary and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that the reduction in the amount
payable hereunder pursuant to Section 4(a) will not have been made consistent
with the calculations required to be made hereunder. In that event the Executive
thereafter shall promptly pay to the Company the amount of the required
reduction.
5. Withholding Taxes. The Company may withhold, or in the
event of payments made by the Subsidiary, the Subsidiary may withhold, from all
payments due to the Executive (or his beneficiary or estate) hereunder all taxes
which, by applicable federal, state, local or other law, the Company or the
Subsidiary, as the case may be, is required to withhold therefrom.
6. Reimbursement of Expenses. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or the Subsidiary or involving the failure or refusal of the
Company or the Subsidiary to perform fully in accordance with the terms hereof,
the Company shall reimburse the Executive on a current basis, for all legal fees
and expenses, if any, incurred by the Executive in connection with such contest
or dispute, together with interest at a rate equal to the Prime Rate as
published in the "Money Rates" section of The Wall Street Journal, but in no
event higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive's statement
for such fees and expenses through the date of payment thereof; provided,
however, that in the event the resolution of any such contest or dispute
includes a finding denying, in total, the Executive's claims in such contest or
dispute, the Executive shall be required to reimburse the Company, over a period
of 12 months from the date of such resolution, for all sums advanced to the
Executive pursuant to this Section 6.
7. Operative Event. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company and
the Subsidiary.
-8-
<PAGE>
8. Termination of Agreement.
(a) This Agreement shall be effective on the date hereof and
shall continue until terminated by the Company as provided in paragraph (b) of
this Section 8; provided, however, that this Agreement shall terminate in any
event upon the first to occur of (i) the Executive's death and (ii) termination
of the Executive's employment with the Company prior to a Change in Control.
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 180 days after notice thereof is given by the Company to the Executive in
accordance with Section 11; provided, however, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and provided further, that in no event
shall this Agreement be terminated in the event of a Change in Control.
9. Scope of Agreement. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries, and if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under this Agreement; provided, however, that any termination of the Executive's
employment following a Change in Control shall be subject to all of the
provisions of this Agreement.
10. Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
10, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his beneficiary or estate),
all of the obligations of the Company hereunder. Failure of the Company to
obtain such assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing
-9-
<PAGE>
the foregoing, the date on which any such merger, consolidation or transfer
becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts would be payable to the Executive
hereunder had the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by the Executive to
receive such amounts or, if no person is so appointed, to the Executive's
estate.
11. Notice.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed (1) if to the Executive, to his residence as reflected on the books
and records of the Company and if to the Company, to Bell Sports Corp., 6350 San
Ignacio Avenue, San Jose, California 95119, attention President, with copies to
the Secretary and the Chairman of the Compensation Committee of the Board of
Directors of Bell Sports Corp., or (2) to such other address as a party may have
furnished to the others in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
(b) A written notice of the Executive's Date of Termination by
the Company or the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
12. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make any payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, such amounts shall not be reduced
whether or not the Executive obtains other employment.
-10-
<PAGE>
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause, that the
determination by the Executive of the existence of Good Reason was not made in
good faith, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall
pay all amounts, and provide all benefits, to the Executive and his dependents
or other beneficiaries, as the case may be, that the Company would be required
to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by the Executive with Good
Reason; provided, however, that the Company shall not be required to pay any
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.
13. Employment with Subsidiaries. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. Governing Law; Validity. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of California without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which other provisions
shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
16. Joint and Several Obligation. Each duty and obligation of
the Company hereunder shall be the joint and several duty and obligation of the
Company and the Subsidiary.
17. Miscellaneous. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive, by a duly authorized officer of the Company and by
a duly authorized officer of the Subsidiary. No waiver by a party hereto at any
time of any breach by another party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. Failure by the Executive, the Company or the
Subsidiary to insist upon strict compliance with any provision of this Agreement
or to assert any right the Executive, the Company or the Subsidiary may have
hereunder, including, without limitation, the right of the Executive to
-11-
<PAGE>
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement. The rights
of, and benefits payable to, the Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, the Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
IN WITNESS WHEREOF, the Company and the Subsidiary have each
caused this Agreement to be executed by a duly authorized officer of the Company
or the Subsidiary, as the case may be, and the Executive has executed this
Agreement as of the day and year first above written.
BELL SPORTS CORP.
By:___________________________
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
BELL SPORTS, INC.
By:___________________________
Terry G. Lee
Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
------------------------------
William Bracy
BELL SPORTS CORP.
EXHIBIT - 11 - STATEMENT RE:
COMPUTATION OF PER SHARE EARNINGS
(unaudited; In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1997 1996 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 959 $ (472) $ 322 $ (475)
Net effect on net income (loss)
from conversion of other pontentially
dilutive securties 1,214 1,214 607 607
---------------------------------------------------------------
Adjusted net income (loss) $ 2,173 $ 742 $ 929 $ 132
===============================================================
Weighted average number of common
and common equivalent shares outstanding
- - basic 13,810 13,701 13,851 13,701
Net effect of other potentially dilutive
securities 1,926 1,653 1,952 1,659
---------------------------------------------------------------
Adjusted average shares outstanding for
fully diluted computation 15,736 15,354 15,803 15,360
===============================================================
Per share amount - fully diluted $ 0.14 $ 0.05 $ 0.06 $ 0.01
===============================================================
</TABLE>
<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> DEC-27-1997
<EXCHANGE-RATE> 1
<CASH> 36,992
<SECURITIES> 0
<RECEIVABLES> 50,154
<ALLOWANCES> 2,404
<INVENTORY> 49,143
<CURRENT-ASSETS> 148,471
<PP&E> 39,728
<DEPRECIATION> 19,302
<TOTAL-ASSETS> 242,478
<CURRENT-LIABILITIES> 29,781
<BONDS> 92,261
0
0
<COMMON> 143
<OTHER-SE> 120,293
<TOTAL-LIABILITY-AND-EQUITY> 242,478
<SALES> 86,222
<TOTAL-REVENUES> 86,222
<CGS> 59,459
<TOTAL-COSTS> 59,459
<OTHER-EXPENSES> 22,866
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,350
<INCOME-PRETAX> 1,547
<INCOME-TAX> (588)
<INCOME-CONTINUING> 959
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 959
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.14
</TABLE>
