<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BELL SPORTS CORP.
BELL SPORTS, INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
DELAWARE 3949 36-3671789
CALIFORNIA 3949 95-1733731
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
6350 SAN IGNACIO AVENUE
SAN JOSE, CA 95119
TELEPHONE: (408) 574-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARY J. GEORGE
BELL SPORTS CORP.
6350 SAN IGNACIO AVENUE
SAN JOSE, CA 95119
TELEPHONE: (408) 574-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
ROBERT W. KADLEC, ESQ.
SIDLEY & AUSTIN
555 WEST FIFTH STREET
LOS ANGELES, CA 90013
TELEPHONE: (213) 896-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -----------------------------------------------------------------------------------------
<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11% Series B Senior
Subordinated Notes due $1,000 principal
2008.................. $110,000,000 amount $110,000,000 $32,450
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Guarantee of 11% Series
B Senior Subordinated
Notes due 2008........ $110,000,000 (2) (2) None(2)
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) No further fee is payable pursuant to Rule 457(n).
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
BELL SPORTS CORP.
BELL SPORTS, INC.
PART I
----------------
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K BETWEEN ITEMS IN
PART 1 OF FORM S-4 AND THE PROSPECTUS
<TABLE>
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus............... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges.......................... Summary; Risk Factors; Holdings
Selected Historical Consolidated
Financial and Other Data
4. Use of Proceeds................... Use of Proceeds
5. Determination of Offering Price... Not applicable
6. Dilution.......................... Not applicable
7. Selling Security Holders.......... Not applicable
8. Plan of Distribution.............. Outside Front Cover Page; Plan of
Distribution
9. Description of Securities to be
Registered....................... Description of Notes
10. Interests of Named Experts and
Counsel.......................... Legal Matters; Experts
11. Information with Respect to the
Registrant....................... Outside Front Cover Page; Summary;
Pro Forma Unaudited Financial Data;
Holdings Selected Historical
Consolidated Financial and Other
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Related Party
Transactions; Description of Senior
Secured Credit Facility
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED SEPTEMBER 30, 1998
$110,000,000
BELL SPORTS, INC.
OFFER TO EXCHANGE 11% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 LOGO
FOR ANY AND ALL OUTSTANDING 11% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
Bell Sports, Inc., a California corporation (the "Issuer"), hereby offers
(the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 11% Series B Senior
Subordinated Notes due 2008 (the "New Notes"), registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Statement of which this Prospectus is a part, for each $1,000 principal amount
of its outstanding 11% Series A Senior Subordinated Notes due 2008 (the "Old
Notes" and, together with the New Notes, the "Notes"), of which $110,000,000
principal amount is outstanding on the date hereof. The form and terms of the
New Notes are the same in all material respects as the form and terms of the
Old Notes except that the New Notes will bear a Series B designation and will
have been registered under the Securities Act and, therefore, will not bear
legends restricting their transfer and will not contain certain provisions
relating to an increase in the interest rate which were included in the terms
of the Old Notes in certain circumstances relating to the timing of the
Exchange Offer. The New Notes will evidence the same debt as the Old Notes and
will be issued under and be entitled to the benefits of the Indenture (the
"Indenture") dated as of August 17, 1998 among the Issuer, Bell Sports Corp., a
Delaware corporation, as guarantor ("Holdings" and together with the Issuer and
their subsidiaries, the "Company" or "Bell Sports") and Harris Trust and
Savings Bank, as trustee. See "The Exchange Offer" and "Description of Notes."
The Notes will mature on August 15, 2008. Interest on the New Notes will be
payable semi-annually, in arrears, in cash on February 15 and August 15 of each
year, commencing on February 15, 1999. The New Notes will be redeemable at the
option of the Issuer, in whole or in part, at any time and from time to time on
or after August 15, 2003, in cash, at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, thereon to the redemption date. In
addition, at any time and from time to time on or prior to August 15, 2001, the
Issuer may, at its option, redeem up to 35% of the aggregate principal amount
of the Notes issued pursuant to the Indenture at a redemption price equal to
111% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the redemption date, with the Net Cash Proceeds
(as defined) of one or more Equity Offerings (as defined); provided that at
least 65% of the aggregate principal amount of the Notes issued pursuant to the
Indenture remains outstanding immediately thereafter. The New Notes will not be
subject to any sinking fund requirement. Upon a Change of Control (as defined),
the Issuer may be required to purchase the New Notes for cash at a price equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, thereon to the date of purchase. See "Description of Notes."
The Issuer is a direct, wholly-owned subsidiary of Holdings. On August 17,
1998, pursuant to a merger agreement dated February 17, 1998, HB Acquisition
Corporation, a Delaware corporation ("HB Acquisition") and affiliate of
Charlesbank Equity Fund IV, Limited Partnership and Brentwood Associates Buyout
Fund II, L.P., was merged with and into Holdings, with Holdings continuing as
the surviving corporation (the "Merger"). See "The Transactions."
The New Notes will be senior subordinated, unsecured, general obligations of
the Issuer, ranking subordinate in right of payment to all existing and future
Issuer Senior Indebtedness (as defined) and will rank senior or pari passu in
right of payment to all existing and future subordinated Indebtedness (as
defined) of the Issuer. The Issuer's obligations under the New Notes will be
guaranteed on a senior subordinated basis by Holdings (the "Holdings
Guarantee"). The Holdings Guarantee will be a general, unsecured obligation of
Holdings, subordinate in right of payment to all Holdings senior indebtedness.
The New Notes initially will not be guaranteed by the Issuer's subsidiaries.
Consequently, liabilities of the Issuer's subsidiaries will effectively be
senior in right of payment to the New Notes. As of June 27, 1998, on a
pro forma basis after giving effect to the Transactions (as defined), the
Issuer and its subsidiaries would have had approximately $8.4 million of
Indebtedness that ranks senior or effectively senior to the New Notes. The
Indenture permits the Issuer and its subsidiaries to incur additional
Indebtedness, including Issuer Senior Indebtedness subject to certain
limitations. See "Description of Notes--Certain Covenants."
(Continued on next page)
SEE "RISK FACTORS," BEGINNING ON PAGE 14, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING WHETHER TO TENDER THEIR OLD
NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
(Continued from previous page)
The Issuer will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1998,
unless extended by the Issuer in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary
conditions. The Old Notes were issued on August 17, 1998 to the Initial
Purchasers (as defined herein) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Initial Purchasers subsequently placed the Old Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The New Notes are being offered hereunder in
order to satisfy the obligations of the Issuer and Holdings under the
Registration Rights Agreement (as defined herein) entered into by the Issuer
and Holdings in connection with the original transfer of the Old Notes to the
Initial Purchasers. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "The Exchange Offer--Resale of the New
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of one year
after the thirtieth business day following the Expiration Date (or such
shorter period as will terminate when all of the Old Notes offered hereby for
exchange have been sold), it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
There has not previously been any public market for the Old Notes or the New
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the New Notes will
develop. See "Risk Factors--Lack of a Public Market for the Notes." Moreover,
to the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes could
be adversely affected.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company cautions readers that, in addition to the historical information
included herein and incorporated by reference in this Prospectus, this
Prospectus includes certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Litigation Reform
Act"), that are based on management's beliefs as well as on assumptions made
by and information currently available to management. When used herein, the
words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate,"
and similar expressions are intended to identify such forward-looking
statements. However, this Prospectus and the information incorporated by
reference herein also contain other forward-looking statements. Such forward-
looking statements involve known and unknown risks, including, but not limited
to, economic and market conditions, competitive activities or other business
conditions, dependence on key customers, fluctuations in sales or working
capital, weather conditions, consumer spending levels and results of pending
litigation, including product liability claims. Although the Company believes
that its expectations with respect to the forward-looking statements are based
upon reasonable assumptions within the bounds of its knowledge of its business
and operations, there can be no assurance that actual results, performance or
achievements of the Company will not differ materially from any future
results, performance or achievements expressed or implied from such forward-
looking statements. For a discussion of the risks associated with investment
in the Notes, please read carefully "Risk Factors."
----------------
Market data used throughout this Prospectus, including information relating
to the Company's relative position in the industry, is based on internal
Company surveys, independent industry publications, other publicly available
information or the good faith estimates of the Company's management. Although
the Company believes that such sources are reliable, the accuracy and
completeness of such information is not guaranteed and has not been
independently verified.
Except as set forth in "Summary--Summary Historical and Pro Forma
Consolidated Financial Data," "Capitalization" and "Note 1 to Consolidated
Financial Statements of Bell Sports Corp.," no separate financial statements
or data of the Issuer have been included or incorporated by reference herein.
Holdings and the Issuer do not consider that such financial statements would
be material to holders of the New Notes because the Issuer is a wholly-owned
subsidiary of Holdings and Holdings will guarantee all of the Issuer's
obligations under the New Notes. Holdings and the Issuer believe that the
material differences between the financial statements of Holdings and the
Issuer are, and will be, related to: (i) stockholders' equity; (ii) the
Holdings Senior Discount Notes (as defined); (iii) the Convertible Debentures
(as defined); and (iv) intercompany indebtedness. See "Summary--The
Transactions," "Summary--The Initial Offering," "Summary--Summary Historical
and Pro Forma Consolidated Financial Data," "Capitalization," "Description of
Notes" and "Note 1 to Consolidated Financial Statements of Bell Sports Corp."
Bell(C), Giro(C), Blackburn(C), Rhode Gear(C), VistaLite(C), Copper Canyon
Cycling(C), Spoke-Hedz(C) and Bike Star(TM) are registered trademarks of
Holdings, the Issuer or their subsidiaries. Other brand names, trademarks,
servicemarks or tradenames referred to or incorporated by reference in this
Prospectus are the registered trademarks of their respective owners.
----------------
AVAILABLE INFORMATION
Holdings is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
documents and information may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
i
<PAGE>
Street, N.W., Washington, D.C. 20549 at prescribed rates and from the
Commission's Web Site located at http://www.sec.gov.
The Issuer has filed with the Commission a Registration Statement on Form S-
4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the New Notes being offered hereby. This Prospectus does not contain all the
information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Exchange Offer, reference is made to
the Exchange Offer Registration Statement. Statements made in this Prospectus
as to the contents of any contract, agreement or other document referred to
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Exchange Offer Registration
Statement, reference is made to the exhibit for a more complete description of
the document or matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
INCORPORATION BY REFERENCE
The following documents of Holdings have been filed with the Securities and
Exchange Commission (the "Commission" or the "SEC") and are incorporated
herein by reference: (i) Holdings' Annual Report on Form 10-K for the year
ended June 27, 1998 (as amended on August 14, 1998); (ii) Holdings' Proxy
Statement on Schedule 14A filed with the Commission on July 1, 1998; and (iii)
Holdings' Current Reports on Form 8-K dated August 10, 1998 (as amended on
August 12, 1998) and August 17, 1998. All documents filed with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date hereof shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
prospective investor to whom this Prospectus has been delivered, upon written
or oral request of such person, a copy of any and all of the documents
referred to above that have been or may be incorporated by reference herein
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference herein). Requests for such copies should be directed
to Bell Sports Corp., 6350 San Ignacio Avenue, San Jose, California 95119,
attention: Ms. Sondra L. Lehman, Assistant Secretary, telephone number (888)
534-9500.
ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements (including the notes thereto) of Bell Sports Corp. appearing
elsewhere or incorporated by reference in this Prospectus. As used herein and
except as the context otherwise may require, the "Issuer" means Bell Sports,
Inc., a California corporation, "Holdings" means Bell Sports Corp., a Delaware
corporation, and the "Company" or "Bell Sports" means, collectively, Holdings,
the Issuer and all of their consolidated subsidiaries. Bell Sports Corp. is a
holding company which is not engaged in any business other than holding the
capital stock of the Issuer. References to the Company's "fiscal year" are to
the 52-week or 53-week period ending on the Saturday closest to the last day of
June. There were no 53-week periods in the five fiscal years ended June 27,
1998.
THE COMPANY
OVERVIEW
Bell Sports is the leading manufacturer and marketer of bicycle helmets
worldwide and a leading supplier of a broad line of bicycle accessories in
North America. The Company is also a leading supplier of auto racing helmets
and a supplier of bicycle accessories worldwide. To capitalize upon increasing
safety awareness in other outdoor sports, the Company recently began marketing
in-line skating, snowboarding, snow skiing and water sport helmets. The Company
markets its helmets under the widely recognized Bell, Bell Pro and Giro brand
names, and its accessories under such leading brands as Bell, Blackburn, Rhode
Gear, VistaLite, Copper Canyon Cycling and Spoke-Hedz. With a broad, well-
diversified, branded product offering marketed across all price points, the
Company is a leading supplier of bicycle helmets and accessories to all major
distribution channels in the industry, including mass merchants and independent
bicycle dealers ("IBDs"). In fiscal 1998, the Company had net sales of
$207.2 million and EBITDA (as defined) of $26.6 million.
Bell Sports has developed a reputation over its 44-year history for
innovation, design, quality and safety and is recognized by bicycling and auto
racing enthusiasts as a market leader in helmet technology and design. To
leverage its outstanding reputation and position in bicycle helmets, the
Company has pursued strategic acquisitions of complementary bicycle helmet and
accessory brands. During the 1990s, the Company increased net sales from $40.4
million in fiscal 1990 to $207.2 million in fiscal 1998. The Company believes
the primary drivers of this growth include: (i) the development of innovative
bicycle helmets and accessories; (ii) strategic acquisitions; (iii) the
successful introduction of the Bell brand, which historically had been reserved
for sale to the IBD channel, into the mass merchant channel; (iv) an increase
in safety awareness among consumers; and (v) the popularity of bicycling,
including specialty segments such as mountain biking. In fiscal 1998,
approximately 52%, 46% and 2% of the Company's net sales were derived from the
sale of bicycle accessories, bicycle helmets and auto racing helmets,
respectively, with approximately 86% of net sales in North America, 11% in
Europe and 3% in Australia and the Pacific Rim.
COMPETITIVE STRENGTHS
Leading Industry Position. Bell Sports believes it holds the leading market
share position in the bicycle helmet market in the United States, Europe and
Canada. According to the Bicycle Market Research Institute ("BMRI"), in 1997
the Company held an approximate 67% share of the U.S. bicycle helmet market,
the largest bicycle helmet market in the world. In addition, the Company is a
leading supplier of bicycle accessories in North America. The Company believes
it has attained these leading positions through a combination of its: (i)
strong brand awareness among consumers; (ii) broad product offerings marketed
across all price points; (iii) outstanding reputation among bicycling
enthusiasts; and (iv) superior customer service. As a result, the Company
believes it is a primary supplier of bicycle helmets and accessories to a
majority of mass merchants in the United States and the largest supplier of
bicycle helmets to IBDs in North America.
1
<PAGE>
Strong Brand Name. The Bell brand has over a 40-year history. The Company
believes that the Bell brand is the most recognized name in bicycle helmets
both by bicycling enthusiasts and mass market consumers. The Company first
established its leading brand name among enthusiasts by producing premium
bicycle helmets sold through the IBD channel. In fiscal 1996, the Company
successfully expanded the use of its strong name by introducing Bell-branded
helmets into the mass merchant channel. To capitalize on the success of the
branded helmet program, in fiscal 1998, the Company introduced Bell-branded
bicycle accessories into the mass merchant channel. The Company markets
products through the IBD channel under the Giro, Bell Pro, Blackburn, Rhode
Gear and VistaLite brand names. The Company believes that these brands are
recognized by enthusiasts as leading names in each of their respective product
categories. Bell Sports reinforces the strength of its brands through a diverse
marketing program which includes print advertising, trade promotions,
sponsorship of athletes and grass-roots marketing.
Loyal and Diverse Customer Relationships. Bell Sports has a broad and well-
established customer base of over 4,000 mass merchants and IBDs. The Company is
a primary supplier of bicycle helmets and accessories to a majority of mass
merchants in the United States including Wal-Mart, K-Mart, Costco, Sears and
Fred Meyer, and presently has 100% of the shelf space for bicycle helmets and
accessories in Wal-Mart and 100% of the shelf space for bicycle helmets in K-
Mart. The Company also is a primary supplier of premium bicycle helmets and
accessories to its IBD customers through its Bell Pro and Giro bicycle helmet
brands and its Blackburn, Rhode Gear and VistaLite premium bicycle accessory
brands. The Company attributes its strong customer base primarily to its broad,
innovative and high quality product offerings marketed across all price points,
outstanding reputation and safety record and superior customer service. See
"Risk Factors--Customer Concentration."
Superior Customer Service. The Company supports its strong customer
relationships with sales, marketing and inventory management programs tailored
to serve specific distribution channels. Bell Sports works closely with
retailers to increase their effectiveness in selling the Company's products. To
this end, the Company has developed marketing and category management services
for its mass merchant customers including: (i) product mix optimization; (ii)
retail shelf management, including plan-o-gram services; (iii) Electronic Data
Interchange ("EDI") and inventory management programs; and (iv) field
merchandising. For its IBD customers, the Company develops innovative point-of-
sale materials to enhance product visibility. The Company believes that its
customers value these services in their efforts to maximize sales and
profitability. The Company has been recognized by many of its customers for
providing superior customer service. For example, in May 1998, Recreational
Equipment Incorporated ("REI") presented the Company with its prestigious
"Vendor of the Year" award, ranking Bell Sports number one in service quality
among REI's vendors.
Product Innovation and Design. The Company believes that innovation and
design are important to a consumer's selection of a bicycle helmet. As a
result, the Company continuously reviews the features, functionality, safety,
style and component materials used in its bicycle helmets and works with IBD
customers to enhance the appeal of its products. Since the introduction of its
first bicycle helmet in 1975, Bell Sports has been a leader in the development
and utilization of the latest technology and innovations in bicycle helmet
design, such as advancements which have reduced weight, improved aerodynamics
and enhanced helmet fit and comfort. As a part of the design process, Bell
Sports conducts extensive testing of new products and regular testing of its
existing products at its state-of-the-art test facility. The Bell Sports
research and development staff also conducts rigorous helmet testing to monitor
adherence to bicycle helmet safety standards and has contributed to the
development of the new mandatory helmet safety standard of the Consumer
Products Safety Commission (the "CPSC").
BUSINESS STRATEGY
The Company seeks to strengthen its market leadership position and maximize
profitability and cash flow through the following strategies:
2
<PAGE>
Continue to Leverage the Bell Brand. With over 40 years of experience in the
design and manufacture of helmets, Bell Sports has leveraged its brands to
become a leader in the sale of bicycle helmets and accessories. For example, in
fiscal 1996, the Company made a strategic decision to use the Bell brand on
bicycle helmets sold in the mass merchant channel. Prior to fiscal 1996, the
Bell brand had been reserved for premium bicycle helmets sold primarily through
IBDs. To continue the successful expansion of the Bell brand into the mass
merchant channel, in December 1997, the Company began to replace its non-
branded bicycle accessories with Bell-branded accessories in the mass merchant
channel. As a result, in fiscal 1998 approximately 46% of the Company's U.S.
mass merchant sales were comprised of Bell-branded bicycle helmets and
accessories, up from 11% in fiscal 1997. The Company intends to continue to
leverage its leading brands in order to: (i) expand its presence in attractive
emerging specialty helmet markets such as in-line skating, snowboarding, snow
skiing and water sports; (ii) capture strategic licensing opportunities in
complementary product lines; and (iii) increase market share internationally.
The Company believes that these initiatives can increase sales and profits with
relatively modest capital investments.
Expand International Sales. Bell Sports has achieved significant growth in
international sales from $12.8 million in fiscal 1994 to $50.8 million in
fiscal 1998. The Company believes that significant opportunities exist to
continue to grow sales in established European and Pacific Rim markets.
Compared to the U.S. market, these international bicycle helmet and accessory
markets are highly fragmented and regionally focused, generally involving
smaller companies offering narrower product lines with limited marketing and
customer service support. The Company believes that high quality, dependable
suppliers of a broad line of products such as Bell Sports are positioned
favorably to service such international markets. An important component of the
Company's European strategy is to increase bicycle accessories sales, which
represented only 14% of the Company's net sales in Europe in fiscal 1998,
compared to 57% of the Company's net sales in North America. The Company also
plans to increase its direct sales efforts in international markets across all
distribution channels and product lines in order to leverage further the Bell
brand and increase international sales. In Canada and Australia, where the
Company replaced third-party distributors with a direct sales approach in
fiscal 1997, net sales increased from $23.7 million in fiscal 1997 to $28.5
million in fiscal 1998. In fiscal 1998, the Company reorganized its European
sales, marketing and management functions in order to execute its growth
strategy.
Achieve Cost Savings. Since fiscal 1996, the Company has strived to increase
profitability through: (i) divesting non-strategic and lower margin businesses;
(ii) reducing corporate overhead; and (iii) reducing distribution and
manufacturing costs. The Company believes these strategic initiatives have
contributed to the improvement in EBITDA margins from approximately 5% in
fiscal 1996 to 13% in fiscal 1998. During fiscal 1997 and 1998, the Company
identified and began to implement certain initiatives which it believes would
have resulted in net cost savings of approximately $3.7 million had these cost
savings been fully implemented on June 29, 1997. These anticipated cost savings
result from: (i) the outsourcing of the Company's foam molding operations; (ii)
closure of the Fairfield, California and Memphis, Tennessee distribution
facilities; (iii) consolidation and restructuring of the Company's European
sales and marketing and management functions; (iv) manufacturing process and
productivity improvements at the Rantoul, Illinois manufacturing facility;
(v) renegotiation of the Company's existing insurance policies; and (vi)
renegotiation of certain management and director's compensation agreements in
connection with the Merger (as defined). The Company believes significant
opportunities exist to achieve additional cost savings in the future through
renegotiation of vendor supply agreements and outsourcing of certain other
manufacturing processes. There can be no assurance that such cost savings will
be achieved. See "Business--Company History" and "Business--Cost Reduction
Initiatives."
Pursue Complementary Acquisitions. The Company has successfully completed and
integrated strategic acquisitions over the last nine years. In 1996, the
Company acquired Giro Sport Design International, Inc. ("Giro"), a leading
designer and marketer of premium bicycle helmets, to enhance its penetration of
the IBD segment of the bicycle helmet market. In 1995, the Company acquired
American Recreation Company Holdings, Inc. ("AMRE"), a major domestic supplier
of bicycle helmets and accessories, to expand the Company's product offering of
bicycle helmets and accessories in the mass merchant channel. In addition,
through the acquisition of VistaLite, Inc. ("VistaLite") in 1994, Blackburn
Designs, Inc. ("Blackburn") in 1992 and Rhode
3
<PAGE>
Gear USA, Inc. ("Rhode Gear") in 1989, the Company became a leading supplier of
premium bicycle accessories and successfully expanded its presence in the IBD
channel. The Company intends to continue to pursue strategic acquisitions
selectively in order to: (i) add to or complement its existing product
offerings; (ii) increase its significant presence in existing distribution
channels; and (iii) strengthen its position in international markets.
THE TRANSACTIONS
In February 1998, Holdings entered into an Agreement and Plan of
Recapitalization and Merger (as amended, the "Merger Agreement"), which,
subject to the conditions set forth therein including, without limitation,
obtaining the requisite approval of Holdings' stockholders, provided for the
merger of HB Acquisition Corporation, a Delaware corporation ("HB Acquisition")
and affiliate of Charlesbank Capital Partners, LLC (together with its
affiliates, "Charlesbank") and Brentwood Associates Buyout Fund II, L.P.
(together with its affiliates, "Brentwood"), with and into Holdings, with
Holdings continuing as the surviving corporation (the "Merger"). Charlesbank
Equity Fund IV, Limited Partnership and Brentwood are hereinafter referred to
collectively as the "Investors." On August 11, 1998, a majority of the
stockholders of Holdings approved and adopted the Merger Agreement at a special
meeting of stockholders. On August 17, 1998, pursuant to a Certificate of
Merger filed with the Secretary of State of the State of Delaware, the Merger
was consummated (the "Effective Time"). Under the Merger Agreement, as of the
Effective Time, each share of common stock, $.01 par value, of Holdings (the
"Common Stock") (other than (i) shares of Common Stock held by HB Acquisition
or shares of Common Stock held directly or indirectly by Holdings, which shares
were canceled and (ii) shares of Common Stock held by persons perfecting
appraisal rights) was converted into the right to receive $10.25 in cash (the
"Per Share Merger Consideration"). The Merger and the transactions contemplated
by the Merger Agreement are being accounted for as a recapitalization under
generally accepted accounting principles ("GAAP") for financial reporting
purposes.
In connection with the Merger, the Investors invested an aggregate of $45.0
million in the equity of HB Acquisition and $15.0 million in Holdings 14%
Senior Discount Debentures due 2009 (the "Holdings Senior Discount Notes").
Each Investor received securities consisting of a combination of a new class of
common stock of Holdings ("New Common Stock") and Series A Preferred Stock of
Holdings ("Preferred Stock") as a result of the Merger as well as the Holdings
Senior Discount Notes. In addition, immediately prior to the Effective Time, CB
Capital Investors, L.P. ("CBCI"), an existing shareholder of Holdings,
exchanged $5.0 million worth of shares of Common Stock (valued at the Per Share
Merger Consideration) with HB Acquisition, and received, in consideration
therefor, equity of HB Acquisition. The foregoing transactions are hereinafter
collectively referred to as the "Investors and CBCI Investments." In addition,
it is anticipated that certain members of management will be provided with an
opportunity to make equity investments in the Company pursuant to a management
investment incentive plan. See "Related Party Transactions." Upon completion of
the Transactions (as defined below), the Investors owned approximately 90% of
the equity of Holdings.
At the Effective Time, in order to finance a portion of the costs and
expenses related to the Merger and to support the Company's operating capital
requirements, up to $60.0 million of bank financing, subject to borrowing base
requirements, became available to the Issuer pursuant to a senior secured
credit facility (the "Senior Secured Credit Facility") with a group of lenders
arranged by SG Cowen Securities Corporation ("SG Cowen") and Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ"). The Senior Secured Credit Facility
consists of a $60.0 million revolving credit facility available for loans and
letters of credit, subject to borrowing base requirements. See "Description of
Senior Secured Credit Facility." No borrowings were made under the Senior
Secured Credit Facility at the Effective Time and, as of September 28, 1998,
there were no outstanding borrowings under the Senior Secured Credit Facility.
The proceeds from the Investors and CBCI Investments and the Offering (as
defined) and available cash were used: (i) to fund the cash payments required
to effect the Merger; (ii) to purchase $62.5 million aggregate
4
<PAGE>
principal amount of Holdings 4 1/4% Convertible Subordinated Debentures due
2000 (the "Convertible Debentures") in the Tender Offer (as defined) and (iii)
to pay related fees and expenses. The offering (the "Offering") by the Issuer
of $110.0 million aggregate principal amount of its Old Notes, entering into
the Senior Secured Credit Facility, the Investors and CBCI Investments, the
Merger, the Tender Offer and the transactions contemplated thereby, are
collectively referred to in this Prospectus as the "Transactions."
On June 30, 1998, Holdings commenced a tender offer, as amended on July 24,
1998 (the "Tender Offer"), for up to $62.5 million aggregate principal amount
of the Convertible Debentures. The Tender Offer expired at 7:00 a.m. New York
City time on August 14, 1998. Approximately $77.4 million aggregate principal
amount of the Convertible Debentures had been tendered in the Tender Offer.
Upon expiration of the Tender Offer, the Company accepted for payment the
Maximum Tender Amount and was required to pay $57.2 million to repurchase the
Convertible Debentures. As of August 17, 1998, after giving effect to the
Company's acceptance of the Maximum Tender Amount, there was $23.8 million
aggregate principal amount of Convertible Debentures outstanding.
SOURCES AND USES
The following table sets forth the estimated sources and uses of funds in
connection with the Transactions, as if the Transactions had occurred on June
27, 1998. See "Use of Proceeds."
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Sources of Funds:
Existing cash......................................... $ 42,093
Senior Secured Credit Facility (1).................... 6,231
Senior Subordinated Notes............................. 110,000
Investors and CBCI Investments (2)(3)................. 65,000
--------
Total Sources....................................... $223,324
========
Uses of Funds:
Payment of the merger consideration (3)............... $142,639
Repurchase of Convertible Debentures (4).............. 56,873
Purchase of stock based awards through the Merger..... 6,912
Transactions fees and expenses........................ 16,900
--------
Total Uses.......................................... $223,324
========
</TABLE>
- --------------------
(1) Represents estimated initial borrowings to partially fund costs and
expenses related to the Transactions. After consummation of the
Transactions, the Issuer expects to have up to $53.8 million available for
borrowing under the Senior Secured Credit Facility, subject to borrowing
base requirements. See "Description of Senior Secured Credit Facility."
(2) Includes $15.0 million aggregate proceeds of the Holdings Senior Discount
Notes.
(3) Includes the exchange by CBCI of $5.0 million worth of shares of Common
Stock valued at the Per Share Merger Consideration for HB Acquisition
capital stock. The exchange of shares by CBCI does not represent a
purchase, sale or other change in such equity investment for the Company's
accounting or tax purposes or any funds or proceeds paid to or used by
Holdings in the Merger, and does not necessarily represent a market
valuation for such shares.
(4) Reflects the repurchase of $62.5 million aggregate principal amount of the
outstanding Convertible Debentures including accrued interest of $0.3
million.
5
<PAGE>
THE INITIAL OFFERING
Old Notes................... The Old Notes were sold by the Issuer on August
17, 1998 (the "Issue Date") to Donaldson, Lufkin
& Jenrette Securities Corporation, SG Cowen
Securities Corporation and NationsBanc Montgomery
Securities LLC (the "Initial Purchasers")
pursuant to a Purchase Agreement dated as of
August 10, 1998. The Initial Purchasers
subsequently resold the Old Notes to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
Registration Rights......... Pursuant to the Purchase Agreement, the Issuer,
Holdings and the Initial Purchasers entered into
a Registration Rights Agreement, dated as of
August 17, 1998 (the "Registration Rights
Agreement"), which grants the holders of the Old
Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange and registration rights which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.......... $110,000,000 aggregate principal amount of 11%
Series B Senior Subordinated Notes due 2008.
The Exchange Offer.......... $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, $110,000,000 aggregate
principal amount of Old Notes are outstanding.
The Company will issue the New Notes on or
promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such holder's business and
that such holder does not intend to participate
and has no arrangement or understanding with any
person to participate in the distribution of such
New Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading activities may
be a statutory underwriter. Each Participating
Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the
6
<PAGE>
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a
result of market-making activities or other
trading activities.
The Issuer and Holdings have agreed to use their
best efforts to keep the Exchange Offer
Registration Statement, including this
Prospectus, continuously effective for one year
from the consummation of the Exchange Offer.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the New
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom,
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such instance
may result in such holder incurring liability
under the Securities Act for which the holder is
not indemnified by the Issuer or Holdings.
Expiration Date............. 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Accrued Interest on the New
Notes and the Old Notes.... Each New Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the New Notes. Such interest
will be paid with the first interest payment on
the New Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance
of the New Notes.
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain
customary conditions, which may be waived by the
Issuer. See "The Exchange Offer--Conditions."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof or transmit an Agent's Message
(as defined herein) in connection with a book-
entry transfer, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile or such Agent's
Message, together with the Old Notes and any
other required documentation to the Exchange
Agent (as defined herein) at the address set
forth herein. By executing the Letter of
Transmittal or Agent's Message, each holder will
represent to the Issuer that, among other things,
the New Notes acquired pursuant to
7
<PAGE>
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such New Notes, whether or not such
person is the holder, that neither the holder nor
any such other person (i) has any arrangement or
understanding with any person to participate in
the distribution of such New Notes, (ii) is
engaging or intends to engage in the distribution
of such New Notes or (iii) is an "affiliate," as
defined under Rule 405 of the Securities Act, of
the Company. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "--Procedures
for Tendering."
Untendered Notes............ Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have
any further exchange rights and such Old Notes
will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could
be adversely affected.
Consequences of Failure to
Exchange................... The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the requirements
of Rule 904 under the Securities Act, or (iv)
pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
Shelf Registration
Statement.................. If any holder of the Old Notes (other than any
such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has provided information
regarding such holder and the distribution of
such holder's Old Notes to the Company for use
therein, the Company has agreed to register the
Old Notes on a shelf registration statement (the
"Shelf Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission as promptly as practical on or
after the consummation of the Exchange Offer. The
Issuer and Holdings have agreed to maintain the
effectiveness of the Shelf Registration Statement
for, under certain circumstances, a maximum of
two years, to cover resales of the Old Notes held
by any such holders.
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Old
Notes, either make appropriate arrangements to
register
8
<PAGE>
ownership of the Old Notes in such owner's name
or obtain a properly completed bond power from
the registered holder. The transfer of registered
ownership may take considerable time. The Issuer
will keep the Exchange Offer open for not less
than twenty business days in order to provide for
the transfer of registered ownership.
Guaranteed Delivery
Procedures................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Acceptance of Old Notes and
Delivery of New Notes...... The Issuer will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange."
Federal Income Tax
Consequences............... The exchange pursuant to the Exchange Offer
should not be a taxable event for federal income
tax purposes. See "Certain Federal Income Tax
Consequences."
Use of Proceeds............. There will be no cash proceeds to the Issuer or
Holdings from the exchange pursuant to the
Exchange Offer.
Exchange Agent.............. Harris Trust and Savings Bank.
THE NEW NOTES
General..................... The form and terms of the New Notes are the same
as the form and terms of the Old Notes except
that (i) the New Notes bear a Series B
designation, (ii) the New Notes have been
registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of New
Notes will not be entitled to certain rights
under the Registration Rights Agreement,
including the provisions providing for an
increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of
the Exchange Offer, which rights will terminate
when the Exchange Offer is consummated. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer." The New Notes will evidence the
same debt as the Old Notes and will be entitled
to the benefits of the Indenture. See
"Description of Notes." The Old Notes and the New
Notes are referred to herein collectively as the
"Notes."
9
<PAGE>
Issuer...................... Bell Sports, Inc.
Maturity Date............... August 15, 2008
Interest Rate............... The New Notes will bear interest at the rate of
11% per annum, payable semi-annually, in arrears,
in cash on February 15 and August 15 of each
year, commencing February 15, 1999.
Subordination............... The New Notes will be senior subordinated,
unsecured, general obligations of the Issuer,
will rank subordinate in right of payment to all
existing and future Issuer Senior Indebtedness
(as defined) and will rank senior or pari passu
in right of payment to all existing and future
subordinated Indebtedness (as defined) of the
Issuer. The Issuer's obligations under the New
Notes will be guaranteed on a senior subordinated
basis by Holdings (the "Holdings Guarantee"). The
Holdings Guarantee will be a general, unsecured
obligation of Holdings, subordinate in right of
payment to all Holdings senior indebtedness. In
addition, the New Notes will be effectively
subordinated to the Indebtedness of the
Subsidiaries (as defined). On June 27, 1998, $1.9
million of Indebtedness of Subsidiaries was
outstanding. As of June 27, 1998, on a pro forma
basis after giving effect to the Transactions,
the New Notes would have been subordinated to
$6.5 million of Issuer Senior Indebtedness and
the Holdings Guarantee would have been
subordinated to $21.2 million of Holdings senior
indebtedness. See "Risk Factors--Subordination of
Notes and the Holdings Guarantee."
Optional Redemption......... The New Notes will be redeemable at the option of
the Issuer, in whole or in part, at any time on
or after August 15, 2003, at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, thereon to the applicable date
of redemption. In addition, at any time prior to
August 15, 2001, the Issuer may redeem up to 35%
of the aggregate principal amount of Notes issued
pursuant to the Indenture (as defined) at a
redemption price equal to 111% of the principal
amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of redemption with
the Net Cash Proceeds (as defined) received by
the Issuer of one or more Equity Offerings (as
defined); provided that at least 65% of the
aggregate principal amount of the Notes issued
pursuant to the Indenture remains outstanding
immediately thereafter. See "Description of
Notes."
Change of Control........... Upon a Change of Control (as defined), the Issuer
will be required to offer to repurchase all of
the holder's New Notes at a price in cash equal
to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if
any, thereon to the date of purchase. See
"Description of Notes--Repurchase at the Option
of Holders--Change of Control." A Change of
Control may be deemed to be a default under the
Senior Secured Credit Facility. As a result,
there can be no assurance that, in the event of a
Change of Control, the Issuer would have
sufficient funds to purchase all New Notes
tendered. See "Risk Factors--Change of Control."
10
<PAGE>
Guarantee................... The Issuer's obligations under the New Notes will
be guaranteed on a senior subordinated basis by
Holdings. The Holdings Guarantee will be a
general, unsecured obligation of Holdings,
subordinate in right of payment to all Holdings
senior indebtedness.
Certain Covenants........... The Indenture contains certain covenants that
will limit, among other things, the ability of
the Issuer and its Subsidiaries to (i) pay
dividends, redeem capital stock and make certain
other restricted payments or investments; (ii)
incur additional indebtedness or issue certain
preferred equity interests; (iii) merge,
consolidate or sell all or substantially all of
their assets; (iv) create liens on assets; and
(v) enter into certain transactions with
affiliates or related persons. See "Description
of Notes--Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before deciding whether to tender Old Notes for New Notes offered
hereby.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth for the periods and the dates indicated
certain historical and pro forma consolidated financial data of Holdings which
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Holdings Unaudited Pro Forma
Historical Condensed Consolidated Financial Statements" and the Consolidated
Financial Statements of Holdings and the related notes thereto included
elsewhere in this Prospectus. The consolidated balance sheet data as of June
27, 1998 and the statements of operations data for each of the three fiscal
years presented below are derived from the Consolidated Financial Statements of
Holdings, which have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are included elsewhere in this Prospectus. The pro forma
statement of operations data, other consolidated financial data and credit data
of the Issuer for fiscal 1998 are adjusted to give effect to the Transactions
as if each had occurred as of June 29, 1997. The pro forma consolidated balance
sheet data gives effect to the Transactions as if each had occurred as of June
27, 1998. The pro forma consolidated financial data does not purport to be
indicative of Holdings' or the Issuer's financial position or results of
operations that would actually have been obtained had the Transactions been
completed at the beginning of such periods. The credit data and certain balance
sheet data for the Issuer have also been presented below since such information
may be useful to investors.
<TABLE>
<CAPTION>
FISCAL YEAR (1)
---------------------------- PRO FORMA
1996 1997 1998 FISCAL 1998
-------- -------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA OF
HOLDINGS:
Net sales (2)....................... $262,340 $259,534 $207,236 $207,236
Gross profit........................ 60,719 76,436 69,564 69,564
Selling, general and administrative
expenses (3)....................... 66,826 60,416 48,517 49,117
Loss on disposal of product lines
and sale of assets (4)............. -- 25,360 700 700
Restructuring charges (5)........... 5,850 4,141 1,192 1,192
Income (loss) from operations....... (14,811) (16,801) 16,895 16,295
Net interest expense (6)............ 5,814 4,350 2,999 16,859
Net income (loss) .................. (12,375) (18,188) 8,578 (387)
OTHER FINANCIAL DATA OF HOLDINGS:
EBITDA (7).......................... $ 14,059 $ 22,242 $ 26,596 $ 26,596
EBITDA margin (8)................... 5% 9% 13% 13%
Cash provided by (used in)
operations......................... (21,950) 910 27,493 18,528
Cash from investing activities...... 7,678 20,422 7,931 7,931
Cash provided by (used in) financing
activities......................... (34,516) (15,272) (18,136) (51,264)
Depreciation and amortization (9)... 8,913 9,542 7,809 7,809
Capital expenditures ............... 5,312 7,058 5,496 5,496
Ratio of earnings to fixed charges.. -- -- 3.3x 1.0x
Fixed charges in excess of earnings
before fixed charges (10).......... 20,625 21,151 -- --
CREDIT DATA OF ISSUER:
Cash interest expense.......................................... $12,820
Ratio of EBITDA to cash interest expense....................... 2.1x
Ratio of net debt to EBITDA.................................... 4.5x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 27,
1998
-----------------
PRO
ACTUAL FORMA
-------- --------
<S> <C> <C>
BALANCE SHEET DATA OF HOLDINGS:
Cash and cash equivalents.................................... $ 45,093 $ 3,000
Working capital (including cash and cash equivalents)........ 130,437 88,885
Total assets................................................. 247,067 209,651
Total debt (including current maturities).................... 88,384 157,115
Stockholders' equity......................................... 128,259 22,653
BALANCE SHEET DATA OF ISSUER:
Cash and cash equivalents ................................... $ 34,662 $ 3,000
Total debt (including current maturities) (11)............... 115,707 118,365
Stockholder's equity......................................... 52,891 46,916
</TABLE>
(footnotes on following page)
12
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(1) The Company believes its statement of operations data in fiscal 1998 is
not comparable to those of fiscal 1996 and 1997 due to the inclusion of
results of operations in fiscal 1996 and 1997 of Service Cycle/Mongoose
(as defined) and SportRack (as defined), which were divested in April 1997
and July 1997, respectively.
(2) The Company's net sales in fiscal 1996 and 1997, excluding net sales from
Service Cycle/Mongoose and SportRack, were $193.7 million and $208.8
million, respectively.
(3) In fiscal 1996, selling, general and administrative expenses included $5.6
million in advertising expenses for a one-time promotional campaign in
connection with the launch of the Bell Pro helmet line and the expansion
of the Bell brand into the mass merchant channel.
(4) In fiscal 1997, loss on disposal of product lines and sale of assets
included a $25.4 million charge related to the divestiture of Service
Cycle/Mongoose. In fiscal 1998, loss on disposal of product lines and sale
of assets included (i) a reversal of previously recorded charges of $1.9
million, including a $0.6 million benefit based on the finalization of
costs associated with the closure of distribution facilities, and a $1.3
million benefit related to the reversal of the remaining reserve for
uncollectible receivables established in connection with the divestiture
of Service Cycle/Mongoose, (ii) a $0.6 million charge associated with the
sale and related reorganization of the Company's domestic foam molding
facility in Rantoul, Illinois and (iii) a $2.0 million charge related to
the divestiture of SportRack.
(5) In fiscal 1996, restructuring charges related to organizational and office
consolidations, including those in connection with the merger with AMRE
(the "AMRE Merger"). In fiscal 1997, restructuring charges related to the
consolidation of the Company's corporate headquarters and the
consolidation of the Company's Canadian operations. In fiscal 1998,
restructuring charges related to the restructuring and consolidation of
the Company's European operations.
(6) Net interest expense is net of investment income.
(7) EBITDA is defined as income (loss) from operations plus (i) depreciation
and amortization (excluding amortization of deferred financing fees, which
is included in interest expense), (ii) write-up to fair value of finished
goods related to the AMRE Merger and the acquisitions of SportRack and
Giro, (iii) loss on disposal of product lines and sale of assets,
principally related to the divestitures of Service Cycle/Mongoose and
SportRack, (iv) restructuring charges, principally related to facility
reorganizations and (v) on a pro forma basis, annual management fees
payable to the Investors upon the occurence of certain events. The Company
believes that EBITDA provides useful information regarding the Company's
ability to service its debt; however, EBITDA does not represent cash flow
from operations as defined by GAAP and should not be considered as a
substitute for net income as an indicator of the Company's operating
performance or cash flow as a measure of liquidity.
(8) EBITDA margin represents EBITDA as a percentage of net sales.
(9) Depreciation and amortization excludes amortization of deferred financing
fees.
(10) The ratio of earnings to fixed charges is computed by dividing pre-tax net
income (loss) after adding back fixed charges (interest expense and
facility charges), by fixed charges. The Company was unable to fully cover
the indicated fixed charges by earnings for certain periods presented and
instead has disclosed the amount by which fixed charges exceed earnings
before fixed charges where applicable.
(11) Total debt (including current maturities) of the Issuer includes an
intercompany payable by the Issuer to Holdings of $113.6 million which was
repaid in full as part of the Transactions.
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RISK FACTORS
In addition to the other information herein and incorporated by reference in
this Prospectus, holders of Old Notes should carefully consider, among other
things, the following factors before deciding whether to tender Old Notes for
the New Notes offered hereby. Certain statements in "Risk Factors" constitute
"forward-looking statements" within the meaning of the Litigation Reform Act.
See "Special Note Regarding Forward-Looking Statements."
FAILURE TO EXCHANGE OLD NOTES
New Notes will be issued in exchange for Old Notes only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documentation.
Therefore, holders of Old Notes desiring to tender such Old Notes in exchange
for New Notes should allow sufficient time to ensure timely delivery. Neither
the Exchange Agent nor the Issuer are under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes for exchange.
Old Notes that are not tendered or are tendered but not accepted will,
following consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes will be required to comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each Participating Broker-Dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected due to the limited amount, or "float," of the Old Notes
that are expected to remain outstanding following the Exchange Offer.
Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Old Notes
are not tendered or are tendered and not accepted in the Exchange Offer, the
trading market for the New Notes could be adversely affected. See "Plan of
Distribution" and "The Exchange Offer."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company incurred substantial indebtedness in connection with the
Transactions. See "The Transactions" and "Capitalization." Upon completion of
the Transactions, the Company has consolidated indebtedness substantially
greater than the Company's pre-Merger indebtedness. As of June 27, 1998, on a
pro forma basis after giving effect to the Transactions, (i) the Issuer would
have had $6.5 million of Issuer Senior Indebtedness and $118.4 million of
Indebtedness and stockholder's equity of $46.9 million and (ii) Holdings would
have had $21.2 million of senior indebtedness and $157.1 million of
Indebtedness. Also after giving effect to the Transactions, the Issuer's ratio
of earnings to fixed charges would have been 1.3 to 1 for fiscal 1998.
Holdings pro forma net income (loss) for fiscal 1998 would have been ($0.4)
million, as compared to $8.6 million for the same period on a historical
basis. The Issuer's pro forma cash interest expense for fiscal 1998 would have
been $12.8 million ($13.5 million of total interest expense), as compared to
$0.2 million of cash interest expense ($0.4 million of total interest expense)
for the same period on a historical basis. See "Capitalization" and "Holdings
Unaudited Pro Forma Historical Condensed Consolidated Financial Statements."
The Company and its subsidiaries may incur additional indebtedness in the
future, subject to certain limitations contained in the instruments governing
their indebtedness. As of June 27, 1998, after giving effect to the
Transactions, the Issuer anticipates that it would have had $46.3 million
available to be borrowed under the Senior Secured Credit Facility. The Company
will have significant debt service obligations. See "Holdings Unaudited Pro
Forma Historical Condensed Consolidated Financial Statements."
The Company's debt service obligations could have important consequences to
holders of the Notes, including the following: (i) a substantial portion of
the Company's cash flow available from operations after satisfying certain
liabilities arising in the ordinary course of business will be dedicated to
the payment of
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principal and interest on its indebtedness, thereby reducing the funds that
would otherwise be available to the Company, including for acquisitions and
future business opportunities; (ii) the Company's ability to obtain additional
financing in the future may be limited; (iii) certain of the Company's
borrowings (including, but not limited to, the amounts borrowed under the
Senior Secured Credit Facility) will be at variable rates of interest, which
could cause the Company to be vulnerable to increases in interest rates; (iv)
the Company's flexibility in planning for, or reacting to, changes in its
business and the industry may be limited; (v) the Company's higher degree of
leverage may make it relatively more vulnerable to economic downturns and
competitive pressures; (vi) a substantial decrease in net operating cash flows
or an increase in expenses of the Company could make it difficult for the
Company to meet its debt service requirements or force it to modify its
operations; and (vii) all of the indebtedness incurred in connection with the
Senior Secured Credit Facility will become due prior to the time the principal
payment on the Notes will become due.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Notes) and to
make scheduled payments under its operating leases depends on its future
performance, which is subject to economic, financial, competitive and other
factors beyond its control. While management believes that future cash flow
from operations, together with available borrowings under the Senior Secured
Credit Facility, will be adequate to meet the Company's anticipated
requirements for capital expenditures, working capital, interest payments and
scheduled principal payments, there can be no assurance that the Company's
business will continue to generate sufficient cash flow from operations in the
future to service its debt and make necessary capital expenditures after
satisfying certain liabilities arising in the ordinary course of business. If
unable to do so, the Company may be required to refinance all or a portion of
its existing debt, including the Notes, to sell assets or to obtain additional
financing. There can be no assurance that any such refinancing would be
possible or that any such sales of assets or additional financing could be
achieved.
RESTRICTIVE DEBT COVENANTS
The Indenture and the Senior Secured Credit Facility contain numerous
financial and operating covenants that limit the discretion of the Issuer's
management with respect to certain business matters, the most restrictive of
which are contained in the Senior Secured Credit Facility and include a
minimum interest coverage ratio, a maximum leverage ratio and a minimum fixed
charge coverage ratio. The Indenture and the Senior Secured Credit Facility
also contain covenants that prohibit the payment of cash dividends as well as
restrict the amount that the Issuer can repurchase of its subordinated debt
and equity. These covenants place significant restrictions on, among other
things, the ability of the Issuer to incur additional indebtedness, to create
liens or other encumbrances, to make certain payments and investments, to sell
or otherwise dispose of assets, and to merge or consolidate with other
entities. The Issuer's ability to comply with such covenants may be affected
by events beyond its control, including prevailing economic, financial and
industry conditions. The breach of any such covenants or restrictions could
result in a default under the Indenture or the Senior Secured Credit Facility,
which would permit the senior lenders, or the holders of the New Notes, or
both, as the case may be, to declare all amounts borrowed thereunder to be due
and payable, together with accrued and unpaid interest, and the commitments of
the senior lenders to make further extensions of credit under the Senior
Secured Credit Facility could be terminated. If the Issuer is unable to repay
its indebtedness to its senior lenders, such lenders could proceed against the
collateral securing such indebtedness. See "Description of Senior Secured
Credit Facility" and "Description of Notes."
SUBORDINATION OF NOTES AND THE HOLDINGS GUARANTEE
The Old Notes are, and the New Notes will be, senior, subordinated,
unsecured, general obligations of the Issuer, ranking subordinate in right of
payment to all existing and future Issuer Senior Indebtedness and will rank
senior or pari passu in right of payment to all existing and future
subordinated indebtedness of the Issuer. The Issuer's obligations under the
New Notes will be guaranteed on a senior subordinated basis by Holdings
pursuant to the Holdings Guarantee. The Holdings Guarantee will be a general,
unsecured obligation of Holdings subordinate in right of payment to all
Holdings senior indebtedness. The New Notes initially will not be guaranteed
by the Issuer's subsidiaries. Consequently, liabilities of the Issuer's
subsidiaries will effectively be
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senior in right of payment to the New Notes. As of June 27, 1998, on a pro
forma basis, after giving effect to the Transactions, (i) the Issuer and its
subsidiaries would have had approximately $8.4 million of Indebtedness that
ranks senior or effectively senior to the New Notes and stockholder's equity
of $46.9 million and (ii) Holdings would have had $21.2 million of senior
indebtedness. In the event of an insolvency, liquidation, or other
reorganization of the Company, the assets of the Issuer and Holdings will be
available to pay obligations on the New Notes and the Holdings Guarantee only
after all Issuer Senior Indebtedness and Holdings senior indebtedness,
respectively, has been paid in full. Accordingly, in such event there may be
insufficient assets remaining after payment of prior claims to pay amounts due
on the New Notes. In addition, generally, no payments may be made with respect
to the New Notes if a default exists with respect to any Issuer Senior
Indebtedness. See "Description of Senior Secured Credit Facility" and
"Description of Notes--Subordination."
CUSTOMER CONCENTRATION
In fiscal 1996, 1997 and 1998, approximately 17%, 18% and 21%, respectively,
of the Company's net sales were to a single customer, Wal-Mart. Due
principally to the sale of Service Cycle/Mongoose in April 1997 and the sale
of SportRack in July 1997, net sales to Wal-Mart as a percentage increased in
fiscal 1998. In addition, at the end of fiscal 1997 and 1998, 23% and 27% of
the Company's gross accounts receivable were attributed to Wal-Mart. In fiscal
1998, the largest five customers of the Company were Wal-Mart, K-Mart,
Canadian Tire, Sports Authority and Sears and accounted for 36% of its net
sales, and the largest ten customers accounted for 43% of its net sales. The
Company has no written agreement or other understanding with Wal-Mart or any
of its other customers that relate to future purchases by such customers, and
thus such purchases could be discontinued at any time. A termination of or
other adverse change in the Company's relationship with, an adverse change in
the financial condition of, or a significant reduction in sales to, Wal-Mart
or other large customers of the Company, could have a material adverse effect
on the Company. The write-off of any significant receivable due from these
customers could also adversely impact the Company.
PRODUCT LIABILITY
Due to the nature of the business of the Company, at any particular time the
Company may be a defendant in a number of product liability lawsuits for
serious personal injury or death allegedly related to the Company's products
and, in certain instances, products manufactured by others. Many such lawsuits
against the Company seek damages, including punitive damages, in substantial
amounts. As of September 28, 1998, there were 39 lawsuits pending relating to
injuries allegedly suffered from products made or sold by the Company. Of the
39 lawsuits, 12 involve motorcycle helmets, 12 involve bicycle helmets, one
involves an auto racing helmet, two involve bicycle pedals, 9 involve bicycles
and three involve bicycle accessories.
Two of the 39 lawsuits pending against the Company as of September 28, 1998
are scheduled for trial prior to December 31, 1998. Of the two lawsuits
scheduled for trial prior to December 31, 1998, one involves a bicycle helmet
claim resulting in death and one involves a bicycle pedal claim resulting in a
broken leg.
During each of the last five fiscal years the Company has been served with
complaints in the following number of cases: 11 cases in fiscal 1994, five
cases in fiscal 1995, 12 cases in fiscal 1996, 15 cases in fiscal 1997 and 14
cases in fiscal 1998. Of the 14 cases served in fiscal 1998, which includes
Giro and AMRE lawsuits, six involve bicycles, one involves bicycle accessories
and seven involve bicycle helmets. Of these same 14 cases, three cases involve
a claim relating to death, three involve claims relating to serious,
permanently disabling injuries and eight involve less serious injuries such as
broken bones or lacerations. Typical product liability claims include
allegations of failure to warn, breach of express and implied warranties,
design defects and defects in the manufacturing process.
The philosophy of the Company is to defend vigorously all product liability
claims. Although the Company intends to continue to defend itself aggressively
against all claims asserted against it, current pending proceedings and any
future claims are subject to the uncertainties attendant to litigation and the
ultimate outcome of any such proceedings or claims cannot be predicted. Due to
the self insurance retention amounts in the Company's product
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liability insurance coverage, the assertion against the Company of a large
number of claims could have a material adverse effect on the Company. In
addition, the successful assertion against the Company of any, or a series of
large, claims exceeding insurance coverage, could have a material adverse
effect on the Company.
From 1954 to 1991, the Company manufactured, marketed and sold motorcycle
helmets. The Company sold its motorcycle helmet manufacturing business in June
1991. Even though the purchaser assumed all responsibility for product
liability claims arising out of helmets manufactured prior to the date of the
disposition, the Company has paid certain costs associated with the defense of
such claims. If the purchaser is for any reason unable to pay the judgment,
settlement amount or defense costs arising out of any claim, the Company could
be held responsible for the payment of such amounts or costs. The Company
believes that the purchaser does not currently have the financial resources to
pay any significant judgment, settlement amount or defense costs arising out
of any claims. The Company has licensed the Bell trademark to the purchaser
for use on motorcycle helmets. The Company believes that, by virtue of its
status as licensor and the fact that such motorcycle helmets carry the Bell
name, it is possible that the Company could be named as a defendant in actions
involving liability for the motorcycle helmets manufactured by the purchaser
of the Company's motorcycle helmet business. In fiscal 1998, the Company
secured insurance coverage for certain liabilities associated with its
motorcycle helmets manufactured or licensed prior to June 1991.
In February 1996, a Toronto, Canada jury returned a verdict against the
Company based on injuries arising out of a 1986 motorcycle accident. The jury
found that the Company 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 the Company would be
responsible and the legal fees and tax implications associated therewith are
estimated to be between $3.0 and $4.0 million (based on current exchange
rates). This claim arose during a period in which the Company was self-
insured. The Company has filed an appeal of the Canadian verdict.
In February 1998, a Wilkes-Barre, Pennsylvania jury returned a verdict
against the Company relating to injuries sustained in a 1993 motorcycle
accident. The judgment totaled $6.8 million, excluding any interest, fees or
costs which may be assessed. This claim arose during a period in which the
Company was self-insured. The Company has filed post-trial motions, which were
heard on August 6, 1998, to set aside the jury's verdict. If the motions are
denied, the Company intends to appeal the judgment against the Company.
In June 1998, a Wilmington, Delaware jury returned a verdict against the
Company relating to injuries sustained in a 1991 off-road motorcycle accident.
The judgment totaled $1.8 million excluding any interest, fees or costs which
may be assessed. The claim is covered by insurance; however, the Company is
responsible for a $1.0 million self-insured retention. The Company has filed
post-trial motions to set aside the jury's verdict and to appeal the judgment
entered against the Company.
Due to certain deductibles, self-insured retention levels and aggregate
coverage amounts applicable under the Company's insurance policies, the
Company may bear responsibility for a significant portion, if not all, of the
defense costs (which include attorney's fees, settlement costs and the cost of
satisfying judgments) of any claim asserted against the Company or its
subsidiaries. There can be no assurance that the insurance coverage, if
available, will be sufficient to cover one or more large claims or that the
applicable insurer will be solvent at the time of any covered loss. Further,
there can be no assurance that the Company will obtain insurance coverage at
acceptable levels and costs in the future.
The Company's current product liability insurance for bicycling and auto
racing products covers claims based on occurrences within the policy period up
to a maximum of $50.0 million in the aggregate in excess of the Company's
self-insured retention of $1.0 million per occurrence for bicycle and auto
racing helmets and in excess of the Company's self-insured retention of
$250,000 for other bicycle-related products.
Insurance coverage for products manufactured by Giro, prior to the
acquisition by the Company in January 1996, include self-insured retentions of
$0.5 million per occurrence and $1.5 million in the aggregate for all product
claims, with $55.0 million coverage in excess of the self-insured retention
levels. The Company
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maintains an active role in the management of all Giro related litigation.
Giro claims served after December 31, 1996 are insured under the same coverage
provided to the Company.
In fiscal 1998, the Company secured a ten-year policy from AIG and Chubb for
insurance coverage for motorcycle helmets manufactured or licensed prior to
June 1991. The policy covers up to a maximum of $50.0 million in the aggregate
in excess of the Company's self-insured retention of $1.0 million per
occurrence, excluding all previous payments made on existing claims, and in
excess of $2.0 million in the aggregate for known claims or $4.0 million in
the aggregate for incurred but not reported claims and new occurrences. The
policy covers all claims except the February 1996 and February 1998 judgments
against the Company.
No litigation reserves have been established by the Company relating to the
foregoing judgments, although the Company has established reserves for
estimated costs of the defense of these and other known claims.
DEPENDENCE ON SUPPLIERS AND RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Approximately 85% of the Company's mass merchant bicycle accessories are
manufactured by suppliers in Taiwan and the People's Republic of China
("China"). Approximately 25% of the Company's fiscal 1998 net sales were from
international sales. Consequently, the Company's business is subject to the
risks generally associated with doing business abroad. The Company cannot
predict the effect various factors in the countries in which the Company's
suppliers and customers are located, such as delays in shipments, foreign
governmental regulation, adverse fluctuations in foreign exchange rates,
difficulties in collecting receivables, embargoes, tariffs, exchange controls,
trade disputes, changes in economic conditions and political turmoil, could
have on the Company, but any such development could have a material adverse
effect on the Company's sales and profitability. The Company's business is
also subject to the risks associated with the enactment of additional United
States or foreign legislation and regulations relating to exports or imports,
including quotas, duties, taxes or other charges or restrictions that could be
imposed upon the export or import of bicycle products in the future which, if
imposed, could have a material adverse effect on the Company's sales and
profitability. The Company may also be adversely affected by significant
fluctuations in the value of the United States dollar relative to other
currencies. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" and "Business."
COMPETITION
The markets for bicycle helmets and accessories are highly competitive, and
the Company faces competition from a number of sources in each of its product
lines. Some competitors are part of large bicycle manufacturers and may be
better able to promote bicycle helmet and accessory sales through bicycle
sales programs. Competition is primarily based on price, quality, customer
service, brand name recognition, product offerings, product features and
style. Although there are no significant technological or manufacturing
barriers to entering the bicycle helmet and accessory businesses, factors such
as brand recognition and customer relationships may discourage new competitors
from entering the business. New competitors entered the bicycle helmet market
in the last several years and pricing pressures increased significantly as a
result of such competition. There can be no assurance that additional
competitors will not enter the Company's existing markets, nor can there be
any assurance that the Company will be able to compete successfully against
existing or new competition.
ENVIRONMENTAL MATTERS
The Company is subject to many federal, state and local requirements
relating to the protection of the environment, and the Company has made, and
will continue to make, expenditures to comply with such provisions. The
Company believes that its operations are in material compliance with these
laws and regulations and does not believe that future compliance with such
laws and regulations will have a material adverse effect on its results of
operations or financial condition. If environmental laws become more
stringent, the Company's environmental capital expenditures and costs for
environmental compliance could increase in the future. In addition, due to the
possibility of unanticipated factual or regulatory developments, the amount
and timing of
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future environmental expenditures could vary substantially from those
currently anticipated and could have a material adverse effect on the Company.
In the ordinary course of its business, the Company is required to dispose
of certain waste at off-site locations. During fiscal 1993, the Company became
aware of an investigation by the Illinois Environmental Protection Agency (the
"Illinois EPA") 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 EPA 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 ("Illinois") filed a complaint with
the Illinois Pollution Control Board ("Pollution Control Board") against the
Company and the disposal site owner based on the same allegations. The
complaint sought penalties not exceeding statutory maximums as well as such
other relief as the Pollution Control Board deemed appropriate. The Pollution
Control Board has approved a settlement between Illinois and the Company
pursuant to which the Company paid $69,000 to Illinois and disposed of certain
materials in a container at the waste disposal site at an authorized disposal
facility. In connection with this matter, the disposal site owner filed a
cross-claim against the Company that sought to have penalties assessed against
the Company rather than the disposal site owner. The disposal site owner later
asserted that if it is required to meet any new or enhanced closure
requirements as a result of the Illinois claim against the landfill, the costs
of such additional closure requirements should be imposed on the Company. On
May 21, 1998, the Pollution Control Board found that the Company was not
liable for any of the violations alleged by the disposal site owner, and
dismissed the cross-claim.
In an unrelated matter, the Company recently received a De Minimis Notice
Letter and Settlement Offer from the United States Environmental Protection
Agency ("USEPA") under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), 42 U.S.C. Sections 9601 et seq. for the
Operating Industries, Inc. Landfill Superfund Site ("OII Site") in Monterey
Park, California. CERCLA imposes liability for the costs of cleaning up, and
certain damages resulting from, releases and threatened releases of hazardous
substances. Although courts have interpreted CERCLA liability to be joint and
several, where feasible, the liability typically is allocated among the
responsible parties according to a volumetric or other standard. USEPA
apparently has identified the Company as a de minimis potentially responsible
party based on several waste shipments the Company allegedly sent to the site
in the late 1970s and in 1980. USEPA's settlement offer to the Company is in
the range of $29,000 to $36,000. The settlement would cover all past and
expected future costs at the OII Site, and, with limited exception, provide
the Company with covenants not to sue from the United States and California,
and contribution protection from private parties. Accordingly, the Company
does not expect this claim to have a material adverse effect on the Company.
SEASONAL AND QUARTERLY FLUCTUATIONS
Bicycling is primarily a warm weather sport. Sales of the Company's products
reflect, in part, a seasonality of market demand. In fiscal 1998 and 1997,
approximately 58% and 54%, respectively, of the Company's net sales occurred
during the six months ended June 27 and 28, respectively. The second quarter
of the fiscal year is generally the Company's slowest quarter. In addition,
quarterly results may vary from year to year due to the timing of new product
introductions, major customer shipments, inventory holdings of significant
customers, adverse weather conditions and the sales mix of products sold.
Accordingly, comparisons of quarterly information of the Company's results of
operations may not be indicative of the Company's ongoing performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PROTECTION OF PROPRIETARY RIGHTS
Because much of the technology associated with bicycle helmets and bicycle
accessories is in the public domain, patent protection is generally available
only for particular features or functions of a product, rather than for any
product as a whole. The Company believes that many of its current products
contain some elements that are protected by the Company's patents.
Nevertheless, the Company's competitors currently imitate and may continue to
imitate certain features and functions of the Company's products. There can be
no assurance that
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current or future patent protection will prevent competitors from offering
competing products, that any issued patents will be upheld, or that patent
protection will be granted in any or all of the countries in which
applications are currently pending or granted on the breadth of the
description of the invention. In addition, due to considerations relating to,
among other things, cost, delay or adverse publicity, there can be no
assurance that the Company will elect to enforce its intellectual property
rights.
The Company's competitors have also obtained and may continue to obtain
patents on certain features of their products, which may prevent or discourage
the Company from offering such features on its products which, in turn, could
result in a competitive disadvantage to the Company. The Company has
occasionally received, and may receive in the future, claims asserting
intellectual property rights owned by third parties that relate to the
Company's products and product features. Although to date the Company has
incurred no material liabilities as a result of any such claims, there can no
assurance that the Company will not incur material liabilities in the future.
KEY PERSONNEL
The success of the Company is dependent upon the management and leadership
skills of the members of its senior management team and other key personnel,
including certain members of its product development team. The loss of any
such personnel or the inability to attract, retain and motivate key personnel
could have a material adverse effect on the Company.
DISCRETIONARY CONSUMER SPENDING
Sales of bicycle helmets and accessories have historically been dependent on
discretionary consumer spending, which may be affected by general economic
conditions. A decrease in consumer spending on bicycle helmets and accessories
could have a material adverse effect on the Company.
FRAUDULENT TRANSFER CONSIDERATIONS
The Issuer's obligations under the New Notes may be subject to review under
state or federal fraudulent transfer laws in the event of the Issuer's
bankruptcy or other financial difficulty. Under those laws, if a court in a
lawsuit by an unpaid creditor or representative of creditors of the Issuer,
such as a trustee in bankruptcy or the Issuer as debtor in possession, were to
find that when the Issuer issued the New Notes, it (a) received less than fair
consideration or reasonably equivalent value therefor, and (b) either (i) was
or was rendered insolvent, (ii) was engaged in a business or transaction for
which its remaining unencumbered assets constituted unreasonably small
capital, or (iii) intended to incur or believed (or reasonably should have
believed) that it would incur debts beyond its ability to pay as those debts
matured, the court could avoid the New Notes and the Issuer's obligations
thereunder, and direct the return of any amounts paid thereunder to the Issuer
or to a fund for the benefit of its creditors. Regardless of the factors
identified in clauses (a) - (b) above, the court could avoid the New Notes and
direct such repayment if it found that the Issuer issued the New Notes with
actual intent to hinder, delay, or defraud its creditors.
A court will likely find that the Issuer did not receive fair consideration
or reasonably equivalent value for its obligations under the New Notes to the
extent that the Notes' proceeds are used to pay the Merger consideration or
make other payments to Holdings' shareholders.
In addition, Holdings' obligations under the Holdings Guarantee may be
subject to review under the same laws in the event of a Holdings' bankruptcy
or other financial difficulty. In that event, if a court were to find that
when Holdings issued the Holdings Guarantee (or, in some jurisdictions, when
it became obligated to make payments thereunder), the factors in clauses (i)-
(iii) above applied to Holdings (or that Holdings issued the Holdings
Guarantee with actual intent to hinder, delay, or defraud its creditors), the
court could avoid the Holdings Guarantee and direct the repayment of amounts
paid thereunder. The Indenture will limit Holdings' liability under the
Holdings Guarantee to the maximum amount that it could pay without the
Holdings Guarantee
20
<PAGE>
being deemed a fraudulent transfer. See "Description of Notes." There can be
no assurance that (if this limitation is effective) the limited amount so
guaranteed will suffice to pay amounts owed under the Notes in full.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
YEAR 2000 CONVERSIONS
The year 2000 problem, which is common to most corporations, concerns the
inability of information systems, including computer software programs as well
as other systems dependent on computerized information such as phones,
voicemail, security systems and elevators ("Non-IT Systems"), to properly
recognize and process date sensitive information related to the year 2000 and
beyond. The Company believes that it will be able to achieve compliance by the
end of 1999 and does not currently anticipate any material disruption of its
operations as a result of any failure by the Company to be in compliance. The
Company has performed a preliminary examination of its major software
applications to determine whether each system is prepared to accommodate the
year 2000. This examination included a review of program code which is
maintained by the Company, including performing tests on its systems with
dates in the year 2000. The Company also obtained confirmation from outside
software vendors that their products are year 2000 compliant and is polling
its customers and vendors to determine whether they are year 2000 compliant
and to attempt to identify any potential issues. The Company has not incurred
significant separately identifiable costs related to the year 2000 issues
through June 27, 1998 and does not expect to incur significant additional
costs in order to upgrade its information systems to year 2000 compliance.
However, there can be no assurance that year 2000 issues or any related costs
and expenses will not have a material adverse effect on the Company.
INTRODUCTION OF THE EURO
The European Economic and Monetary Union and the introduction of a new
currency (the "Euro") will begin in Europe on January 1, 1999. The new
currency enables the European Union ("EU") to blend the economies of EU's
member states into one large market with unrestricted and unencumbered trade
across borders. The change of currencies in Europe may affect the Company's
business operations in Europe as well as having systems and accounting issues
for the Company. The Company is currently evaluating the impact of the Euro,
if any, on the Company's financial position, results of operation and cash
flows.
LACK OF PUBLIC MARKET FOR THE NOTES
As of the date hereof, the only registered holder of Old Notes is Cede &
Co., as the nominee of DTC. There is currently no established trading market
for the Old Notes or the New Notes and there can be no assurance as to the
liquidity of markets that may develop for the New Notes, the ability of
holders to sell their New Notes or the price at which such holders would be
able to sell. If such markets were to exist, the New Notes could trade at
prices that may be higher or lower than the initial market values thereof
depending on many factors, including prevailing interest rates and the markets
for similar securities. The New Notes will not be listed on any securities
exchange, but the Old Notes are eligible for trading in the PORTAL market. The
Initial Purchasers have advised the Company that each of them currently
intends to make a market in the Notes. However, no Initial Purchaser is
obligated to do so, and any market making with respect to the Notes may be
discontinued at any time without notice. In addition, such market making
activity may be limited during the pendency of the Exchange Offer or the
effectiveness of a Shelf Registration Statement in lieu thereof. See "The
Exchange Offer" and "Plan of Distribution." No assurance can be given as to
the liquidity of the trading market for the New Notes or, in the case of non-
tendering holders of the Old Notes, the trading market for the Old Notes
following the Exchange Offer.
21
<PAGE>
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control, the
Issuer will be required to make an offer to purchase all of the Notes,
including the New Notes at a price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the date of purchase. Certain events involving a change of control could
result in acceleration of, or similar repurchase obligations with respect to,
other indebtedness of the Issuer and Holdings, including the Senior Secured
Credit Facility and the Convertible Debentures, or other indebtedness of the
Issuer, Holdings or any of their subsidiaries that may be incurred in the
future. There can be no assurance that, in the event of a Change of Control,
the Issuer would have sufficient funds to purchase all Notes tendered. In
addition, the Senior Secured Credit Facility prohibits the Issuer from
repurchasing any New Notes, except with certain proceeds of one or more Equity
Offerings and certain funds from other sources. The Senior Secured Credit
Facility also provides that certain change of control events with respect to
the Issuer would constitute a default thereunder. Any future credit agreements
or other agreements relating to Issuer Senior Indebtedness to which the Issuer
becomes a party may contain similar restrictions and provisions. In the event
a Change of Control occurs at a time when the Issuer is prohibited from
purchasing the Notes, the Issuer will either seek the consent of its lenders
to purchase the Notes or attempt to refinance the borrowings that contain such
prohibition. If the Issuer does not obtain such a consent or refinance such
borrowings, the Issuer will remain prohibited from purchasing the Notes except
to the extent permitted under such provisions. In such case, the Issuer's
failure to purchase tendered Notes would constitute an Event of Default (as
defined) under the Indenture. If, as a result thereof, a default occurs with
respect to any Senior Indebtedness, the subordination provisions in the
Indenture would likely restrict payments to the holders of the Notes. The
provisions relating to a Change of Control included in the Indenture may
increase the difficulty of a potential acquiror obtaining control of the
Issuer. See "Description of Notes--Repurchase at the Option of Holders--Change
of Control."
22
<PAGE>
THE TRANSACTIONS
In February 1998, HB Acquisition and Holdings entered into the Merger
Agreement, which, subject to the conditions set forth therein including,
without limitation, obtaining the requisite approval of Holdings'
stockholders, provided for the Merger. On August 11, 1998, a majority of the
stockholders of Holdings approved and adopted the Merger Agreement at a
special meeting of stockholders. On August 17, 1998, pursuant to a Certificate
of Merger filed with the Secretary of State of the State of Delaware, the
Merger was consummated. Under the Merger Agreement, as of the Effective Time,
each share of Common Stock (other than (i) shares of Common Stock held by HB
Acquisition or shares of Common Stock held directly or indirectly by Holdings,
which shares were canceled and (ii) shares of Common Stock held by persons
perfecting appraisal rights) was converted into the right to receive the Per
Share Merger Consideration. The Merger and the transactions contemplated by
the Merger Agreement are being accounted for as a recapitalization under GAAP
for financial reporting purposes.
In connection with the Merger, the Investors invested an aggregate of $45.0
million in the equity of HB Acquisition and $15.0 million in the Holdings
Senior Discount Notes. Each Investor received securities consisting of a
combination of New Common Stock and Preferred Stock of Holdings as a result of
the Merger as well as the Holdings Senior Discount Notes. In addition,
immediately prior to the Effective Time, CBCI, an existing shareholder of
Holdings, exchanged $5.0 million worth of shares of Common Stock (valued at
the Per Share Merger Consideration) with HB Acquisition, and received, in
consideration therefor, equity of HB Acquisition. In addition, it is
anticipated that certain members of management will be provided with an
opportunity to make equity investments in the Company pursuant to a management
investment incentive plan. See "Related Party Transactions." Upon completion
of the Transactions, the Investors owned approximately 90% of the equity of
Holdings.
At the Effective Time, in order to finance a portion of the costs and
expenses related to the Merger and to support the Company's operating capital
requirements, up to $60.0 million of bank financing, subject to borrowing base
requirements, became available to the Issuer pursuant to the Senior Secured
Credit Facility with a group of lenders arranged by SG Cowen and DLJ. The
Senior Secured Credit Facility consists of a $60.0 million revolving credit
facility available for loans and letters of credit, subject to borrowing base
requirements. See "Description of Senior Secured Credit Facility." No
borrowings were made under the Senior Secured Credit Facility at the Effective
Time and, as of September 28, 1998, there were no outstanding borrowings under
the Senior Secured Credit Facility.
The proceeds from the Investors and CBCI Investments and the Offering and
available cash were used: (i) to fund the cash payments required to effect the
Merger; (ii) to purchase $62.5 million aggregate principal amount of the
Convertible Debentures in the Tender Offer; and (iii) to pay related fees and
expenses.
On June 30, 1998 Holdings commenced the Tender Offer for up to $62.5 million
aggregate principal amount of the Convertible Debentures. The Tender Offer
expired at 7:00 a.m. New York City time on August 14, 1998. Approximately
$77.4 million aggregate principal amount of the Convertible Debentures had
been tendered in the Tender Offer. Upon expiration of the Tender Offer, the
Company accepted for payment the Maximum Tender Amount and was required to pay
$57.2 million to repurchase the Convertible Debentures. As of August 17, 1998,
after giving effect to the Company's acceptance of the Maximum Tender Amount,
there was $23.8 million aggregate principal amount of Convertible Debentures
outstanding.
23
<PAGE>
USE OF PROCEEDS
USE OF PROCEEDS OF THE NEW NOTES
The Exchange Offer is intended to satisfy certain obligations of the Issuer
and Holdings under the Registration Rights Agreement. The Issuer will not
receive any proceeds from the issuance of the New Notes offered hereby. In
consideration for issuing the New Notes as contemplated in this Prospectus,
the Issuer will receive, in exchange, Old Notes in like principal amount. The
form and terms of the New Notes are substantially identical in all material
respects to the form and terms of the Old Notes, except as otherwise described
herein under "The Exchange Offer--Terms of the Exchange." The Old Notes
surrendered in exchange for the New Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the New Notes will not result in
any increase in the outstanding indebtedness of the Company.
USE OF PROCEEDS OF THE OLD NOTES
The gross proceeds from the sales of Old Notes, together with the proceeds
from the Investors and CBCI Investments and available cash were used to
finance the Transactions and pay related fees and expenses. The following
table sets forth the estimated sources and uses of funds in connection with
the Transactions, as if the Transactions had occurred on June 27, 1998.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Sources of Funds:
Existing cash......................................... $ 42,093
Senior Secured Credit Facility (1).................... 6,231
Senior Subordinated Notes............................. 110,000
Investors and CBCI Investments (2)(3)................. 65,000
--------
Total Sources....................................... $223,324
========
Uses of Funds:
Payment of the merger consideration (3)............... $142,639
Repurchase of Convertible Debentures (4).............. 56,873
Purchase of stock based awards through the Merger..... 6,912
Transactions fees and expenses........................ 16,900
--------
Total Uses.......................................... $223,324
========
</TABLE>
- ---------------------
(1) Represents estimated initial borrowings to partially fund costs and
expenses related to the Transactions. After consummation of the
Transactions, the Issuer will have up to $53.8 million available for
borrowing under the Senior Secured Credit Facility, subject to borrowing
base requirements. See "Description of Senior Secured Credit Facility."
(2) Includes $15.0 million aggregate proceeds of the Holdings Senior Discount
Notes.
(3) Includes the exchange by CBCI of $5.0 million worth of shares of Common
Stock valued at the Per Share Merger Consideration for HB Acquisition
capital stock. The exchange of shares by CBCI does not represent a
purchase, sale or other change in such equity investment for the Company's
accounting or tax purposes or any funds or proceeds paid to or used by
Holdings in the Merger, and does not necessarily represent a market
valuation for such shares.
(4) Reflects the purchase of $62.5 million aggregate principal amount of the
outstanding Convertible Debentures at the Tender Price, including accrued
interest of $0.3 million.
24
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Issuer as
of June 27, 1998 and, pro forma to give effect to the Transactions. The
following table should be read in conjunction with the Consolidated Financial
Statements of Holdings and the related notes thereto included elsewhere herein
and the other financial information included elsewhere in this Prospectus,
including "Management's Discussion and Analysis of Financial Condition and
Results of Operations." See "Holdings Unaudited Pro Forma Historical Condensed
Consolidated Financial Statements."
<TABLE>
<CAPTION>
AS OF JUNE 27,
1998
------------------
ACTUAL PRO FORMA
-------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................. $ 34,662 $ 3,000
======== ========
Debt (including current maturities):
Senior Secured Credit Facility (1)...................... $ -- $ 6,231
Other Existing Debt..................................... 2,134 2,134
Senior Subordinated Notes............................... -- 110,000
Intercompany payable to Holdings........................ 113,573 --
-------- --------
Total debt............................................ 115,707 118,365
Stockholder's equity...................................... 52,891 46,916
-------- --------
Total capitalization.................................. $168,598 $165,281
======== ========
</TABLE>
- ---------------------
(1) Represents estimated initial borrowings to partially fund costs and
expenses related to the Transactions. After consummation of the
Transactions, the Issuer expects to have up to $53.8 million available for
borrowing under the Senior Secured Credit Facility, subject to borrowing
base requirements. See "Description of Senior Secured Credit Facility."
25
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Issuer on August 17, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act. As a condition to the Purchase
Agreement, the Issuer and Holdings entered into the Registration Rights
Agreement with the Initial Purchasers pursuant to which the Issuer and
Holdings agreed, for the benefit of the holders of the Old Notes, to, among
other things, (i) file with the Commission the Exchange Offer Registration
Statement within 90 days after the Closing Date of the Offering and (ii) use
their best efforts to cause the Registration Statement (of which this
Prospectus is a part) to be declared effective under the Securities Act within
135 days after the Closing Date. The Issuer will keep the Exchange Offer open
for not less than 20 business days (or longer if required by applicable law)
after the date on which notice of the Exchange Offer is mailed to the holders
of the Old Notes. For each Old Note surrendered to the Issuer pursuant to the
Exchange Offer, the holder of such Old Note will receive a New Note having a
principal amount equal to that of the surrendered Old Note. Interest on each
New Note will accrue from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes would in general be
freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Notes who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the New Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Issuer in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution
of the New Notes, (iii) the holder or any such other person has no arrangement
or understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act and (v)
the holder or any such other person acknowledges that if such holder or other
person participates in the Exchange Offer for the purpose of distributing the
New Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on such no-action letters. As indicated above, each
Participating Broker-Dealer that receives a New Note for its own account in
exchange for Old Notes must acknowledge that it (i) acquired the Old Notes for
its own account as a result of market-making activities or other trading
activities, (ii) has not entered into any arrangement or understanding with
the Company or any "affiliate" of the Company (within the meaning of Rule 405
under the Securities Act) to distribute the New Notes to be received in the
Exchange Offer and (iii) will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. For a
description of the procedures for such resales by Participating Broker-
Dealers, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an
Exchange Offer, or if for any other reason the Exchange Offer is not
consummated or if any holder of the Old Notes (other than an "affiliate" of
the Company or the Initial Purchasers) is not eligible to participate in the
Exchange Offer, the Company will (a) file the Shelf Registration Statement
covering resales of the Old Notes, (b) use its reasonable best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act and (c) use its reasonable best efforts to keep effective the
Shelf Registration Statement until the earlier of two years after its
effective date and such time as all of the applicable Old Notes have been sold
thereunder. The Company will, in the event of the filing of the Shelf
26
<PAGE>
Registration Statement, provide to each applicable holder of the Old Notes
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit
unrestricted resales of the Old Notes. A holder of Old Notes that sells such
Old Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Registration Rights Agreement which
are applicable to such a holder (including certain indemnification
obligations). In addition, each holder of the Old Notes will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within
the time periods set forth in the Registration Rights Agreement in order to
have their Old Notes included in the Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuer will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Issuer will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only
in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP Number from the Old Notes, (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the New Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange
Offer, all of which rights will terminate when the Exchange Offer is
consummated. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $110,000,000 aggregate principal amount
of Old Notes were outstanding. This Prospectus and the Letter of Transmittal
will be mailed initially to the holders of record of the Old Notes as of the
close of business on , 1998.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of California or the Indenture in connection with
the Exchange Offer. The Issuer intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Issuer shall be deemed to have accepted validly tendered Old Notes when,
as and if the Issuer has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the New Notes from the Issuer.
27
<PAGE>
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Issuer will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Issuer, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuer will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Issuer reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from their date of issuance. Holders of Old
Notes that are accepted for exchange will receive accrued interest thereon to,
but not including, the date of issuance of the New Notes. Such interest will
be paid with the first interest payment on the New Notes on February 15, 1999
in the manner provided in the New Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of the New Notes. Interest on
the New Notes is payable semi-annually on each February 15 and August 15,
commencing on February 15, 1999.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a properly completed and duly executed Letter
of Transmittal (or facsimile thereof), with any required signature guarantee,
or (in the case of a book-entry transfer), an Agent's Message in lieu of the
Letter of Transmittal, and any other required documents, must be received by
the Exchange Agent at the address set forth below under "Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date. In addition, prior
to 5:00 p.m. New York City time, on the Expiration Date either (a)
certificates for tendered Old Notes must be received by the Exchange Agent at
such address or (b) such Old Notes must be transferred pursuant to the
procedures for book-entry transfer described below (and a confirmation of such
tender received by the Exchange Agent, including an Agent's Message if the
tendering holder has not delivered a Letter of Transmittal).
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgment from
the participant in DTC tendering Old Notes which are the subject of such book-
entry confirmation, that such participant has received and agrees to be bound
by the terms of the Letter of Transmittal and that the Issuer may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and
received by the Exchange
28
<PAGE>
Agent, which states that DTC has received an express acknowledgment from the
participant in DTC tendering Old Notes that such participant has received and
agrees to be bound by the Notice of Guaranteed Delivery.
By executing the Letter of Transmittal, each holder will make to the Issuer
the representations set forth above in the third paragraph under the heading
"--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuer will
constitute agreement between such holder and the Issuer in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Beneficial
Owner Instructions to Registered Holders " included with the Letter of
Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined in the
Letter of Transmittal) unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal or (ii) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Issuer understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee, or (in the
case of a book-entry transfer) an Agent's Message in lieu of the Letter of
Transmittal, and all other required documents must in each case be transmitted
to and received or confirmed by the Exchange Agent at its
29
<PAGE>
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the Book-
Entry Transfer Facility does not constitute delivery to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange
Offer by causing DTC to transfer Old Notes to the Exchange Agent in accordance
with DTC's ATOP procedures for transfer. DTC will then send an Agent's Message
to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined
by the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Issuer's acceptance of which
would, in the opinion of counsel for the Issuer, be unlawful. The Issuer also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular Old Notes. The Issuer's
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Old Notes must be cured within such time as the Issuer shall
determine. Although the Issuer intends to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the Issuer, the
Exchange Agent nor any other person shall incur any liability for failure to
waive such notification. Tenders of Old Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
30
<PAGE>
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuer
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no New Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Conditions" below. For purposes of the Exchange Offer,
the Issuer shall be deemed to have accepted properly tendered Old Notes for
exchange when, as and if the Issuer has given oral and written notice thereof
to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely
confirmation of book-entry transfer of such Old Notes into the Exchange
Agent's account at the book-entry transfer facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or non-
exchanged Old Notes will be returned without expense to the tendering holder
thereof (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such non-exchanged Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration of the Exchange
Offer.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuer shall not
be required to accept for exchange, or to issue New Notes in exchange for any
Old Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if:
31
<PAGE>
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Issuer, might materially impair
the ability of the Issuer to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Issuer or any of its subsidiaries; or
(b) the Exchange Offer shall violate any applicable law, statute, rule,
regulation or any applicable interpretation by the staff of the Commission;
or
(c) any governmental approval has not been obtained, which approval the
Issuer shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
In addition, the Issuer will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). In any such event the Issuer is required
to use every reasonable effort to obtain the withdrawal of any stop order at
the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time or
from time to time in its sole discretion. The failure by the Issuer at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
If the Issuer determines in its reasonable judgment that any of the
conditions are not satisfied, the Issuer may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
By Mail: By Overnight Courier:
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station 88 Pine Street, 19th Floor
Post Office Box 1023 New York, New York 10005
New York, New York 10268-1023 Att'n: Reorganization Department
By Hand: By Facsimile Transmission:
c/o Harris Trust Company of New York (212) 701-7636
88 Pine Street, 19th Floor (for Eligible Institutions only)
New York, New York 10005
Att'n: Reorganization Department For Information or Confirmation by
Telephone:
(212) 701-7624
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
32
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuer. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuer and its affiliates.
The Issuer has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Issuer, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuer. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Issuer's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Issuer. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Issuer (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a
person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Issuer), (iii) outside
the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Issuer believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on
the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes.
33
<PAGE>
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution
of the New Notes, (iii) the holder or any such other person has no arrangement
or understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act and (v)
the holder or any such other person acknowledges that if such holder or other
person participates in the Exchange Offer for the purpose of distributing the
New Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on such no-action letters. As indicated above, each
Participating Broker-Dealer that receives a New Note for its own account in
exchange for Old Notes must acknowledge that it (i) acquired the Old Notes for
its own account as a result of market-making activities or other trading
activities, (ii) has not entered into any arrangement with the Company (within
the meaning of Rule 405 under the Securities Act) or understanding with the
Company or any "affiliate" of the Company (within the meaning of Rule 405
under the Securities Act) to distribute the New Notes to be received in the
Exchange Offer and (iii) will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. For a
description of the procedures for such resales by Participating Broker-
Dealers, see "Plan of Distribution."
34
<PAGE>
HOLDINGS UNAUDITED PRO FORMA HISTORICAL CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The following Holdings Unaudited Pro Forma Historical Condensed Consolidated
Financial Statements have been derived by the application of pro forma
adjustments to Holdings' historical consolidated financial data included
elsewhere herein. The pro forma consolidated statement of operations for
fiscal 1998 give effect to the Transactions as if the Transactions had been
consummated as of June 29, 1997. The pro forma consolidated balance sheet data
give effect to the Transactions as if the Transactions had been consummated as
of June 27, 1998. The pro forma adjustments described in the accompanying
notes are based upon available information and certain assumptions that the
Company believes are reasonable. In the opinion of management, all adjustments
necessary to fairly present the pro forma information have been made. The
Holdings Unaudited Pro Forma Historical Condensed Consolidated Financial
Statements are provided for informational purposes only and do not purport to
be indicative of the results that would have been reported had such events
actually occurred on the dates specified, nor are they indicative of the
Company's results for any future period. The Holdings Unaudited Pro Forma
Historical Condensed Consolidated Financial Statements should be read in
conjunction with the "Holdings Selected Historical Consolidated Financial and
Other Data" and the related notes thereto and the Consolidated Financial
Statements of Holdings and the related notes thereto included elsewhere
herein.
The Merger is being accounted for as a recapitalization under GAAP for
financial reporting purposes. Under recapitalization accounting, the
historical values of assets and liabilities continue to be reported by
Holdings and stockholders' equity is reduced by the amount of the merger
consideration paid to the stockholders of Holdings. New equity and debt issued
by Holdings are recorded based on the respective proceeds to Holdings, net of
issuance cost.
35
<PAGE>
HOLDINGS UNAUDITED PRO FORMA HISTORICAL CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF JUNE 27, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO
ACTUAL ADJUSTMENTS FORMA
-------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents................... $ 45,093 $ (42,093)(a) $ 3,000
Accounts receivable......................... 63,472 63,472
Inventories................................. 39,679 39,679
Deferred taxes and other current assets..... 12,234 12,234
-------- --------- --------
Total current assets...................... 160,478 (42,093) 118,385
Property, plant and equipment................. 20,636 20,636
Goodwill...................................... 54,292 54,292
Intangibles and other assets.................. 11,661 4,677 (b) 16,338
-------- --------- --------
Total assets.............................. $247,067 $ (37,416) $209,651
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable............................ $ 7,663 $ 7,663
Accrued compensation and employee benefits.. 5,541 $ (415)(c) 5,126
Accrued expenses............................ 16,158 (126)(c) 16,032
Notes payable and current maturities
of long-term debt and capital lease
obligations................................ 679 679
-------- --------- --------
Total current liabilities................. 30,041 (541) 29,500
Long-term debt................................ 86,625 68,731 (d) 155,356
Capital lease obligations and other
liabilities.................................. 2,142 2,142
-------- --------- --------
Total liabilities......................... 118,808 68,190 186,998
-------- --------- --------
Total stockholders' equity................ 128,259 (105,606)(e) 22,653
-------- --------- --------
Total liabilities and stockholders'
equity................................... $247,067 $ (37,416) $209,651
======== ========= ========
</TABLE>
See accompanying notes to the Holdings unaudited pro forma historical condensed
consolidated financial statements.
36
<PAGE>
HOLDINGS UNAUDITED PRO FORMA HISTORICAL CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 27, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO
ACTUAL ADJUSTMENTS FORMA
-------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................... $207,236 $207,236
Cost of sales............................... 137,672 137,672
-------- --------
Gross profit................................ 69,564 69,564
Selling, general and administrative
expenses................................... 48,517 600 (f) 49,117
Loss on disposal of product lines and sale
of assets.................................. 700 700
Amortization of goodwill and intangible
assets..................................... 2,260 2,260
Restructuring charges....................... 1,192 1,192
-------- -------- --------
Income (loss) from operations............... 16,895 (600) 16,295
Investment income........................... 1,716 (1,596)(g) 120
Interest expense............................ 4,715 12,264 (h) 16,979
-------- -------- --------
Net income before provision for income
taxes...................................... 13,896 (14,460) (564)
Provision for income taxes.................. 5,318 (5,495)(i) (177)
-------- -------- --------
Net income (loss)........................... $ 8,578 $ (8,965) $ (387)
======== ======== ========
</TABLE>
See accompanying notes to the Holdings unaudited pro forma historical condensed
consolidated financial statements.
37
<PAGE>
NOTES TO HOLDINGS UNAUDITED PRO FORMA HISTORICAL CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(a) The following table sets forth the estimated sources and uses of funds in
connection with the Transactions, as if the Transactions had occurred on
June 27, 1998:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Sources of Funds:
Senior Secured Credit
Facility (1)............. $ 6,231
Senior Subordinated
Notes.................... 110,000
Investors and CBCI
Investments (2)(3)....... 65,000
--------
Total Sources........... 181,231
--------
Uses of Funds:
Payment of the merger
consideration (3)........ 142,639
Repurchase of Convertible
Debentures (4)........... 56,873
Purchase of stock based
awards through the
Merger................... 6,912
Transactions fees and
expenses................. 16,900
--------
Total Uses.............. 223,324
--------
Net effect on cash...... $(42,093)
========
</TABLE>
---------------------
(1) Represents estimated initial borrowings to partially fund costs and
expenses related to the Transactions. After consummation of the
Transactions, the Issuer will have up to $53.8 million available for
borrowing under the Senior Secured Credit Facility, subject to
borrowing base requirements. See "Description of Senior Secured Credit
Facility."
(2) Includes $15.0 million aggregate proceeds of the Holdings Senior
Discount Notes.
(3) Includes the exchange by CBCI of $5.0 million worth of shares of
Common Stock valued at the Per Share Merger Consideration for HB
Acquisition capital stock.
(4) Includes the purchase of $62.5 million aggregate principal amount of
the outstanding Convertible Debentures at the Tender Price, including
accrued interest of $0.3 million.
(b) Adjustment reflects deferred financing and certain other debt-related
transaction costs of $5.5 million associated with the Offering and the
Senior Secured Credit Facility, net of the write-off of unamortized
deferred financing fees associated with the Company's existing revolving
credit facility and the Convertible Debentures which was recognized as an
extraordinary loss of $0.5 million, net of a tax benefit of $0.3 million
in the period in which the Transactions occur.
(c) Adjustments reflect: (i) a decrease in accrued interest of $0.3 million
related to the Convertible Debentures which were purchased in connection
with the Tender Offer; (ii) an increase in accrued taxes of $0.2 million
related to taxes incurred in connection with the Transactions; and (iii) a
decrease in accrued compensation of $0.4 million which was paid to certain
members of management upon consummation of the Merger.
(d) Adjustment reflects: (i) the borrowing of $6.2 million under the Senior
Secured Credit Facility; (ii) the offering of $110.0 million of the Old
Notes; (iii) the purchase by the Investors of $15.0 million aggregate
proceeds of Holdings Senior Discount Notes; and (iv) the purchase of $62.5
million of the Convertible Debentures in connection with the Tender Offer.
38
<PAGE>
(e) Adjustment reflects the net effect of the items set forth below:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Equity investments (1)(2)........................... $ 50,000
Payment of the merger consideration (2)............. (142,639)
Purchase of stock based awards through the Merger,
net of tax ........................................ (6,220)
Extraordinary gain (3).............................. 3,171
Tax benefit of foreign currency translation
adjustment......................................... 342
Transaction fees and expenses, net of tax........... (10,260)
---------
Net equity adjustment........................... $(105,606)
=========
</TABLE>
---------------------
(1) Includes $45.0 million aggregate investment in Holdings' equity by the
Investors.
(2) Includes the exchange by CBCI of $5.0 million worth of shares of
Common Stock valued at the Per Share Merger Consideration for HB
Acquisition capital stock.
(3) In connection with the Transactions, the Company will record an
extraordinary gain of $3.2 million, net of taxes of $1.9 million from
(i) the write-off of deferred financing fees and (ii) the recognition
of a gain on the purchase of $62.5 million of the Convertible
Debentures in connection with the Tender Offer.
(f) The pro forma adjustment to selling, general and administrative expenses
reflects the annual management fee payable to the Investors upon the
occurrence of certain events.
(g) Adjustment to investment income reflects the reduction of $1.6 million of
interest income based on the average cash balance during fiscal 1998 at an
assumed interest rate of 4%.
(h) The pro forma adjustment to interest expense reflects the elimination of
historical interest expense and amortization of deferred financing fees
and reflects the incurrence of interest expense and amortization of
deferred financing fees related to: (i) $6.2 million of borrowings under
the Senior Secured Credit Facility; (ii) the offering of $110.0 million of
the Notes; (iii) the sale of $15.0 million aggregate proceeds of Holdings
Senior Discount Notes to the Investors; and (iv) $2.1 million of other
existing debt of the Issuer.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Interest expense and amortization of deferred
financing fees--new debt.......................... $15,413
Interest expense and amortization of deferred
financing fees--old debt.......................... (3,149)
-------
Net interest expense adjustment................ $12,264
=======
</TABLE>
(i) The pro forma adjustment to provision for income taxes reflects the tax
effect of deductible adjustments at the Company's effective income tax
rate of 38%.
39
<PAGE>
HOLDINGS SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth for the periods and the dates indicated
certain historical consolidated financial data of Holdings which should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of Holdings and the related notes thereto included elsewhere herein. The
consolidated balance sheet data as of June 28, 1997 and June 27, 1998 and the
statements of operations data for each of the fiscal years in the three year
period ended June 27, 1998 are derived from the consolidated financial
statements of Bell Sports Corp. which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are included
elsewhere herein. The consolidated balance sheet data as of July 2, 1994, July
1, 1995 and June 29, 1996 and the statements of operations data for each of
the fiscal years in the two year period ended July 1, 1995 are derived from
the consolidated financial statements of Bell Sports Corp. which have been
audited by PricewaterhouseCoopers LLP, independent accountants, not included
elsewhere herein. The other financial data for all periods presented are
unaudited and are derived from the consolidated accounting records of Bell
Sports Corp.
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------
1994 (1) 1995 (2) 1996 (3) 1997 (4) 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales................... $116,090 $102,990 $262,340 $259,534 $207,236
Cost of sales............... 68,692 74,407 201,621 183,098 137,672
-------- -------- -------- -------- --------
Gross profit................ 47,398 28,583 60,719 76,436 69,564
Selling, general and
administrative expenses.... 30,007 30,948 66,826 60,416 48,517
Amortization of goodwill and
intangible assets.......... 884 954 2,854 3,320 2,260
Loss on disposal of product
lines and sale of assets... -- -- -- 25,360 700
Restructuring charges (5)... 185 2,123 5,850 4,141 1,192
-------- -------- -------- -------- --------
Income (loss) from
operations................. 16,322 (5,442) (14,811) (16,801) 16,895
Net investment income....... 3,579 4,740 2,877 2,939 1,716
Interest expense............ 2,962 4,633 8,691 7,289 4,715
-------- -------- -------- -------- --------
Net income (loss) before
income taxes............... 16,939 (5,335) (20,625) (21,151) 13,896
Provision (benefit) for
income taxes............... 6,480 (1,892) (8,250) (2,963) 5,318
-------- -------- -------- -------- --------
Net income (loss)........... $ 10,459 $ (3,443) $(12,375) $(18,188) $ 8,578
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA (6).................. $ 20,122 $ 1,606 $ 14,059 $ 22,242 $ 26,596
Cash provided by (used in)
operations................. 651 8,256 (21,950) 910 27,493
Cash from (used in)
investing activities....... (51,477) 15,758 7,678 20,422 7,931
Cash provided by (used in)
financing activities....... 85,204 1,131 (34,516) (15,272) (18,136)
Capital expenditures........ 6,163 5,198 5,312 7,058 5,496
Depreciation and
amortization............... 3,615 4,925 8,913 9,542 7,809
Ratio of earnings to fixed
charges.................... 6.0x -- -- -- 3.3x
Fixed charges in excess of
earnings before fixed
charges (7)................ -- 5,335 20,625 21,151 --
BALANCE SHEET DATA (AS OF
END OF PERIOD):
Cash and cash equivalents... $ 46,756 $ 72,018 $ 23,140 $ 29,008 $ 45,093
Working capital (including
cash and cash
equivalents)............... 91,044 108,821 149,474 130,677 130,437
Total assets................ 184,658 186,434 298,635 268,754 247,067
Total debt (including
current maturities)........ 91,384 92,934 125,571 109,026 88,384
Stockholders' equity........ 75,187 75,816 136,041 118,965 128,259
</TABLE>
(footnotes on following page)
40
<PAGE>
- ---------------------
(1) Includes the results of VistaLite since its acquisition in January 1994.
(2) Includes the results of SportRack since its acquisition in May 1995.
(3) Includes the results of AMRE since its acquisition in July 1995.
(4) In April 1997, the Company completed the sale of Service Cycle/Mongoose.
The Company's results of operations include the operations of Service
Cycle/Mongoose until the date of sale.
(5) In fiscal 1994, restructuring changes related to the consolidation of
manufacturing and distribution operations of Blackburn. In fiscal 1995,
restructuring charges related to the consolidation and integration of
Holdings and AMRE. In fiscal 1996, restructuring charges related to
organizational and office consolidations including, in connection with the
AMRE Merger. In fiscal 1997, restructuring charges related to the
consolidation of the Company's corporate headquarters and the
consolidation of the Company's Canadian operations. In fiscal 1998,
restructuring charges related to the restructuring and consolidation of
the Company's European operations.
(6) EBITDA is defined as income (loss) from operations plus (i) depreciation
and amortization (excluding amortization of deferred financing fees which
is included in interest expense), (ii) write-up to fair value of finished
goods related to the AMRE Merger and the acquisitions of SportRack and
Giro, (iii) loss on disposal of product lines and sale of assets,
principally related to divestitures of Service Cycle/Mongoose and
SportRack, and (iv) restructuring charges, principally related to facility
reorganizations. The Company believes that EBITDA provides useful
information regarding the Company's ability to service its debt; however,
EBITDA does not represent cash flow from operations as defined by GAAP and
should not be considered as a substitute for net income as an indicator of
the Company's operating performance or cash flow as a measure of
liquidity. The components of EBITDA are set forth below for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income (loss) from operations... $16,322 $(5,442) $(14,811) $(16,801) $16,895
Depreciation and amortization... 3,615 4,925 8,913 9,542 7,809
Write-up to fair value of
finished goods................. -- -- 14,107 -- --
Loss on disposal of product
lines and sale of assets....... -- -- -- 25,360 700
Restructuring charges........... 185 2,123 5,850 4,141 1,192
------- ------- -------- -------- -------
EBITDA.......................... $20,122 $ 1,606 $ 14,059 $ 22,242 $26,596
======= ======= ======== ======== =======
</TABLE>
(7) The ratio of earnings to fixed charges is computed by dividing pre-tax net
income (loss) after adding back fixed charges (interest expense and
facility charges), by fixed charges. The Company was unable to fully cover
the indicated fixed charges by earnings for certain periods presented and
instead has disclosed the amount by which fixed charges exceed earnings
before fixed charges where applicable.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements of Holdings and the related notes thereto included
elsewhere in this Prospectus. Except as set forth in "Summary--Summary
Historical and Pro Forma Consolidated Financial Data," "Capitalization" and
"Note 1 to Consolidated Financial Statements of Bell Sports Corp.," no
separate financial statements or data of the Issuer have been included or
incorporated by reference herein. Holdings and the Issuer do not consider that
such financial statements would be material to holders of the Notes because
the Issuer is a wholly-owned subsidiary of Holdings and Holdings will
guarantee all of the Issuer's obligations under the Notes. Holdings and the
Issuer believe that the material differences between the financial statements
of Holdings and the Issuer are, and will be, related to: (i) stockholders'
equity; (ii) the Holdings Senior Discount Notes; (iii) the Convertible
Debentures; and (iv) intercompany indebtedness. See "Summary," "Summary--
Summary Historical and Pro Forma Consolidated Financial Data,"
"Capitalization," "Description of Notes" and "Note 1 to Consolidated Financial
Statements of Bell Sports Corp." Certain statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
constitute "forward-looking statements" within the meaning of the Litigation
Reform Act. See "Special Note Regarding Forward-Looking Statements."
OVERVIEW
Bell Sports is the leading manufacturer and marketer of bicycle helmets
worldwide and a leading supplier of a broad line of bicycle accessories in
North America. Bell Sports is also a leading supplier of auto racing helmets
and a supplier of bicycle accessories worldwide. The Company has developed a
reputation over its 44-year history for innovation, design, quality and
safety. Since its founding, the Company has engaged in the manufacture and
sale of bicycle helmets, bicycle accessories, auto racing helmets and
motorcycle helmets. In 1991, the Company elected to refocus its operations on
the growing bicycle helmet and accessory business by divesting its motorcycle
helmet business. Under the terms of the agreement providing for the sale of
the motorcycle helmet business, the Company entered into a long-term licensing
agreement under which the Company agreed to license the Bell brand name to the
purchaser for use on motorcycle helmets.
Throughout the 1980s and 1990s, the Company strengthened its position in the
bicycle helmet and accessory markets through a series of strategic
acquisitions, including: (i) Rhode Gear, a designer and marketer of certain
premium bicycle accessories, in November 1989; (ii) Blackburn, a designer and
marketer of certain premium bicycle accessories, in November 1992;
(iii) VistaLite, a designer and manufacturer of premium LED safety lights and
headlights for bicycles, in January 1994; (iv) SportRack Canada, Inc.
("SportRack"), a designer, manufacturer and marketer of automobile roof rack
systems, in May 1995; (v) AMRE, a leading designer, marketer and distributor
of bicycle helmets and accessories and marketer of a line of bicycles under
the Mongoose brand, in July 1995; and (vi) Giro, a leading designer,
manufacturer and marketer of premium bicycle helmets, in January 1996. Through
the acquisitions of Rhode Gear, Blackburn, VistaLite and AMRE, the Company
became one of the leading marketers and distributors of bicycle accessories in
North America. In addition, the acquisition of Giro enhanced the Company's
market position in the premium bicycle helmet market segment. Each of the
acquisitions described above was accounted for using the purchase method of
accounting, and accordingly, the Company's results of operations include the
operations of the acquired businesses since their respective dates of
acquisition. The Company has also expanded its international presence
throughout the 1990s. In 1991, the Company entered the European market by
opening a bicycle helmet manufacturing facility in France. In fiscal 1997, the
Company continued its international expansion with the opening of a sales,
marketing and distribution office in Australia to service the Australian, New
Zealand and Pacific Rim markets.
The domestic bicycle helmet market experienced significant growth in unit
sales during the early 1990s principally due to (i) increased safety awareness
among consumers and the adoption of mandatory bicycle helmet
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<PAGE>
legislation by several states, including California and New York, and (ii) the
popularity of bicycling, including speciality segments such as mountain
biking. The convergence of these trends led to a significant increase in shelf
space, particularly in the mass merchant channel, dedicated to bicycle
helmets. As a result, several small helmet manufacturers entered the domestic
bicycle helmet market in the early 1990s. In 1995 and 1996, as the increase in
demand aided by new mandatory bicycle helmet legislation subsided, mass
merchants reduced shelf space dedicated to the segment, driving down price
points industry-wide. As a result, the Company reduced prices in an effort to
maintain market share, and believes that this strategic decision proved
successful as it effectively responded to new competitors and enabled Bell
Sports to maintain its leading market position. However, this price pressure
significantly reduced the Company's margins and profitability during this
period. The Company believes that domestic bicycle helmet demand has
stabilized.
In fiscal 1996 and 1997, the Company refocused on the profitability of its
core businesses through the divestiture of nonstrategic and low margin
businesses, elimination of duplicative overhead and reduction of distribution
and manufacturing costs. As a result, management initiated the following
changes: (i) the April 1997 divestiture of Service Cycle/Mongoose, a designer,
marketer and distributor of bicycles and certain non-proprietary bicycle parts
and accessories; (ii) the divestiture of SportRack in July 1997; (iii) the
consolidation of its corporate headquarters into its San Jose, California
facility; (iv) the closure of the Memphis, Tennessee distribution facility by
consolidating operations into the Company's other existing distribution
facilities; and (v) the installation of a new computer system in the
warehouses and mass merchant operations to improve operational efficiency and
customer service. Unless otherwise noted, the Company's results of operations
include the operations of the divested businesses until the date of sale.
GENERAL
Net sales, as calculated by the Company, are determined by subtracting
estimated returns, discounts, allowances and net freight charges from gross
sales. The Company's cost of sales and its resulting gross margin (defined as
gross profit as a percentage of net sales) are principally determined by the
cost of raw materials, the cost of labor to manufacture its products, the
overhead expenses of its manufacturing facilities, the cost of sourced
products, warehouse costs, freight expenses, royalties and obsolescence
expenses. Selling, general and administrative expenses consist primarily of
sales and marketing expenses, research and development costs and
administrative costs. Sales and marketing expenses generally vary with sales
volume while administrative costs are relatively fixed in nature.
As of June 27, 1998, the Company had domestic net operating loss
carryforwards of approximately $32.7 million. The Company's net operating loss
carryforwards begin to expire in fiscal 2008. The Merger caused a change of
ownership of more than 50%, resulting in an annual limitation of the loss
carryforward which may delay or limit the eventual utilization of the
carryforwards.
The Company believes its results of operations in fiscal 1998 are not
comparable to those of fiscal 1996 and 1997 due to the inclusion of results of
operations in fiscal 1996 and 1997 of Service Cycle/Mongoose and SportRack,
which were divested in April 1997 and July 1997, respectively. For ease of
comparison to fiscal 1998, which does not include the results of the divested
businesses, the Company has included adjusted information which excludes the
divested businesses from the net sales and gross margin data for fiscal 1996
and 1997.
COMPARISON OF THE FISCAL YEAR ENDED JUNE 27, 1998 WITH THE FISCAL YEAR ENDED
JUNE 28, 1997
Net Sales. Net sales decreased 20% to $207.2 million in fiscal 1998 from
$259.5 million in fiscal 1997 primarily as a result of the divestiture of
Service Cycle/Mongoose and SportRack. Excluding the results of the divested
businesses, which combined contributed $50.7 million in net sales in fiscal
1997, net sales decreased $1.6 million, or 1%, to $207.2 million in fiscal
1998 from $208.8 million in fiscal 1997. The decrease resulted from lower
bicycle accessory shipments due to a reduction in the number of days of
inventory carried by a major mass merchant customer, the elimination of
certain lower margin products from the Company's sales mix and a
43
<PAGE>
decrease in the prices of certain helmets sold in the mass merchant channel.
The decrease was largely offset by strong international sales growth and
continued strength in the IBD helmet market.
For fiscal 1998, bicycle accessories, bicycle helmets and auto racing
helmets represented approximately 52%, 46% and 2%, respectively, of the
Company's net sales. For fiscal 1997, bicycle accessories, bicycle helmets and
auto racing helmets represented approximately 54%, 44% and 2%, respectively,
of the Company's net sales, excluding the results of the divested businesses.
Gross Margin. Gross margin increased to 34% of net sales in fiscal 1998 from
30% of net sales in fiscal 1997, on an actual basis, and from 32% of net sales
on an adjusted basis, excluding the results of the divested businesses.
Excluding the results of Service Cycle/Mongoose and SportRack, which had lower
gross margins than the Company's other product lines, the increase was
primarily attributable to the elimination of certain lower margin products
from the Company's sales mix, the introduction of Bell-branded bicycle
accessories into the mass merchant channel in December 1997, lower
distribution costs due to the closure of the Company's Memphis, Tennessee
distribution facility in November 1997, improvements in manufacturing
efficiencies and a reduction in manufacturing overhead costs. Despite the
decrease in the prices of certain helmets sold in the mass merchant channel,
the Company was able to increase its gross margin in that channel by over one
percentage point, which was primarily attributable to the Company's cost
reduction initiatives.
Selling, General and Administrative. Selling, general and administrative
expenses were 23% of net sales in both fiscal 1998 and 1997. Selling, general
and administrative expenses decreased by $11.9 million to $48.5 million in
fiscal 1998 from $60.4 million in fiscal 1997. The decrease was primarily
attributable to continued cost savings produced by the Company's cost
reduction initiatives and the divestiture of Service Cycle/Mongoose and
SportRack.
Amortization of Goodwill and Intangible Assets. Amortization of goodwill and
intangible assets decreased to $2.3 million in fiscal 1998 from $3.3 million
in fiscal 1997. The decrease was a result of a write-off of intangible assets
relating to the divestiture of Service Cycle/Mongoose and SportRack.
Loss on Disposal of Product Lines and Sale of Assets. During fiscal 1998,
the Company negotiated a letter of intent to sell the assets of its domestic
foam molding facility in Rantoul, Illinois, and agreed to sublet the building
housing the foam molding facility to the purchaser. In September 1998, the
Company consummated such asset sale and entered into a sublease with the
purchaser. In addition, the Company entered into an agreement with the
purchaser pursuant to which the purchaser has agreed to provide the Company
with foam helmet liners and certain related components. The Company recorded
fiscal 1998 charges of approximately $2.6 million, including a $2.0 million
charge related to the divestiture of SportRack, and approximately a
$0.6 million charge associated with the sale and related reorganization of the
Company's domestic foam molding facility. During fiscal 1998, the Company
reversed previously recorded charges of $1.9 million, including a $0.6 million
benefit based on the finalization of costs associated with the closure of
distribution facilities, and a $1.3 million benefit related to the reversal of
the remaining reserve for uncollectible receivables established in fiscal 1997
in connection with the divestiture of Service Cycle/Mongoose.
In April 1997, the Company completed the sale of its Service Cycle/Mongoose
inventory, trademarks and certain other assets to Brunswick Corporation. In
connection with the divestiture of Service Cycle/Mongoose, the Company
recorded a loss on disposal of product lines of $25.4 million, comprised of
the write-off of goodwill and intangibles ($14.8 million), disposal and exit
costs ($5.4 million) and reorganization costs associated with the distribution
network and operations ($5.2 million).
Restructuring Charges. Restructuring charges were approximately $1.2 million
and $4.1 million for fiscal 1998 and 1997, respectively. During fiscal 1998,
the Company approved a plan to restructure its European operations. In
connection with this plan, in December 1997, the Company consolidated its
Paris, France sales and marketing office into its Roche La Moliere, France
facility. In addition, the Company consolidated key management functions of
Giro Ireland (as defined) and EuroBell (as defined). As a result, in fiscal
1998, the Company recorded $1.2 million of restructuring charges related to
facility closing costs and severance benefits.
During fiscal 1997, the Company recorded $2.7 million of restructuring
charges related to the consolidation of its corporate headquarters into its
San Jose, California facility. The Company recorded an additional
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<PAGE>
$1.5 million of restructuring charges in fiscal 1997 related to the
consolidation of the Company's Canadian operations and closure of four offices
in connection with the AMRE Merger and the Company's cost reduction
initiatives.
Net Investment Income and Interest Expense. Net investment income decreased
to $1.7 million in fiscal 1998 from $2.9 million in fiscal 1997. The decrease
was due to the settlement of an arbitration case related to the handling of
certain marketable securities by an outside investment advisor during fiscal
1997. The settlement proceeds, net of related expenses and losses to sell
certain securities, were $1.3 million. Interest expense decreased to
$4.7 million in fiscal 1998 from $7.3 million in fiscal 1997 as a result of
lower average debt balances outstanding.
Income Taxes. An income tax provision of $5.3 million, or 38% of the pre-tax
income, was reported for fiscal 1998, compared to an income tax benefit of
$3.0 million, or 14% of the pre-tax loss, reported for fiscal 1997. A majority
of the difference in the effective tax rates was due to the write-off of non-
tax deductible goodwill in connection with the divestiture of Service
Cycle/Mongoose.
COMPARISON OF THE FISCAL YEAR ENDED JUNE 28, 1997 WITH THE FISCAL YEAR ENDED
JUNE 29, 1996
Net Sales. Net sales decreased 1% to $259.5 million in fiscal 1997 from
$262.3 million in fiscal 1996 primarily as a result of the divestiture, at the
beginning of the fourth quarter of fiscal 1997, of Service Cycle/Mongoose,
which contributed $68.6 million in net sales in fiscal 1996. Excluding the
results of Service Cycle/Mongoose and SportRack, net sales increased
$15.1 million, or 8%, to $208.8 million in fiscal 1997 from $193.7 million in
fiscal 1996. The increase primarily resulted from higher bicycle accessory
shipments to certain major mass merchants, which resulted in an increase in
net sales of approximately $5.8 million and higher bicycle helmet shipments in
the IBD market, which resulted in an increase in net sales of bicycle helmets
of approximately $9.8 million. Approximately $7.7 million of the IBD helmet
sales increase was due to the inclusion of Giro (which was acquired in January
1996) for a full year. The increase was partially offset by lower unit helmet
volumes and a decrease in the prices of certain helmets sold in the mass
merchant channel.
For fiscal 1997, bicycle accessories, bicycle helmets and auto racing
helmets represented 54%, 44% and 2%, respectively, of the Company's net sales,
excluding the results of the divested businesses. For fiscal 1996, bicycle
accessories, bicycle helmets and auto racing helmets represented 56%, 42%, and
2%, respectively, of the Company's net sales, excluding the results of the
divested businesses.
Gross Margin. Gross margin increased to 30% of net sales in fiscal 1997 from
29% in fiscal 1996, on an actual basis, excluding the $14.1 million inventory
write-up associated with the AMRE Merger and the acquisitions of SportRack and
Giro. On an adjusted basis, gross margin increased to 32% of net sales in
fiscal 1997 from 31% in fiscal 1996, excluding the results of the divested
businesses and the fiscal 1996 $14.1 million inventory write-up associated
with the AMRE Merger and the acquisitions of SportRack and Giro. The increase
was primarily attributable to the divestiture of Service Cycle/Mongoose and
SportRack, which had lower gross margins than the Company's other product
lines and an increase in the shipment of IBD bicycle helmets, which generally
have higher than average gross margins.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by $6.4 million to $60.4 million in fiscal 1997 from $66.8
million in fiscal 1996. The decrease was primarily attributable to lower
advertising expenditures of $4.0 million, a full year benefit of cost savings
produced by the Company's restructuring plan related to the AMRE Merger and
the divestiture of Service Cycle/Mongoose in April 1997. In fiscal 1996, the
Company incurred $5.6 million in advertising expenses for a one-time
promotional campaign in connection with the launch of the Bell Pro helmet line
and the expansion of the Bell brand into the mass merchant channel. The
decrease in selling, general and administrative expenses was partially offset
by increases relating to opening a distribution and sales office in Sydney,
Australia during November 1996 and the inclusion of Giro for a full year.
45
<PAGE>
Amortization of Goodwill and Intangible Assets. Amortization of goodwill and
intangible assets increased to $3.3 million in fiscal 1997 from $2.9 million
in fiscal 1996. The increase was due to the inclusion of a full year of
amortization related to the acquisition of Giro, partially offset by a
decrease in amortization as a result of the write-off in fiscal 1997 of
certain goodwill and intangible assets in connection with the divestiture of
Service Cycle/Mongoose.
Loss on Disposal of Product Lines and Sale of Assets. In April 1997, the
Company completed the sale of its Service Cycle/Mongoose inventory, trademarks
and certain other assets to Brunswick Corporation. In connection with the
divestiture of Service Cycle/Mongoose, the Company recorded a loss on disposal
of product lines of $25.4 million, comprised of the write-off of goodwill and
intangibles ($14.8 million), disposal and exit costs ($5.4 million) and
reorganization costs associated with the distribution network and operations
($5.2 million).
Restructuring Charges. Restructuring charges were approximately $4.1 million
and $5.9 million for fiscal 1997 and 1996, respectively. During fiscal 1997,
the Company recorded $2.6 million of restructuring charges related to the
consolidation of its corporate headquarters into its San Jose, California
facility. The Company recorded an additional $1.5 million of restructuring
charges in fiscal 1997 related to the consolidation of the Company's Canadian
operations and closure of four offices in connection with the AMRE Merger and
the Company's cost reduction initiatives.
Restructuring charges were approximately $5.9 million in fiscal 1996. During
fiscal 1996, the Company commenced significant organizational and office
consolidations, including in connection with the AMRE Merger. Most U.S. sales,
marketing and research and development operations were consolidated into the
Company's San Jose, California office and all corporate functions were
consolidated into the Company's Scottsdale, Arizona office.
Net Investment Income and Interest Expense. Net investment income increased
slightly in fiscal 1997. The increase is due to the settlement of an
arbitration case related to the handling of certain marketable securities by
an outside investment advisor during fiscal 1997. The settlement proceeds, net
of related expenses and expected losses to sell certain securities were $1.3
million. Excluding this settlement, interest income decreased to $1.6 million
in fiscal 1997 from $2.9 million in fiscal 1996. This decline was due to lower
levels of cash and marketable securities invested during the year. Interest
expense decreased to $7.3 million for fiscal 1997 from $8.7 million for fiscal
1996. The decrease was due to lower average debt balances outstanding and
lower interest rates for fiscal 1997 when compared to fiscal 1996.
Income Taxes. An income tax benefit of $3.0 million, or 14% of the pre-tax
loss, was reported for fiscal 1997 compared to an income tax benefit of $8.3
million, or 40% of the pre-tax loss, was reported for fiscal 1996. A majority
of the difference in the effective tax rates was due to the write-off of non-
tax deductible goodwill in connection with the divestiture of Service
Cycle/Mongoose.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations, capital expenditures and
working capital requirements from internal cash flow from operations and
borrowings. The Company's working capital decreased to $130.4 million at June
27, 1998 from $130.7 million at June 28, 1997. Cash provided by operating
activities for fiscal 1998 increased to $27.5 million from $0.9 million for
fiscal 1997. The increase was primarily due to the collection of Service
Cycle/Mongoose receivables subsequent to the divestiture of the business; a
decrease in accounts receivable and inventory resulting from the divestiture
of the SportRack business; and lower selling, general and administrative
expenses resulting from divested businesses and realization of savings from
consolidation and cost savings programs implemented. This was partially offset
by lower gross profit resulting from the divestiture of businesses and payment
of liabilities previously accrued for restructuring and facility closure
costs.
46
<PAGE>
The Company's capital expenditures were $5.5 million, $7.1 million and $5.3
million in fiscal 1998, 1997 and 1996, respectively. These amounts primarily
reflect cash outlays for maintaining and upgrading the Company's manufacturing
facilities and equipment including new product tooling and computer systems.
Management estimates that the Company will continue to spend approximately
$5.0 million annually for product tooling and to maintain and upgrade its
facilities and equipment.
Following the Transactions, the Company's principal sources of liquidity
will be cash flow from operations supplemented by borrowings under the Senior
Secured Credit Facility.
In connection with the Merger, the Issuer issued the Old Notes for $110.0
million in gross proceeds and entered into the Senior Secured Credit Facility,
which provides revolving loans in an aggregate amount of up to $60.0 million
(including letters of credit), subject to a borrowing base of 85% of eligible
accounts receivable and 55% of eligible domestic inventory. As of June 27,
1998, after giving effect to the Transactions, the Issuer anticipates that it
would have had $46.3 million available to be borrowed under the Senior Secured
Credit Facility. Proceeds to the Issuer from the issuance of the Old Notes and
a portion of the Issuer's available cash were be paid to Holdings to finance,
in part, the Transactions and pay the related fees and expenses. In connection
with the Merger, the Investors invested $45.0 million in the equity of HB
Acquisition and $15.0 million in Holdings Senior Discount Notes. See "The
Transactions" and "Description of Senior Secured Credit Facility." No
borrowings were made under the Senior Secured Credit Facility at the Effective
Time and, as of September 28, 1998, there were no outstanding borrowings under
the Senior Secured Credit Facility.
Management believes that cash flow from operations and borrowing
availability under the Senior Secured Credit Facility will provide adequate
funds for the Company's foreseeable working capital needs, planned capital
expenditures, debt service obligations and the ultimate outcome of pending
product liability judgments. The Company's ability to fund its operations and
make planned capital expenditures, to make scheduled debt payments, to
refinance indebtedness and to remain in compliance with all of the financial
covenants under its debt agreements depends on its future operating
performance and cash flow, which in turn, are subject to prevailing economic
conditions and to financial, business and other factors, some of which are
beyond the Company's control. In addition, a termination of or other adverse
change in the Company's relationship with, an adverse change in the financial
condition of, or a significant reduction in sales to, Wal-Mart, which
represented approximately 21% of the Company's net sales in fiscal 1998, could
have a material adverse effect on the Company's liquidity and results of
operations. See "Risk Factors--Customer Concentration."
YEAR 2000 COMPLIANCE
The year 2000 problem, which is common to most corporations, concerns the
inability of information systems, including computer software programs as well
as Non-IT Systems, to properly recognize and process date sensitive
information related to the year 2000 and beyond. The Company believes that it
will be able to achieve year 2000 compliance by the end of 1999 and does not
currently anticipate any material disruption of its operations as a result of
any failure by the Company to be year 2000 compliant. However, to the extent
the Company is unable to achieve year 2000 compliance, the Company's business
and results of operations could be materially affected. This could be caused
by computer related failures in a number of areas including, but not limited
to, the failure of the Company's financial systems, manufacturing and
warehouse management systems, phone system and electricity supply.
The Company has performed a preliminary examination of its major software
applications to determine whether each system is prepared to accommodate the
year 2000. In fiscal 1998, through routine upgrades, the Company made the
computer software programs used at the Company's domestic facilities and at
Bell Sports Canada year 2000 compliant. These upgrades include, but are not
limited to, the manufacturing, financial, customer and vendor purchase order
processing and warehouse management systems. In fiscal 1999, the Company
expects to further upgrade these programs to a year 2000 level certified by
the Company's outside software vendors. The computer software programs of Giro
and Bell Sports Australia are currently year 2000 compliant. The computer
software programs of Giro Ireland are currently being upgraded to be year 2000
compliant by December 1998. The computer software programs of EuroBell are not
currently year 2000
47
<PAGE>
compliant but are expected to be converted to a year 2000 compliant system or
otherwise made year 2000 compliant before the end of 1999.
All year 2000 efforts with respect to the Company and its subsidiaries'
computer software programs are being made through internal resources and
through routine software upgrades provided by the Company's software vendors.
The Company has not incurred significant separately identifiable costs related
to year 2000 issues through June 27, 1998 and does not expect to incur
significant additional costs in order to make its computer software programs
year 2000 compliant. The Company's internal resources consist of an
information technology support team comprised of approximately fifteen full-
time employees, covering both technical and application areas. The Company has
not hired additional employees, either full-time or contract, in order to
address year 2000 issues and expects all such issues will be adequately
addressed by the existing team.
The Company employs certain manufacturing processes that utilize computer
controlled manufacturing equipment. The Company believes such equipment is
year 2000 compliant but has not completed its testing of such equipment.
Testing is expected to be completed by December 1998. In the event the Company
determines that such equipment cannot readily be made year 2000 compliant, the
Company believes that it could revert to the manual processes previously
employed or outsource such work with minimal incremental manufacturing cost.
The Company's facilities staff currently is investigating the status of the
Company's Non-IT Systems with respect to year 2000 compliance. The Company's
Non-IT Systems include phones, voicemail, heating/air conditioning,
electricity, security systems and lift trucks. The Company expects that its
Non-IT Systems will be year 2000 compliant before the end of 1999. The Company
is utilizing internal resources to address the year 2000 compliance of its
Non-IT Systems and has not incurred significant separately identifiable costs
related to the year 2000 issues through June 27, 1998 and does not expect to
incur significant additional costs in order to upgrade its Non-IT Systems to
year 2000 compliance.
In addition to reviewing its internal systems, the Company has polled or is
in the process of polling its outside software and other vendors, customers
and freight carriers to determine whether they are year 2000 compliant and to
attempt to identify any potential issues. The Company's outside software
vendors have confirmed that they are year 2000 compliant, including the
products utilized by the Company. The Company believes based on the responses
it has received from its customers that its mass merchant customers will be
year 2000 compliant before the end of 1999.
If the Company's customers and vendors do not achieve year 2000 compliance
before the end of 1999, the Company may experience a variety of problems which
may have a material adverse effect on the Company. Among other things, to the
extent the Company's customers are not year 2000 compliant by the end of 1999,
such customers may lose EDI capabilities at the beginning of the year 2000.
Where EDI communication would no longer be available, the Company expects to
utilize voice, facsimile and/or mail communication in order to receive
customer orders and process customer billings. To the extent the Company's
vendors are not year 2000 compliant by the end of 1999, such vendors may fail
to deliver ordered materials and products to the Company and may fail to bill
the Company properly and promptly. Consequently, the Company may not have the
correct inventory to send to its customers and may experience a shortage or
surplus of inventory. Although the Company does not currently have a plan for
addressing these potential problems, with respect to its vendors, the Company
has alternative sources of supply.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards ("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, and is required to be
adopted for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods for comparative purposes is
required.
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In June 1997, SFAS No. 131, "Disclosures About Segments of An Enterprise and
Related Information" ("SFAS 131") was issued. SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards
for related disclosures about products and services, geographic areas and
major customers. SFAS 131 is required to be adopted for fiscal years beginning
after December 15, 1997.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") was issued. SFAS 133 establishes a new model
for accounting for derivatives and hedging activities and supersedes and
amends a number of existing standards. SFAS 133 is required to be adopted for
fiscal years beginning after June 15, 1999. Upon initial application, all
derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be reassessed and documented pursuant
to the provisions of SFAS 133.
The Company plans to adopt SFAS 130 and SFAS 131 in fiscal 1999 and SFAS 133
in fiscal 2000 and does not expect such adoptions to have a material effect on
the consolidated financial statements.
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BUSINESS
OVERVIEW
Bell Sports is the leading manufacturer and marketer of bicycle helmets
worldwide and a leading supplier of a broad line of bicycle accessories in
North America. The Company is also a leading supplier of auto racing helmets
and a supplier of bicycle accessories worldwide. To capitalize upon increasing
safety awareness in other outdoor sports, the Company recently began marketing
in-line skating, snowboarding, snow skiing and water sport helmets. The
Company markets its helmets under the widely recognized Bell, Bell Pro and
Giro brand names, and its accessories under such leading brands as Bell,
Blackburn, Rhode Gear, VistaLite, Copper Canyon Cycling and Spoke-Hedz. With a
broad, well-diversified branded product offering marketed across all price
points, the Company is a leading supplier of bicycle helmets and accessories
to all major distribution channels in the industry, including mass merchants,
IBDs, and mail order catalog. In fiscal 1998, the Company had net sales of
$207.2 million and EBITDA of $26.6 million.
Bell Sports has developed a reputation over its 44-year history for
innovation, design, quality and safety and is recognized by bicycling and auto
racing enthusiasts as a market leader in helmet technology and design. To
leverage its outstanding reputation and position in bicycle helmets, the
Company has pursued strategic acquisitions of complementary bicycle helmet and
accessory brands. During the 1990s, the Company increased net sales from $40.4
million in fiscal 1990 to $207.2 million in fiscal 1998. The Company believes
the primary drivers of this growth include: (i) the development of innovative
bicycle helmets and accessories; (ii) strategic acquisitions; (iii) the
successful introduction of the Bell brand, which historically had been
reserved for sale to the IBD channel, comprised of both IBDs and mail order
catalog businesses, into the mass merchant channel; (iv) an increase in safety
awareness among consumers; and (v) the popularity of bicycling, including
specialty segments such as mountain biking. In fiscal 1998, approximately 52%,
46% and 2% of the Company's net sales were derived from the sale of bicycle
accessories, bicycle helmets and auto racing helmets, respectively, with
approximately 86% of net sales in North America, 11% in Europe and 3% in
Australia and the Pacific Rim.
COMPETITIVE STRENGTHS
Leading Industry Position. Bell Sports believes it holds the leading market
share position in the bicycle helmet market in the United States, Europe and
Canada. According to the BMRI, in 1997 the Company held an approximate 67%
share of the U.S. bicycle helmet market, the largest bicycle helmet market in
the world. In addition, the Company is also a leading supplier of bicycle
accessories in North America. The Company believes it has attained these
leading positions through a combination of its: (i) strong brand awareness
among consumers; (ii) broad product offerings marketed across all price
points; (iii) outstanding reputation among bicycling enthusiasts; and (iv)
superior customer service. As a result, the Company believes it is a primary
supplier of bicycle helmets and accessories to a majority of mass merchants in
the United States and the largest supplier of bicycle helmets to IBDs in North
America.
Strong Brand Name. The Bell brand has over a 40-year history. The Company
believes that the Bell brand is the most recognized name in bicycle helmets
both by bicycling enthusiasts and mass market consumers. The Company first
established its leading brand name among enthusiasts by producing premium
bicycle helmets sold through the IBD channel. In fiscal 1996, the Company
successfully expanded the use of its strong name by introducing Bell-branded
helmets into the mass merchant channel. To capitalize on the success of the
branded helmet program, in fiscal 1998, the Company introduced Bell-branded
bicycle accessories into the mass merchant channel. The Company markets
products through the IBD channel under the Giro, Bell Pro, Blackburn, Rhode
Gear and VistaLite brand names. The Company believes that these brands are
recognized by enthusiasts as leading names in each of their respective product
categories. Bell Sports reinforces the strength of its brands through a
diverse marketing program which includes print advertising, trade promotions,
sponsorship of athletes and grass-roots marketing.
Loyal and Diverse Customer Relationships. Bell Sports has a broad and well-
established customer base of over 4,000 mass merchants and IBDs. The Company
is a primary supplier of bicycle helmets and accessories to a majority of mass
merchants in the United States including Wal-Mart, K-Mart, Costco, Sears and
Fred Meyer,
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and presently has 100% of the shelf space for bicycle helmets and accessories
in Wal-Mart and 100% of the shelf space for bicycle helmets in K-Mart. The
Company also is a primary supplier of premium bicycle helmets and accessories
to its IBD customers through its Bell Pro and Giro bicycle helmet brands and
its Blackburn, Rhode Gear and VistaLite premium bicycle accessory brands. The
Company attributes its strong customer base primarily to its broad, innovative
and high quality product offerings marketed across all price points,
outstanding reputation and safety record and superior customer service. See
"Risk Factors--Customer Concentration."
Superior Customer Service. The Company supports its strong customer
relationships with sales, marketing and inventory management programs tailored
to serve specific distribution channels. Bell Sports works closely with
retailers to increase their effectiveness in selling the Company's products.
To this end, the Company has developed marketing and category management
services for its mass merchant customers including: (i) product mix
optimization; (ii) retail shelf management, including plan-o-gram services;
(iii) EDI and inventory management programs; and (iv) field merchandising. For
its IBD customers the Company develops innovative point-of-sale materials to
enhance product visibility. The Company believes that its customers value
these services in their efforts to maximize sales and profitability. The
Company has been recognized by many of its customers for providing superior
customer service. For example in May 1998, REI presented the Company with its
prestigious "Vendor of the Year" award, ranking Bell Sports number one in
service quality among all of its vendors.
Product Innovation and Design. The Company believes that innovation and
design are important to a consumer's selection of a bicycle helmet. As a
result the Company continuously reviews the features, functionality, safety,
style and component materials used in its bicycle helmets and works with IBD
customers to enhance the appeal of its products. Since the introduction of its
first bicycle helmet in 1975, Bell Sports has been a leader in the development
and utilization of the latest technology and innovations in bicycle helmet
design, such as reduced weight, improved aerodynamics and enhanced helmet fit
and comfort. As a part of the design process, Bell Sports also conducts
extensive testing of new products and regular testing of its existing products
at its state-of-the-art test facility. The Bell Sports research and
development staff conducts rigorous helmet testing to monitor adherence to
bicycle helmet safety standards and has contributed to the development of the
new mandatory helmet safety standard of the CPSC.
BUSINESS STRATEGY
The Company seeks to strengthen its market leadership position and maximize
profitability and cash flow through the following strategies.
Continue to Leverage the Bell Brand. With over 40 years of experience in the
design and manufacture of helmets, Bell Sports has leveraged its brands to
become a leader in the sale of bicycle helmets and accessories. For example,
in fiscal 1996, the Company made a strategic decision to use the Bell brand on
bicycle helmets sold in the mass merchant channel. Prior to fiscal 1996, the
Bell brand name had been reserved for premium bicycle helmets sold primarily
through IBDs. To continue the successful expansion of the Bell brand into the
mass merchant channel, in December 1997, the Company began to replace its non-
branded bicycle accessories with Bell-branded accessories in the mass merchant
channel. As a result, in fiscal 1998 approximately 46% of the Company's U.S.
mass merchant sales were comprised of Bell-branded bicycle helmets and
accessories, up from 11% in fiscal 1997. The Company intends to continue to
leverage its leading brands in order to: (i) expand its presence in attractive
emerging specialty helmet markets such as in-line skating, snowboarding, snow
skiing and water sports; (ii) capture strategic licensing opportunities in
complementary product lines; and (iii) increase market share internationally.
The Company believes that these initiatives can increase sales and profits
with relatively modest capital investments.
Expand International Sales. Bell Sports has achieved significant growth in
international sales from $12.8 million in fiscal 1994 to $50.8 million in
fiscal 1998. The Company believes that significant opportunities exist to
continue to grow sales in established European and Pacific Rim markets.
Compared to the U.S. market, these international bicycle helmet and accessory
markets are highly fragmented and regionally focused, generally
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involving smaller companies offering narrower product lines with limited
marketing and customer service support. The Company believes that high
quality, dependable suppliers of a broad line of products such as Bell Sports
are positioned favorably to service such international markets. An important
component of the Company's European strategy is to increase bicycle
accessories sales, which represented only 14% of the Company's net sales in
Europe in fiscal 1998, compared to 57% of the Company's net sales in North
America. The Company also plans to increase its direct sales efforts in
international markets across all distribution channels and product lines in
order to leverage further the Bell brand and increase international sales. In
both Canada and Australia, where the Company replaced third-party distributors
with a direct sales approach in fiscal 1997, net sales increased from $23.7
million in fiscal 1997 to $28.5 million in fiscal 1998. In fiscal 1998, the
Company reorganized its European sales, marketing and management functions in
order to execute its growth strategy.
Achieve Cost Savings. Since fiscal 1996, the Company has strived to increase
profitability through: (i) divesting non-strategic and lower margin
businesses; (ii) reducing corporate overhead; and (iii) reducing distribution
and manufacturing costs. The Company believes these strategic initiatives have
contributed to the improvement in EBITDA margins from approximately 5% in
fiscal 1996 to 13% in fiscal 1998. During fiscal 1997 and 1998, the Company
identified and began to implement certain initiatives which it believes would
have resulted in net cost savings of approximately $3.7 million had these cost
savings been fully implemented on June 29, 1997. These anticipated cost
savings result from: (i) the outsourcing of the Company's foam molding
operations; (ii) closure of the Fairfield, California and Memphis, Tennessee
distribution facilities; (iii) consolidation and restructuring of the
Company's European sales and marketing and management functions; (iv)
manufacturing process and productivity improvements at the Rantoul, Illinois
manufacturing facility; (v) renegotiation of the Company's existing insurance
policies; and (vi) renegotiation of certain management and director's
compensation agreements in connection with the Merger. The Company believes
significant opportunities exist to achieve additional cost savings in the
future through renegotiation of vendor supply agreements and outsourcing of
certain other manufacturing processes. There can be no assurance that such
cost savings will be achieved. See "Business--Company History" and "Business--
Cost Reduction Initiatives."
Pursue Complementary Acquisitions. The Company has successfully completed
and integrated strategic acquisitions over the last nine years. In 1996, the
Company acquired Giro, a leading designer and marketer of premium bicycle
helmets, to enhance its penetration of the IBD segment of the bicycle helmet
market. In 1995, the Company acquired AMRE, a major domestic supplier of
bicycle helmets and accessories, to expand the Company's product offering of
bicycle helmets and accessories in the mass merchant channel. In addition,
through the acquisitions of VistaLite in 1994, Blackburn in 1992 and Rhode
Gear in 1989, the Company became a leading supplier of premium bicycle
accessories and successfully leveraged its presence in the IBD channel. The
Company intends to continue to pursue strategic acquisitions selectively in
order to: (i) add to or complement its product offering; (ii) leverage its
significant presence in existing distribution channels; and (iii) strengthen
its position in international markets.
COMPANY HISTORY
Since its founding in 1954, Bell Sports has engaged in the design,
manufacture and marketing of: (i) bicycle helmets; (ii) bicycle accessories;
(iii) auto racing helmets; and (iv) motorcycle helmets. In 1989, the Company
initiated a series of transactions to focus the Company's business on the
growing bicycle helmet and accessory markets. Since 1989, the Company has
sought to enhance its competitive position in the bicycle helmet and accessory
markets through a series of strategic acquisitions including: (i) Rhode Gear
in November 1989; (ii) Blackburn in November 1992; (iii) VistaLite in January
1994; (iv) SportRack in May 1995; (v) AMRE in July 1995; and (vi) Giro in
January 1996. In 1991, the Company divested its motorcycle helmet business and
entered into a long-term licensing agreement for motorcycle helmets to be
marketed under the Bell brand name. In addition, in 1991, the Company opened a
bicycle helmet manufacturing facility in Roche La Moliere, France and, in
November 1996, opened a sales, marketing and distribution office in Australia
to strengthen its worldwide competitive position and better serve these
growing markets.
In fiscal 1996 and 1997, the Company developed a comprehensive program to
improve the Company's operating efficiency and margins by: (i) divesting non-
strategic and lower margin businesses; (ii) reducing
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corporate overhead; (iii) reducing distribution and manufacturing costs; and
(iv) expanding the Bell brand name across all distribution channels and
product lines. As a result, the Company divested Service Cycle/Mongoose in
April 1997 and SportRack in July 1997. Furthermore, the Company consolidated
its corporate office and is in the process of consolidating its domestic
distribution centers. In addition, the Company introduced the Bell brand name
into the mass merchant channel on bicycle helmets in fiscal 1996 and bicycle
accessories in fiscal 1998. The Company believes these strategic initiatives
have contributed to EBITDA margin expansion from approximately 5% in fiscal
1996 to 13% in fiscal 1998.
COST REDUCTION INITIATIVES
Since fiscal 1996, the Company has strived to increase profitability
through: (i) divesting non-strategic and lower margin businesses; (ii)
reducing corporate overhead; and (iii) reducing distribution and manufacturing
costs. The Company believes these strategic initiatives have contributed to
the improvement in EBITDA margins from approximately 5% in fiscal 1996 to 13%
in fiscal 1998. During fiscal 1998, the Company identified certain
opportunities which it believes would have resulted in net cost savings in
fiscal 1998 of approximately $3.7 million had these cost savings been fully
implemented on June 29, 1997. The components of these estimated cost savings
are set forth below:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
<S> <C>
Outsourcing of domestic foam molding............................ $1,246
Renegotiation of management compensation agreements (excluding
Investor management fees)...................................... 648
Consolidation of distribution facilities........................ 501
Renegotiation of insurance policies............................. 580
Manufacturing process and productivity improvements............. 400
Consolidation and restructuring of European operations.......... 292
------
Total estimated cost savings, net............................. $3,667
======
</TABLE>
The Company believes these cost savings will be fully implemented by the end
of fiscal 1999. The Company's actual results and cost savings may differ
materially from those reflected above due to risks, including, without
limitation, (i) higher than expected costs of distributing products from the
Company's alternative distribution facilities, (ii) an inability to source
foam beads and other raw materials employed in the manufacture of helmets on a
cost-effective basis from alternative suppliers and (iii) an increase in other
costs of the Company. Such estimated cost savings do not qualify as pro forma
adjustments under Regulation S-X promulgated under the Securities Act and
constitute forward looking statements within the meaning of the Litigation
Reform Act. Accordingly, such cost savings have been excluded from the pro
forma adjustments in the Holdings Unaudited Pro Forma Historical Condensed
Consolidated Statement of Operations. PricewaterhouseCoopers LLP does not
express any opinion or other form of assurance with respect to the amounts of
any such cost savings. See "Business--Company History" and "Special Note
Regarding Forward-Looking Statements."
PRODUCTS
HELMETS
The Company began designing, manufacturing and marketing auto racing helmets
in 1954 and introduced its first bicycle helmet to the IBD channel in 1975.
Since 1975, the Company has expanded its bicycle helmet line to include a wide
variety of models for adults, youths and infants under the Bell, Bell Pro and
Giro brand names. In fiscal 1998, bicycle helmets accounted for $94.4 million
or 46% of the Company's net sales and auto racing helmets accounted for $5.1
million or 2% of the Company's net sales. According to BMRI, in 1997 the
Company had an approximate 67% share of the U.S. bicycle helmet market, the
largest bicycle helmet market in the world.
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Bell. Historically, the Company marketed Bell brand bicycle helmets
exclusively in the IBD channel. In fiscal 1996, the Company made a strategic
decision to use the Bell brand on bicycle helmets sold into the mass merchant
channel. The Bell helmet line consists of four adult, four youth and four
infant models at suggested retail selling prices ranging from $7.99 to $24.99.
Bell Sports also offers in-line skating, snowboarding, snow skiing and water
sports helmets under the Bell brand. Bell bicycle helmets comprised $40.7
million or 20% of the Company's net sales in fiscal 1998.
Bell Pro. In connection with the introduction of the Bell brand into the
mass merchant channel, the Company began marketing bicycle helmets to IBDs
under the Bell Pro brand name. The Company created the distinct Bell Pro line
of bicycle helmets, which offers more advanced features and different designs
than the Bell helmet line sold into the mass merchant channel, in order to
maintain the presence of the Bell name in the IBD channel with high-end
bicycle helmets targeted at bicycling enthusiasts. The Company believes that
Bell Pro helmets are recognized as one of the top bicycle helmet lines in the
IBD market. In order to promote the new helmet line, in fiscal 1996, Bell
Sports initiated the largest advertising campaign in its history, which
included television advertisements. The Bell Pro line consists of 10 adult,
three youth and two infant models at suggested retail selling prices ranging
from $29.99 to $199.99. Bell Pro bicycle helmets comprised $27.8 million or
13% of the Company's net sales in fiscal 1998.
Giro. Giro, acquired by the Company in January 1996, enabled the Company to
enhance its leading share in the enthusiast segment of the premium bicycle
helmet market. The Company believes Giro bicycle helmets represent some of the
most technologically advanced bicycle helmets available worldwide. Giro
bicycle helmets include design features such as increased ventilation,
superior fit mechanisms and proprietary molding technology. The Giro helmet
line consists of 10 adult models, two youth models and one infant model at
suggested retail selling prices ranging from $34.99 to $349.99. The Company
also offers snow skiing and snowboarding helmets under the Giro brand to the
IBD channel. Giro bicycle helmets comprised $25.3 million or 12% of the
Company's net sales in fiscal 1998.
Bell Auto Racing. Bell Sports is a leading manufacturer and marketer of auto
racing helmets worldwide. The Company's auto racing helmets are lightweight,
comfortable and aerodynamic, and are recognized by auto racing professionals
as well as amateurs for their reliability, safety and performance. The Bell
auto racing helmet line consists of 16 models at suggested retail selling
prices ranging from $168.99 to $849.99. The Company believes its position as a
state-of-the-art auto racing helmet manufacturer provides it with significant
product expertise and favorable publicity. Bell auto racing helmets comprised
$5.1 million or 2% of the Company's net sales in fiscal 1998.
BICYCLE ACCESSORIES
Bell Sports is a leading supplier of a broad line of bicycle accessories in
North America and a supplier of bicycle accessories worldwide. Bicycle
accessories comprised approximately $107.8 million or 52% of the Company's net
sales in fiscal 1998.
Bell. Bell Sports is the leading supplier of bicycle accessories to North
American mass merchants. The Company's Bell line of bicycle accessories
consists of broad, well-diversified product offerings including tires, tubes,
seats, locks and children's products. The Company also markets certain bicycle
accessories under the Copper Canyon Cycling, Cycletech, Spoke-Hedz and Fisher-
Price(R) brands. The Company's Bell line of bicycle accessories is sold at
suggested retail selling prices ranging from $3.99 to $59.99. Approximately
85% of the Company's mass merchant bicycle accessories are purchased from
suppliers in Taiwan and China. The Company expects to increase sales of Bell-
branded accessories in fiscal 1999 through more extensive distribution of the
Bell accessories line, which was introduced into the mass merchant channel in
December 1997. Mass merchant bicycle accessories comprised $68.6 million or
33% of the Company's net sales in fiscal 1998, of which $19.8 million
represented Bell-branded accessories.
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Blackburn, Rhode Gear and VistaLite. Bell Sports believes that it is a
leader in all of the premium bicycle accessory categories in which it
competes. Sold primarily through the IBD channel, the Company's premium
bicycle accessories are marketed under the Blackburn, Rhode Gear and VistaLite
brands. Blackburn products include premium bicycle pumps, hydration systems,
racks, bottle cages, trainers and tools. Rhode Gear products include bicycle
shuttles (used to transport bicycles on automobiles) and bicycle child seats.
VistaLite products include bicycle lighting systems, including safety lights
and headlights. The Company manufactures approximately 46% of its premium
bicycle accessories, sources approximately 48% from Taiwan and China and
sources the remainder from U.S. vendors. Blackburn, Rhode Gear and VistaLite
bicycle accessories comprised $28.3 million or 14% of the Company's net sales
in fiscal 1998. The Company also serves as a distributor for other bicycle
accessory brands, primarily in international markets. These distribution
efforts comprised $10.8 million or 5% of the Company's net sales in fiscal
1998. Bicycle accessories marketed to the IBD channel comprised $39.2 million
or 19% of the Company's net sales in fiscal 1998.
SALES AND DISTRIBUTION
Bell Sports sells its products primarily through the mass merchant and IBD
channels. The Company distributes its products to these retailers through
approximately 90 independent, commissioned representatives. The
representatives, who have an average of approximately four years of experience
distributing the Company's products, possess extensive product knowledge and
are integral to Bell Sports' efforts to maintain excellent customer
relationships. The Company historically has experienced low turnover and
significant loyalty from these representatives. The Company directs its
representatives through an experienced in-house sales team of three national
and five regional sales managers and provides store-level support with field
merchandisers who visit select customers regularly to assist them with
merchandising, point-of-purchase signage and selling techniques.
The Mass Merchant Channel. The Company markets products to value-conscious
customers primarily through the mass merchant channel, including retailers
such as Wal-Mart, K-Mart, Costco, Sears and Fred Meyer. The Company estimates
that nearly 65% of the end-users in this channel are under the age of 18. The
Company believes that the expansion of the Bell brand into the mass merchant
channel provides high visibility to a young demographic category and allows
the Company to build brand recognition early in consumers' lives. The Company
is a leading supplier of bicycle helmets and accessories to a majority of mass
merchants and presently has 100% of the shelf space for bicycle helmets and
accessories in Wal-Mart and 100% of the shelf space for bicycle helmets in K-
Mart. The Company estimates that its market share is in excess of 70% of
bicycle helmets and 60% of accessories sold through the U.S. mass merchant
channel. Sales of products through the mass merchant channel comprised
approximately $109.4 million or 53% of the Company's net sales in fiscal 1998.
See "Risk Factors--Customer Concentration."
The Company supports its mass merchant customer relationships by working
closely with its retailers to increase their effectiveness in selling the
Company's products. Category management services provided by the Company
include: (i) product mix optimization; (ii) retail shelf management, including
plan-o-gram services; (iii) EDI and inventory management programs; and (iv)
field merchandising. The Company believes these services are important to mass
merchants in their selection of bicycle helmets and accessories vendors.
The IBD Channel. The Company markets products targeted to bicycling
enthusiasts primarily through the IBD channel, including 3,500 stores in the
U.S. such as bicycle chains, independent bicycle shops, specialized sporting
goods stores and mail order catalogs. The Company estimates that nearly 75% of
end users in this channel are adult enthusiasts; as a result, a majority of
the Company's helmets and accessories are premium products sold at mid- to
high-price points. The Company estimates that it has approximately 65% market
share of bicycle helmets and a leading market position in each of its major
accessory product categories sold through the U.S. IBD channel. Sales of
products through the IBD channel comprised approximately $92.8 million or 45%
of the Company's net sales in fiscal 1998.
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The Company works with its IBD customers to increase their effectiveness in
selling the Company's products through services such as optimal merchandising
and selling strategies and high visibility point-of-purchase signage. In May
1998, REI presented the Company with its prestigious "Vendor of the Year"
award, ranking Bell Sports number one in service quality among REI's vendors.
MARKETING
The goal of the Company's marketing program is to continue to build its Bell
brand and other brands' leading positions as high performance bicycle helmet
and accessory brands. The Company's marketing effort is focused on
communicating the innovation, design, quality and safety features of the
Company's products and is comprised of a mixture of print advertising
(including in leading cycling periodicals such as Bicycling and Mountain Bike
Magazine), trade promotions and grass-roots marketing. The Company's
advertising expenditures were approximately $14.7 million, $9.1 million and
$5.5 million in fiscal 1996, 1997 and 1998, respectively. The Company's
advertising expenditures in fiscal 1996 include a one-time television
advertising campaign in excess of $5.6 million to build and strengthen the
Bell family of brands in connection with the launch of the Bell Pro helmet
line and the expansion of the Bell brand into the mass merchant channel.
The Company believes endorsement of its products by professional bicyclists,
auto racing professionals and professional snow skiers reinforces Bell Sports'
reputation as a market leader and innovator. The Company's bicycle helmets are
endorsed by leading bicyclists such as Greg LeMond (three-time winner of the
Tour de France), John Tomac (former national mountain biking champion) and the
Volvo Cannondale Mountain Bike Team. The Company's auto racing helmets are
endorsed by auto racing professionals such as Indy car driver Michael
Andretti. The Company's recently introduced ski helmets are endorsed by Picabo
Street (Olympic gold medalist). The Company also utilizes the Bell Sports
Traveling Helmet Museum at high visibility events to inform the general public
and to reinforce the leadership of Bell helmets. In addition, the Company
sponsors the National SAFE KIDS Campaign, which focuses on safety issues for
children and promotes awareness of helmets as an integral component of
bicycling safety for children.
INTERNATIONAL
Bell Sports has achieved significant growth in international sales from
$12.8 million in fiscal 1994 to $50.8 million in fiscal 1998. The Company
believes that significant opportunities exist to continue to grow sales in
established European and Pacific Rim markets. Compared to the U.S. market,
these international bicycle helmet and accessory markets are highly fragmented
and regionally focused, with smaller companies offering narrower product lines
and limited marketing and customer service support. The Company believes that
high quality, dependable suppliers of a broad line of products such as Bell
Sports are positioned favorably to service such international markets. In
September 1998, the Company reorganized its international management structure
as a part of the Company's increased focus on international growth and
profitability. See Note 14 to the Consolidated Financial Statements of Bell
Sports Corp. appearing elsewhere herein.
The following is a discussion of each of the Company's international
operating divisions:
Bell Sports Canada. The Bell Sports division in Canada ("Bell Sports
Canada"), located in Granby, Quebec, markets its products to the Canadian IBD
and mass merchant channels. Bell Sports Canada markets its products primarily
under the same brands as those in the United States. The Company estimates
that its share of the Canadian bicycle helmet market is approximately 70%,
which represents an increase from 58% in 1995. The Company attributes this
increase in market share to the successful penetration of the Canadian mass
merchant channel through the development of relationships with leading
retailers such as Canadian Tire and Wal-Mart Canada. In addition, in fiscal
1997, the Company changed its distribution and sales strategy in Canada by
marketing its Bell and Giro premium branded bicycle helmets with a direct
sales force instead of through third-party distributors. In Canada, the
Company also serves as a distributor for certain other bicycle accessory
brands comprising $7.2 million of the Company's net sales in fiscal 1998.
Sales of Bell Sports Canada comprised approximately $22.7 million or 11% of
the Company's net sales in fiscal 1998.
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Bell Sports Europe. Giro Ireland, Limited ("Giro Ireland"), headquartered in
Limerick, Ireland, assembles, markets and distributes bicycle helmets across
Europe under the Giro brand name. EuroBell S.A. ("EuroBell"), located in Roche
La Moliere, France, manufactures, markets and distributes bicycle helmets and
bicycle accessories to the IBD and mass merchant channels throughout Europe.
EuroBell markets its bicycle helmets in Europe under the Bell, Bell Pro and
Bike Star(TM) brand names and certain private label arrangements, and its
bicycle accessories under the Bell, Rhode Gear, Blackburn and VistaLite brand
names. The Company believes it currently has approximately a 29% and a 1%
share of the European bicycle helmet and accessory markets, respectively.
European sales of EuroBell and Giro Ireland comprised approximately
$22.2 million or 11% of the Company's net sales in fiscal 1998.
In fiscal 1998, the Company initiated a marketing plan to increase direct
sales and enhance profitability in Europe. As a result of its efforts, the
Company will introduce its products for sale to more than 10 new European
retailers, including Carrefour, the largest mass merchant in Europe. In
addition, the Company recently closed its Paris, France sales office and
consolidated the sales and marketing functions of EuroBell and Giro Ireland to
focus its sales and marketing efforts and to reduce overhead costs.
Bell Sports Australia. The Bell Sports division in Australia ("Bell Sports
Australia"), located in Sydney, Australia, began operating in November 1996 as
a sales, marketing and distribution office servicing Australia, New Zealand
and the Pacific Rim. Prior to November 1996, Bell Sports marketed its products
in Australia through third-party distributors. The division markets bicycle
helmets to the IBD and mass merchant channels under the Bell, Bell Pro and
Giro brand names and bicycle accessories under the Bell, Rhode Gear, Blackburn
and VistaLite brand names. The Company has developed a significant market
presence since initiating a direct sales and marketing approach in fiscal
1997, and estimates that its market share in the Australian bicycle helmet
market has grown to approximately 17%. Sales of Bell Sports Australia
comprised approximately $5.8 million or 3% of the Company's net sales in
fiscal 1998.
MANUFACTURING
The Company currently manufactures and assembles its bicycle helmets at its
manufacturing and distribution facilities in Rantoul, Illinois and Roche La
Moliere, France. The Company also assembles helmets at its facilities in
Granby, Quebec; Limerick, Ireland; and Santa Cruz, California. The assembly
facilities in Canada and Europe enable the Company to provide its customers
with faster response times and lower freight and duty costs than if the
Company shipped its products exclusively from the United States. The Rantoul,
Illinois facility also manufactures and assembles auto racing helmets, bicycle
child seats and certain bicycle shuttles. Other IBD and mass accessories are
manufactured by outside suppliers, including some in Taiwan and China. During
fiscal 1998, the Company negotiated a letter of intent to sell the assets of
its domestic foam molding facility in Rantoul, Illinois. In September 1998,
the Company consummated such asset sale and entered into a sublease with the
purchaser. In addition, the Company entered into an agreement with the
purchaser pursuant to which the purchaser has agreed to provide the Company
with foam helmet liners and certain related components. The Company believes
that sufficient capacity exists through its own bicycle helmet assembly
facilities and current suppliers to support its anticipated growth in both
bicycle helmets and accessories. Furthermore, the Company believes that
additional capacity can be added at these facilities without significant
additional capital expenditures.
The Company's quality assurance program has been structured to meet the
strict product and manufacturing quality performance requirements of the
International Standards Organization ("ISO"). Compliance with ISO requirements
is monitored in each phase of the manufacturing process. Product safety
testing on each production run is performed on a random sampling basis to
ensure compliance with such manufacturing standards, as well as one or more of
the standards promulgated by The SNELL Memorial Foundation, the American
National Standards Institute, or the American Standards for Testing and
Materials, all of which are independent organizations which establish and
publish voluntary safety standards for helmets. The Company also assists in
the development of new performance standards for bicycle helmets and is
represented on several standards committees for bicycle helmets on a worldwide
basis. The Company's research and development team actively
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participated in the development of the new industry-wide Consumer Product
Safety Commission bicycle helmet safety standard which gives bicycle helmet
manufacturers a one-year period, ending March 15, 1999, to comply with the new
standard. The Company believes that virtually all of its bicycle helmets are
already in compliance with the new standard. Before new products are
introduced, the Company conducts extensive testing of its products for safety
and quality. The Company believes that this active in-house approach to
product development and development of safety standards assists in the
reduction of the time and expense relating to the Company's development of new
products.
INDUSTRY
Bicycle helmets and accessories represent components of the U.S. bicycling
industry. According to BMRI, the bicycling industry has grown significantly in
the 1990s, from $3.6 billion in 1990 to $5.4 billion in 1997, representing a
6% compounded annual growth rate. The National Sporting Goods Association
estimates that bicycling, including mountain biking, is among the most popular
participation sports in the United States. The Company believes that
continuing interest in bicycling in part reflects the increasing awareness of
the health benefits of exercise and active lifestyles.
Prior to the mid-1980s, there was limited demand for bicycle helmets in the
U.S. Helmets were generally available in only a few models and styles, and
usage was limited to serious bicycling enthusiasts and racers. Since then, the
Company believes that general demand for bicycle helmets has increased as a
result of (i) the increase in safety awareness among consumers and the
adoption of mandatory helmet legislation by several states, including
California and New York; (ii) the popularity of bicycling, including
speciality segments such as mountain biking; and (iii) the introduction of new
designs, styles and materials that have broadened consumer appeal.
The Company believes that helmet usage in international markets is
substantially less than in the United States. However, the Company believes
that the current international helmet market appears to exhibit
characteristics similar to the United States market in the mid-1980s, such as
low market penetration, a developing infant and youth helmet market in certain
regions, the beginnings of a trend toward helmet usage by professional
bicyclists and increasing availability of bicycle helmets in several
distribution channels.
PRODUCT LIABILITY
The philosophy of the Company is to defend vigorously all product liability
claims. Although the Company intends to continue to defend itself aggressively
against all claims asserted against it, current pending proceedings and any
future claims are subject to the uncertainties attendant to litigation and the
ultimate outcome of any such proceedings or claims cannot be predicted. Due to
the self insurance retention amounts in the Company's product insurance
coverage, the assertion against the Company of a large number of claims could
have a material adverse effect on the Company. In addition, the successful
assertion against the Company of any, or a series of large, uninsured claims,
or of one or a series of claims exceeding insurance coverage, could have a
material adverse effect on the Company.
Due to certain deductibles, self-insured retention levels and aggregate
coverage amounts applicable under the Company's insurance policies, the
Company may bear responsibility for a significant portion, if not all, of the
defense costs (which include attorney's fees, settlement costs and the cost of
satisfying judgments) of any claim asserted against the Company or its
subsidiaries. There can be no assurance that the insurance coverage, if
available, will be sufficient to cover one or more large claims or that the
applicable insurer will be solvent at the time of any covered loss. Further,
there can be no assurance that the Company will obtain insurance coverage at
acceptable levels and costs in the future.
The Company's current product liability insurance for bicycling and auto
racing products covers claims based on occurrences within the policy period up
to a maximum of $50.0 million in the aggregate in excess of the Company's
self-insured retention of $1.0 million per occurrence for bicycle and auto
racing helmets and in excess of the Company's self-insured retention of
$250,000 for other bicycle-related products.
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Insurance coverage for products manufactured by Giro, prior to the
acquisition by the Company in January 1996, include self-insured retentions of
$0.5 million per occurrence and $1.5 million in the aggregate for all product
claims, with $55.0 million coverage in excess of the self-insured retention
levels. The Company maintains an active role in the management of all Giro
related litigation. Giro claims served after December 31, 1996 are insured
under the same coverage provided to the Company.
From 1954 to 1991, the Company manufactured, marketed and sold motorcycle
helmets. The Company sold its motorcycle helmet manufacturing business in June
1991. Even though the purchaser assumed all responsibility for product
liability claims arising out of helmets manufactured prior to the date of the
disposition, the Company has paid certain costs associated with the defense of
such claims. If the purchaser is for any reason unable to pay the judgment,
settlement amount or defense costs arising out of any claim, the Company could
be held responsible for the payment of such amounts or costs. The Company
believes that the purchaser does not currently have the financial resources to
pay any significant judgment, settlement amount or defense costs arising out
of any claims. The Company has licensed the Bell trademark to the purchaser
for use on motorcycle helmets. The Company believes that, by virtue of its
status as licensor and the fact that such motorcycle helmets carry the Bell
name, it is possible that the Company could be named as a defendant in actions
involving liability for the motorcycle helmets manufactured by the purchaser
of the Company's motorcycle helmet business. In fiscal 1998, the Company
secured insurance coverage for certain liabilities associated with its
motorcycle helmets manufactured or licensed prior to June 1991.
In fiscal 1998, the Company secured a ten-year policy from AIG and Chubb for
insurance coverage for motorcycle helmets manufactured or licensed prior to
June 1991. The policy covers up to a maximum of $50.0 million in the aggregate
in excess of the Company's self-insured retention of $1.0 million per
occurrence, excluding all previous payments made on existing claims, in excess
of $2.0 million in the aggregate for known claims or $4.0 million in the
aggregate for incurred but not reported claims and new occurrences. The policy
covers all claims except the February 1996 and February 1998 judgments against
the Company.
COMPETITION
The markets for the Company's bicycle helmets and accessories are highly
competitive, and the Company faces competition from a number of sources in
each of its product lines. Some competitors are part of large bicycle
manufacturers and may be better able to promote bicycle helmet and accessory
sales through bicycle sales programs. Competition for the Company's products
are primarily based on price, quality, customer service, brand name
recognition, product offerings, product features and style. Although there are
no significant technological or manufacturing barriers to enter the bicycle
helmet and accessory businesses, factors such as brand recognition and
customer relationships may discourage new competitors from entering the
business. New competitors entered the bicycle helmet market in the last
several years and pricing pressures have increased as a result of such
competition. There can be no assurance that additional competitors will not
enter the Company's existing markets, nor can there be any assurance that the
Company will be able to compete successfully against existing or new
competition.
ENVIRONMENTAL MATTERS
The Company is subject to many federal, state and local requirements
relating to the protection of the environment, and the Company has made, and
will continue to make, expenditures to comply with such provisions. The
Company believes that its operations are in material compliance with these
laws and regulations and does not believe that future compliance with such
laws and regulations will have a material adverse effect on its results of
operations or financial condition. If environmental laws become more
stringent, the Company's environmental capital expenditures and costs for
environmental compliance could increase in the future.
In the ordinary course of its business, the Company is required to dispose
of certain waste at off-site locations. During fiscal 1993, the Company became
aware of an investigation by the Illinois EPA of a waste disposal site, owned
by a third party, which was previously utilized by the Company. As a result of
that
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investigation, the Illinois EPA 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, Illinois filed a complaint with
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 as well as such other relief as the Pollution Control Board
deemed appropriate. The Pollution Control Board has approved a settlement
between Illinois and the Company pursuant to which the Company paid $69,000 to
Illinois and disposed of certain materials in a container at the waste
disposal site at an authorized disposal facility. In connection with this
matter, the disposal site owner filed a cross-claim against the Company that
sought to have penalties assessed against the Company rather than the disposal
site owner. The disposal site owner later asserted that if it is required to
meet any new or enhanced closure requirements as a result of the Illinois
claim against the landfill, the costs of such additional closure requirements
should be imposed on the Company. On May 21, 1998, the Pollution Control Board
found that the Company was not liable for any of the violations alleged by the
disposal site owner, and dismissed the cross-claim.
In an unrelated matter, the Company recently received a De Minimis Notice
Letter and Settlement Offer from the USEPA under CERCLA for the OII Site in
Monterey Park, California. CERCLA imposes liability for the costs of cleaning
up, and certain damages resulting from, releases and threatened releases of
hazardous substances. Although courts have interpreted CERCLA liability to be
joint and several, where feasible, the liability typically is allocated among
the responsible parties according to a volumetric or other standard. The USEPA
apparently has identified the Company as a de minimis potentially responsible
party based on several waste shipments the Company allegedly sent to the site
in the late 1970s and in 1980. USEPA's settlement offer to the Company is in
the range of $29,000 to $36,000. The settlement would cover all past and
expected future costs at the OII Site, and, with limited exception, provide
the Company with covenants not to sue from the United States and California,
and contribution protection from private parties.
EMPLOYEES
The Company employed approximately 1,320 persons as of June 27, 1998. The
Company is a party to collective bargaining agreements at two of its
facilities, covering approximately 52 employees. The Company's collective
bargaining agreement with the Retail, Wholesale and Department Store Union
covers employees at the Company's York, Pennsylvania facility and expires in
December 2000. The Company's collective bargaining agreement with the Service
Employees International Union covers employees at the Company's Fairfield,
California facility and expires in December 1999.
LEGAL PROCEEDINGS
Product Liability. Due to the nature of the business of the Company, at any
particular time the Company may be a defendant in a number of product
liability lawsuits for serious personal injury or death allegedly related to
the Company's products and, in certain instances, products manufactured by
others. Many such lawsuits against the Company seek damages, including
punitive damages, in substantial amounts.
During each of the last five fiscal years the Company has been served with
complaints in the following number of cases: 11 cases in fiscal 1994, five
cases in fiscal 1995, 12 cases in fiscal 1996, 15 cases in fiscal 1997 and 14
cases in fiscal 1998. Of the 14 cases served in fiscal 1998, which includes
Giro and AMRE lawsuits, six involve bicycles, one involves bicycle accessories
and seven involve bicycle helmets. Of these same 14 cases, three cases involve
a claim relating to death, three involve claims relating to serious,
permanently disabling injuries and eight involve less serious injuries such as
broken bones or lacerations. Typical product liability claims include
allegations of failure to warn, breach of express and implied warranties,
design defects and defects in the manufacturing process.
As of September 28, 1998, there were 39 lawsuits pending relating to
injuries allegedly suffered from products made or sold by the Company. Of the
39 lawsuits, 12 involve motorcycle helmets, 12 involve bicycle helmets, one
involves an auto racing helmet, two involve bicycle pedals, 9 involve bicycles
and three involve bicycle accessories.
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Two of the 39 product liability lawsuits pending against the Company as of
September 28, 1998 are scheduled for trial prior to December 31, 1998. Of the
six lawsuits scheduled for trial prior to December 31, 1998, one involves a
bicycle helmet claim resulting in death and one involves a bicycle pedal claim
resulting in a broken leg.
In February 1996, a Toronto, Canada jury returned a verdict against the
Company based on injuries arising out of a 1986 motorcycle accident. The jury
found that the Company 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 the Company would be
responsible and the legal fees and tax implications associated therewith are
estimated to be between $3.0 and $4.0 million (based on current exchange
rates). This claim arose during a period in which the Company was self-
insured. The Company has filed an appeal of the Canadian verdict.
In February 1998, a Wilkes-Barre, Pennsylvania jury returned a verdict
against the Company relating to injuries sustained in a 1993 motorcycle
accident. The judgment totaled $6.8 million, excluding any interest, fees or
costs which may be assessed. This claim arose during a period in which the
Company was self-insured. The Company has filed post-trial motions, which were
heard on August 6, 1998, to set aside the jury's verdict. If the motions are
denied, the Company intends to appeal the judgment against the Company.
In June 1998, a Wilmington, Delaware jury returned a verdict against the
Company relating to injuries sustained in a 1991 off-road motorcycle accident.
The judgment totaled $1.8 million, excluding any interest, fees or costs which
may be assessed. The claim is covered by insurance; however, the Company is
responsible for a $1.0 million self-insured retention. The Company has filed
post-trial motions to set aside the jury's verdict and to appeal any judgment
against the Company that might be entered in the action.
Based on management's extensive consultations with legal counsel prosecuting
the appeals and the Company's experience in pursuing reversals and settlements
after the entry of judgments against the Company, management currently
believes that the ultimate outcome of the pending judgments will not have a
material adverse affect on the financial condition of the Company.
Accordingly, the Company has only established reserves for estimated costs for
the defense of these and other known claims. The Company believes that after
giving effect to the Transactions, it will have adequate cash balances and
sources of capital available to satisfy such pending judgments. However, there
can be no assurance that the Company will be successful in appealing or
pursuing settlements of these judgments or that the ultimate outcome of the
judgments will not have a material adverse effect on the liquidity or
financial condition of the Company.
Certain Stockholder Litigation. Following the announcement of the Merger
Agreement, three purported class action lawsuits were filed in Delaware
Chancery Court seeking preliminary and permanent injunctive relief against the
consummation of the Merger or, alternatively, the recovery of damages in the
event the Merger is consummated. The complaints, which were filed by Jeffrey
Kaplan, Jerry Krim and Cyrus Schwartz, purported stockholders of Holdings,
name Holdings, HB Acquisition, Chase Capital Partners, CBCI and Holdings'
current directors as defendants. To the knowledge of Holdings, none of the
complaints has been served. The complaints allege, among other things, that
the Merger is unfair to Holdings' public stockholders and that certain
defendants who are expected to exchange a portion of their shares of Common
Stock, options to purchase shares of Common Stock or other Common Stock-based
awards held by them for shares of common stock of HB Acquisition in connection
with the Merger have a conflict of interest which has caused them, and
Holdings' directors, to breach their fiduciary duties to Holdings'
stockholders. The lawsuit filed by Jeffrey Kaplan was subsequently withdrawn,
without prejudice to refile. Holdings believes that the allegations contained
in the complaints are without merit and intends to vigorously defend each
action.
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MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age as of June 27, 1998 and
position of each person who serves as a director or executive officer of
Holdings:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Terry G. Lee............ 49 Chairman
Mary J. George.......... 47 Chief Executive Officer, President, and Director
Linda K. Bounds......... 43 Chief Financial Officer, Senior Vice President, Secretary, Treasurer
William L. Bracy........ 56 U.S. Group President
William M. Barnum, Jr... 44 Director
Kim G. Davis............ 44 Director
John F. Hetterick....... 52 Director
Edward L. McCall........ 30 Director
Tim R. Palmer........... 40 Director
John M. Sullivan........ 62 Director
</TABLE>
Each director serves a term expiring at the next annual meeting of
stockholders or until his successor shall have been elected and qualified.
Executive officers of Holdings are elected annually and serve until their
earlier resignation or removal.
Terry G. Lee serves as the Chairman of Holdings. Prior to the consummation
of the Merger, Mr. Lee also served as the Chief Executive Officer of Holdings.
Mr. Lee joined Bell Helmets, Inc. (a predecessor of Holdings, "Bell Helmets")
as Director and the President and Chief Operating Officer in 1984, and became
Chief Executive Officer in 1986 and Chairman in 1989. Mr. Lee served as
President of Holdings from 1984 until the consummation of the AMRE Merger in
1995. He was also a stockholder and consultant to Echelon Sports Corporation
(a predecessor of Holdings) prior to its acquisition by Holdings in 1989.
Prior to joining Bell Helmets, Mr. Lee spent 14 years with Wilson Sporting
Goods where his last position was Senior Vice President--Sales and
Distribution.
Mary J. George continues to serve as President and became Chief Executive
Officer and a Director of Holdings upon consummation of the Merger. Ms. George
joined Holdings in October 1994 as the Senior Vice President of Marketing and
Strategic Planning, became President--Specialty Retail Division in July 1995,
became President--North America in December 1995, and became President and
Chief Operating Officer in April 1997. Prior to joining Holdings, Ms. George
served as President of Denar Corporation from January 1993 to August 1994 and
as President of the WestPointe Group from January 1991 to December 1992.
Linda K. Bounds has served Holdings in a number of capacities since joining
the Company in February 1990. She became a Vice President of Holdings in 1993,
and Chief Financial Officer, Executive Vice President, Secretary and Treasurer
of Holdings in April 1997. From 1984 to 1990, she served in various financial
management positions for Celestial Seasonings, Inc. Ms. Bounds is a Certified
Public Accountant. Ms. Bounds has announced her intention to leave Holdings by
December 31, 1998.
William L. Bracy joined Holdings in January 1998 as U.S. Group President.
Prior to joining Holdings, Mr. Bracy served as Executive Vice President of
Mattel Europa and as a President of Mattel Games, both divisions of Mattel,
Inc., from September 1995 to December 1997. From August 1990 to September
1995, Mr. Bracy served as President for Lenox Brands and Lenox China &
Crystal, both divisions of Lenox, Inc.
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William M. Barnum, Jr. became a director of Holdings upon consummation of
the Merger. Mr. Barnum joined Brentwood in 1984 and is presently a managing
member of Brentwood Private Equity, L.L.C. and Brentwood Private Equity
Management, L.L.C. Mr. Barnum is a director of Rental Service Corporation,
Classroom Connect Holdings, Inc., Aspen Marketing Group, Inc., WorldPoint
Logistics, Inc. and Quiksilver Corporation.
Kim G. Davis became a director of Holdings upon consummation of the Merger.
Mr. Davis is a Managing Director and co-founder of Charlesbank, a private
investment firm and the successor to Harvard Private Capital Group, Inc.,
which he joined in 1998. Charlesbank is the investment advisor to Charlesbank
Equity Fund IV, Limited Partnership. From 1995 to 1998, Mr. Davis was a
private investor, and from 1988 to 1994, he was a General Partner of Kohlberg
& Co. He is a director of Westinghouse Air Brake Company.
John F. Hetterick became a director of Holdings upon consummation of the
Merger. Since 1997, Mr. Hetterick has been an independent consultant in the
consumer products industry. From 1992 to 1997, Mr. Hetterick was President and
Chief Executive Officer of Rollerblade, Inc., a manufacturer of in-line
skates. Mr. Hetterick also served as President of Tonka International, a
division of Tonka Corporation, a toy manufacturer, from 1989 to 1991, and Vice
President of Marketing of Pepsi-Cola International, a manufacturer and
distributor of soft drinks, from 1986 to 1989.
Edward L. McCall became a director of Holdings upon consummation of the
Merger. Mr. McCall joined Brentwood in 1993 and is presently a managing member
of Brentwood Private Equity, L.L.C. and Brentwood Private Equity Management,
L.L.C. Mr. McCall currently is a director of Classroom Connect Holdings, Inc.
Tim R. Palmer became a director of Holdings upon consummation of the Merger.
Mr. Palmer is a Managing Director and co-founder of Charlesbank, a private
investment firm and the successor to Harvard Private Capital Group, Inc.,
which he joined in 1990. Charlesbank is the investment advisor to Charlesbank
Equity Fund IV, Limited Partnership. He is a director of The WMF Group, Ltd.
John M. Sullivan became a director of Holdings upon consummation of the
Merger. From October 1987 to January 1993, Mr. Sullivan was Chairman of the
Board and Chief Executive Officer of Prince Holdings, Inc. He is presently
Chairman of the Board of Directors of Silver Cinemas International, Inc. and a
director of The Scotts Company and Rental Service Corporation.
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RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH INVESTORS
Pursuant to a Corporate Development and Administrative Services Agreement
entered into in connection with the closing of the Merger (the "Development
Agreement") among Brentwood Private Equity, L.L.C. ("BPE"), an affiliate of
Brentwood, Charlesbank (together with BPE, the "Advisors"), the Issuer and
Holdings, as amended from time to time (the "Services Agreement"), the
Advisors have agreed to assist in the corporate development activities of the
Company by providing services to the Company, including (i) assistance in
analyzing, structuring and negotiating the terms of investments and
acquisitions, (ii) researching, identifying, contacting, meeting and
negotiating with prospective sources of debt and equity financing, (iii)
preparing, coordinating and conducting presentations to prospective sources of
debt and equity financing, (iv) assistance in structuring and establishing the
terms of debt and equity financing and (v) assistance and advice in connection
with the preparation of the Company's financial and operating plans. Pursuant
to the Services Agreement, the Advisors are entitled to receive: (i) upon the
occurrence of certain events, monitoring fees equal to 1% of the aggregate
amount of investment in the Company by the Investors; (ii) aggregate financial
advisory fees equal to 1.5% of the acquisition cost of the Company's completed
acquisitions, as described above; and (iii) reimbursement of their reasonable
fees and expenses incurred from time to time (a) in performing the services
rendered thereunder and (b) in connection with any investment in, financing
of, or sale, distribution or transfer of any interest in the Company by the
Advisors or any person or entity associated with the Advisors. Upon the
closing of the Transactions, the Investors, together, were paid a fee of
approximately $3.0 million, in the aggregate, and reimbursed for out of pocket
expenses in connection with the negotiation of the Transactions and for
providing certain financial advisory and investment banking services to the
Issuer and Holdings including the arrangement and negotiation of the Senior
Secured Credit Facility, the arrangement and negotiation of the Notes and for
other management consulting services.
For a description of the terms of the initial investment in the Company by
Charlesbank, Brentwood and CBCI, see "The Transactions."
STOCKHOLDERS AGREEMENT
In connection with the Merger, Holdings entered into a stockholders
agreement with its stockholders which provides for, among other things, (i)
certain restrictions and rights related to the transfer, sale or purchase of
Holdings Common Stock and Holdings Preferred Stock, (ii) certain rights
relating to the election of the Board of Directors of Holdings and (iii)
certain registration rights relating to Holdings Class A Common Stock.
TRANSACTIONS WITH MANAGEMENT
In connection with the Merger Agreement, Mr. Lee entered into an employment
agreement (the "Lee Employment Agreement") which replaced his existing
employment, severance and noncompetition agreements with the Issuer and
Holdings. The Lee Employment Agreement has a term of two years and provides
for Mr. Lee to serve as the Chairman of the Board of the Issuer and Holdings
on a full-time basis for six months beginning at the Effective Time and on a
part-time basis thereafter. Mr. Lee's base salary will be $415,000 per annum
during his full-time employment and $207,500 per annum during his part-time
employment. Under the Lee Employment Agreement, Holdings paid Mr. Lee a one-
time cash bonus equal to $860,800 at the Effective Time. Mr. Lee will also be
eligible for an annual performance bonus if certain pre-established net income
criteria are met by Holdings.
In the event Mr. Lee's employment is terminated by Holdings for any reason
other than cause or by Mr. Lee for good reason, the Lee Employment Agreement
provides for the payment of Mr. Lee's base salary and any prorated bonus up to
the date of termination and the continued payment of his base salary, bonus
and all other benefits which would otherwise have been payable for the
remainder of the term of the agreement. Additionally, in such event, any
options to purchase securities of Holdings granted to Mr. Lee after the
Effective Time will vest and become immediately exercisable. The Lee
Employment Agreement also contains a noncompetition and
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non-solicitation agreement for five years following the Effective Time in
consideration for which Mr. Lee will be paid a total of $1.5 million in three
equal annual installments, commencing at the Effective Time.
In connection with the Merger Agreement, Ms. George entered into an
employment agreement (the "George Employment Agreement") which became
effective at the Effective Time and which replaced her existing employment
agreement with the Issuer and Holdings. The George Employment Agreement has a
term of five years and provides for Ms. George to serve as the President and
Chief Executive Officer of the Issuer and Holdings. Ms. George's base salary
will be $350,000 per annum and may be increased annually by the Board. Ms.
George will also be eligible for an annual performance bonus in accordance
with Holdings' management incentive program. The George Employment Agreement
provides for such management incentive program to be amended for fiscal 1999
to include an additional measure for determining Ms. George's performance
bonus based on Holdings' return on assets. In addition, the George Employment
Agreement provides that, at the Effective Time, Holdings will grant stock
options to Ms. George to purchase 4% of Holdings Stock on a fully diluted
basis. Fifty percent of such stock options will vest and become exercisable in
equal annual installments over a five-year period beginning on the date that
is one year after the Effective Time. The remaining 50% percent of the stock
options will vest and become exercisable over such five-year period according
to annual performance criteria established by the Compensation Committee of
the Board. The terms and conditions of the awards to be received by Ms. George
are subject to change, as an equity-based management incentive program,
expected to be implemented by the Company, is developed.
In the event Ms. George's employment is terminated by Holdings for reason
other than cause or by Ms. George for any reason, the George Employment
Agreement provides for the payment of Ms. George's base salary and any
prorated bonus up to the date of termination and the continued payment of Ms.
George's base salary and other benefits, excluding bonus, for a period of 18
months following the date of termination. If Ms. George's employment is
terminated by Holdings for reason other than cause or by Ms. George for good
reason, certain of Ms. George's stock options will vest and become immediately
exercisable. In addition, upon termination of Ms. George's employment prior to
an initial public offering of Holding's equity securities, Holdings or its
designee will have the right to purchase and Ms. George will have the
obligation to sell any equity interests in Holdings held by Ms. George and
exercisable at the time of termination at the fair market value of such equity
interests. Similarly, in the event of such a termination of her employment,
Ms. George will have the right to sell and Holdings or its designee will have
the obligation to purchase all or any portion of any equity interests in
Holdings held by Ms. George and exercisable at the time of termination at the
fair market value of such equity interests. The George Employment Agreement
also contains a customary provision providing for the non-disclosure of
confidential information and a noncompetition and non-solicitation agreement
for two years following the end of Ms. George's employment by Holdings.
Ms. George has also entered into an equity agreement pursuant to which she
exchanged a portion of her options to purchase Common Stock for options to
purchase capital stock of Holdings. Each share of Common Stock subject to an
option held by Ms. George that was exchanged was, for purposes of such
exchange, valued at the Per Share Merger Consideration (exclusive of
indemnification rights limited to an amount necessary to avoid adverse tax
consequences to Ms. George arising from such exchange).
During fiscal 1998, in connection with the relocation of Mr. Bracy's primary
residence, the Company made a non-interest bearing secured loan of $150,000,
which remains outstanding as of September 28, 1998. The loan is due upon the
earlier of (i) termination of employment, (ii) dissolution or liquidation of
the Issuer, or (iii) April 8, 2001. Half of any bonus award earned by Mr.
Bracy will be applied to reduce the outstanding balance of such loan.
In July 1997, the Company sold SportRack to Advanced Accessory Systems
Canada Inc. ("AAS"). An affiliate of CBCI is a principal stockholder of the
parent company of AAS. On July 27, 1998, the Company and AAS entered into an
agreement (the "AAS Agreement") pertaining to an adjustment to the purchase
price of SportRack pursuant to which the Company paid AAS $2.0 million and the
Company and AAS agreed to share any amounts that the Company is able to
recover from insurance carriers or other third parties with respect to the
amounts paid by the Company to AAS pursuant to the AAS Agreement.
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DESCRIPTION OF SENIOR SECURED CREDIT FACILITY
In order to finance a portion of the costs and expenses related to the
Merger and to support the Company's operating capital requirements, at the
Effective Time, the Company entered into the Senior Secured Credit Facility
under which the Company may borrow a maximum aggregate amount of $60.0 million
on a revolving basis, subject to borrowing base requirements. No borrowings
were made under the Senior Secured Credit Facility at the Effective Time and,
as of September 28, 1998, there were no outstanding borrowings under the
Senior Secured Credit Facility.
The Senior Secured Credit Facility matures in 2003. The Company expects that
its working capital needs will require it to obtain new revolving credit
facilities at the time that the Senior Secured Credit Facility matures, but
there can be no assurance that any such extension, renewal, replacement or
refinancing will be successfully accomplished.
The obligations of the Company under the Senior Secured Credit Facility are
unconditionally guaranteed by Holdings and by each existing and subsequently
acquired or created domestic subsidiary of the Company. In addition, the
Senior Secured Credit Facility and the guarantees thereunder are secured by
security interests in and pledges of substantially all of the tangible and
intangible assets of the Company and the guarantors, including pledges of all
of the capital stock of the Issuer and each direct or indirect domestic
subsidiary of the Issuer and up to 65% of the capital stock of each first-tier
foreign subsidiary of the Issuer.
At the Company's election, the interest rates per annum applicable to the
loans under the Senior Secured Credit Facility are measured by reference to
either (a) an adjusted London inter-bank offered rate ("LIBOR") plus a
borrowing margin or (b) an alternate base rate ("ABR") (as defined in the
Senior Secured Credit Facility) plus a borrowing margin. The borrowing margins
applicable to the loans under the Senior Secured Credit Facility are 0.50% for
ABR loans and 1.50% for LIBOR loans until February 17, 1999. The borrowing
margins applicable to the loans under the Senior Secured Credit Facility after
such date may be increased or reduced, based on the Company's leverage ratio.
The fees with respect to the Senior Secured Credit Facility include (i) fees
on the unused commitments of the lenders equal to 0.50% per annum on the
undrawn portion of the commitments, subject to change based on the Company's
leverage ratio; (ii) letter of credit fees on the aggregate face amount of
outstanding standby letters of credit equal to the then applicable borrowing
margin for LIBOR loans under the Senior Secured Credit Facility plus an
issuance fee equal to the greater of $500 and 0.125% per annum for the letter
of credit issuing bank; and (iii) an annual administrative fee of $50,000 for
the first year and $30,000 per year thereafter.
The Senior Secured Credit Facility contains a number of covenants that,
among other things, limit or restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, incur
guarantee obligations, prepay other indebtedness, make restricted payments,
create liens, make equity or debt investments, make acquisitions, modify terms
of the Indenture, engage in mergers or consolidations, change the business
conducted by the Company or its subsidiaries, make capital expenditures or
engage in certain transactions with affiliates. In addition, under the Senior
Secured Credit Facility, the Company is required to comply with specified
financial ratios and tests, including a minimum interest expense coverage
ratio, a minimum fixed charge coverage ratio, and a maximum leverage ratio.
The Senior Secured Credit Facility contains customary events of default
including nonpayment of principal, interest or fees, failure to meet
covenants, inaccuracy of representations or warranties in any material
respect, bankruptcy, cross default to certain other indebtedness, loss of lien
perfection, material judgments and change of ownership or control.
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DESCRIPTION OF HOLDINGS' INDEBTEDNESS
THE CONVERTIBLE DEBENTURES
The following summary of the Convertible Debentures does not purport to be
complete and is qualified in its entirety by reference to the indenture
pursuant to which the Convertible Debentures were issued (the "Convertible
Indenture"). Holdings issued approximately $86.3 million aggregate principal
amount of Convertible Debentures in November 1993, all of which was
outstanding prior to the Merger. Holdings was not obligated to tender for or
otherwise repurchase the Convertible Debentures in connection with the Merger.
Prior to the Merger, the Convertible Debentures or portions thereof were
convertible at the option of the holder at any time on or prior to the close
of business on the maturity date into fully paid, non-assessable shares of
Common Stock, at a conversion price per share of Common Stock of $54.06
(subject to adjustment). The Convertible Debentures (i) are no longer
convertible into shares of Common Stock and the anti-dilution provisions no
longer apply and (ii) if converted, entitle the holder to receive cash in an
amount equal to $189.60 per $1,000 principal amount of Convertible Debentures.
The Convertible Debentures are redeemable at the option of the Company, in
whole or in part, at any time after November 15, 1996, and prior to maturity,
in accordance with the terms of the Convertible Debentures and the Convertible
Indenture. If the Company were to redeem the Convertible Debentures in the
twelve-month period commencing November 15, 1997, the redemption price to be
paid would be 101.82% of the principal amount thereof, declining to 101.21% of
the principal amount thereof for the twelve-month period commencing November
15, 1998, declining to 100.61% of the principal amount thereof for the twelve-
month period commencing November 15, 1999 (in each case, together with accrued
and unpaid interest to the redemption date).
After consummation of the Tender Offer, approximately $23.8 million
aggregate principal amount of Convertible Debentures remained outstanding. See
"The Transactions."
HOLDINGS SENIOR DISCOUNT NOTES
Contemporaneously with the other Transactions, the Investors purchased the
Holdings Senior Discount Notes, which mature on August 17, 2009 for aggregate
proceeds of $15.0 million. The Holdings Senior Discount Notes are senior
unsecured obligations of Holdings. The issue price of the Holdings Senior
Discount Notes represents a yield to maturity of 14% (computed on a semi-
annual bond equivalent basis) calculated from August 17, 1998. The Holdings
Senior Discount Notes will accrete at a rate of 14%, compounded semi-annually,
to an aggregate principal amount at maturity of $29.5 million by August 15,
2003. Cash interest will not accrue on the Holdings Senior Discount Notes
prior to August 15, 2003. Commencing on the first interest payment date
occurring after August 15, 2003, cash interest on the Holdings Senior Discount
Notes will be payable at a rate of 14% per annum, semi-annually in arrears on
each February 15 and August 15.
DESCRIPTION OF ISSUER CAPITAL STOCK
All of the Issuer's issued and outstanding capital stock is owned by
Holdings. The Issuer has no outstanding capital stock other than common stock,
nor are there any outstanding options, warrants or other rights to purchase
the Issuer' capital stock.
DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued as a separate series pursuant to the Indenture
(the "Indenture") between Bell Sports, Inc. and Harris Trust and Savings Bank,
as trustee (the "Trustee"). As used in this "Description of Notes" only, the
Company means Bell Sports, Inc. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The New Notes are subject
to all such terms, and Holders of New Notes are referred to the Indenture and
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the Trust Indenture Act for a statement thereof. The form and terms of the New
Notes are identical in all material respects to the form and terms of the Old
Notes except that (i) the New Notes bear a Series B designation, (ii) the New
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof and (iii) the holders of the New
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions increasing the interest rate on the Old
Notes in certain circumstances relating to the timing of the Exchange Offer,
which rights terminate when the Exchange Offer is consummated. The following
summary of certain provisions of the Indenture does not purport to be complete
and is qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Copies of the Indenture and
Registration Rights Agreement are included in the Registration Statement of
which this Prospectus is a part and are also available as set forth under "--
Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Indenture.
The New Notes will be senior, subordinated, unsecured, general obligations
of the Company. The Indenture provides, in addition to the $110.0 million
aggregate principal amount of New Notes being issued in connection with the
Exchange Offer, for the issuance of additional New Notes having identical
terms and conditions to the New Notes offered hereby (the "Additional New
Notes"), subject to compliance with the covenants contained in the Indenture.
Any Additional Notes will be part of the same issue as the New Notes offered
hereby and will entitle holders thereof to vote on all matters with the New
Notes offered hereby. The aggregate principal amount of New Notes, Old Notes
and Additional Notes will be limited to the sum of $150.0 million. The New
Notes will be guaranteed on a senior subordinated basis by the Guarantors.
Holdings is currently the only Guarantor. The obligations of each Guarantor
under its guarantee, however, will be limited in a manner intended to avoid it
being deemed a fraudulent transfer under applicable law. See "--Certain
Bankruptcy Limitations" below.
As of the date hereof, none of the Company's Subsidiaries are Unrestricted
Subsidiaries. However, under certain circumstances, the Company will be able
to designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries generally will not be subject to the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes, including the Additional Notes, will be limited in aggregate
principal amount to $150.0 million and will mature on August 15, 2008. The
Notes bear interest at 11% per annum and interest is payable semi-annually in
arrears on February 15 and August 15, commencing on February 15, 1999, to
Holders of record on the immediately preceding February 1 and August 1.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months. Principal, premium if any, and interest and
Liquidated Damages, if any, on the Notes will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, any payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments with respect to Global Notes and Definitive
Notes, the Holders of whom have given wire transfer instructions to the
Company, will be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be
issued only in denominations of $1,000 and integral multiples thereof. The
Company may act as Paying Agent under the Indenture and may change any Paying
Agent without notice to the Holders.
SUBORDINATION
The Indebtedness evidenced by the Notes and the payment of principal of,
premium, if any, and interest on the Notes, and Liquidated Damages, if any, in
respect of the Notes will be subordinated in right of payment, as
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set forth in the Indenture, to the prior payment in full of all Obligations in
respect of Senior Indebtedness, whether outstanding on the date of the
Indenture or thereafter issued, created, incurred, assumed or guaranteed. In
addition, as set forth in "Guarantee" below, each Guarantee will be a general,
unsecured obligation of the respective Guarantor, subordinated in right of
payment to all Obligations in respect of Guarantor Senior Indebtedness. As of
June 27, 1998, on a pro forma basis after giving effect to the Transactions,
the Company would have had outstanding on a consolidated basis approximately
$118.4 million of Indebtedness and $6.5 million of Senior Indebtedness, and
the Company's subsidiaries would have had outstanding as of such date $10.1
million of liabilities, including trade payables, all of which would have been
effectively senior in right of payment to the Notes. As of June 27, 1998, on a
pro forma basis after giving effect to the Transactions, Holdings would have
had approximately $21.2 million of Guarantor Senior Indebtedness.
Upon any distribution to creditors of the Company or a Guarantor in a
liquidation or dissolution of the Company or a Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or a Guarantor or its property, whether voluntary or involuntary, an
assignment for the benefit of creditors or any marshalling of the Company's or
any Guarantor's assets and liabilities, the holders of Senior Indebtedness or
Guarantor Senior Indebtedness, as applicable, will be entitled to receive
payment in full in cash or Cash Equivalents of all Obligations due in respect
of such Senior Indebtedness or Guarantor Senior Indebtedness, as applicable
(including Post-Petition Interest, Expense and Indemnity Claims), before the
Holders of Notes or any Guarantee will be entitled to receive any payment with
respect to the Notes, or any Guarantee, and until all such Obligations due
with respect to Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable (including Post-Petition Interest, Expense and Indemnity Claims),
are paid in full in cash or Cash Equivalents, any distribution to which the
Holders of Notes or any Guarantee would be entitled shall be made to the
holders of Senior Indebtedness or Guarantor Senior Indebtedness, as applicable
(except that Holders of Notes or any Guarantee may receive (i) Junior
Securities and (ii) payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance"). If a distribution is made to Holders
that, due to the subordination provision, should not have been made to them,
such Holders are required to hold such payment in trust for the holders of the
Senior Indebtedness or Guarantor Senior Indebtedness, as applicable, and pay
it over to them in accordance with their interest.
Neither the Company nor any Guarantor may make any payment upon or in
respect of the Notes or any Guarantee or acquire any Notes pursuant to the
covenants described under the caption "--Repurchase at the Option of Holders"
(except in Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of any
principal, interest or any other Obligations due in respect of Designated
Senior Indebtedness occurs and is continuing beyond any applicable period of
grace (a "Payment Default") or (ii) any other default occurs and is continuing
with respect to Designated Senior Indebtedness that permits holders of the
Designated Senior Indebtedness as to which such default relates to accelerate
its maturity (a "Nonpayment Default") and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the
representative of the holders of any Designated Senior Indebtedness. Payments
on the Notes may and shall be resumed (a) in the case of a Payment Default,
upon the date on which such default is cured or waived and (b) in case of a
Nonpayment Default, the earlier of the date on which such Nonpayment Default
is cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received (the "Payment Blockage Period"), unless the
maturity of any Designated Senior Indebtedness has been accelerated. No new
Payment Blockage Period may be commenced by reason of the occurrence of a
Nonpayment Default unless and until 360 days have elapsed since the
commencement of the immediately prior Payment Blockage Period. No Nonpayment
Default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice (it being acknowledged that any subsequent
action, or any breach of any financial covenant for a period ending after the
expiration of such Payment Blockage Period that, in either case, would give
rise to a new event of default, even though it is a breach pursuant to any
provision under which a prior event of default previously existed, shall
constitute a new event of default for this purpose).
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
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As a result of the subordination provisions described above, in the event of
a liquidation, dissolution, reorganization or insolvency, Holders of Notes may
recover less ratably than creditors of the Company and the Guarantor who are
holders of Senior Indebtedness and Guarantor Senior Indebtedness,
respectively. See "Risk Factors--Subordination." The Indenture limits, subject
to certain financial tests, the amount of additional Indebtedness, including
Senior Indebtedness and Guarantor Senior Indebtedness that the Company and its
Subsidiaries can incur. See "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock."
No provision contained in the Indenture or the Notes affects the obligation
of the Company and the Guarantors, which is absolute and unconditional, to
pay, when due, principal of, premium, if any, and interest on the Notes. The
subordination provisions of the Indenture and the Notes will not prevent the
occurrence of any Default or Event of Default under the Indenture or limit the
rights, except as described above, of the Trustee or any Holder to pursue any
other rights, or remedies with respect to the Notes.
GUARANTEE
The Company's Obligations under the Notes will be guaranteed pursuant to the
Guarantees on a senior subordinated basis by the Guarantors. The Guarantees of
the Guarantors will be subordinated to the prior payment in full of all
Obligations in respect of Guarantor Senior Indebtedness, of which there would
have been outstanding $21.2 million as of June 27, 1998 on a pro forma basis
giving effect to the Transactions. The obligations of each Guarantor under its
Guarantee will be limited in a manner intended to not constitute a fraudulent
transfer under applicable law. The Indenture does not limit the amount of
Indebtedness that Holdings may incur. See, however, "Risk Factors--Fraudulent
Transfer Considerations," and "Certain Bankruptcy Limitations" below.
CERTAIN BANKRUPTCY LIMITATIONS
Holders of the Notes will be direct creditors of the Guarantors by virtue of
the Guarantees. Nonetheless, in the event of the bankruptcy or financial
difficulty of a Guarantor, such Guarantor's obligations under its Guarantee
may be subject to review and avoidance under state and federal fraudulent
transfer laws. Among other things, such obligations may be avoided if a court
concludes that such obligations were incurred for less than reasonably
equivalent value or fair consideration at a time when such Guarantor was
insolvent, was rendered insolvent, or was left with inadequate capital to
conduct its business. A court would likely conclude that such Guarantor did
not receive reasonably equivalent value or fair consideration to the extent
that the aggregate amount of its liability on its Guarantee exceeds the
economic benefits it receives in the Offering. The obligations of the
Guarantor under its Guarantee will be limited in a manner intended to cause it
not to be a fraudulent obligation under applicable law, although no assurance
can be given that a court would give the holder the benefit of such provision.
See "Risk Factors--Fraudulent Transfer Considerations."
If the obligations of each Guarantor under the Guarantee were avoided,
Holders of Notes would have to look to the assets of the Company and its
Subsidiaries for payment. There can be no assurance that such assets would
suffice to pay the outstanding principal of, premium, if any, and interest on
the Notes, and Liquidated Damages, if any.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to August 15,
2003 except as provided below. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, from time to
time, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if
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any, thereon to the applicable redemption date, if redeemed during the twelve-
month period beginning on August 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.......................................................... 105.500%
2004.......................................................... 103.667%
2005.......................................................... 101.833%
2006 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to August 15, 2001,
the Company may, at its option (but shall not have the obligation to), redeem
up to 35% of the aggregate principal amount of the Notes issued pursuant to
the Indenture at a redemption price of 111% of the principal amount thereof,
in each case plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, with the Net Cash Proceeds received by the
Company from one or more Equity Offerings; provided, that, in each case at
least 65% of the aggregate principal amount of Notes issued pursuant to the
Indenture remain outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of such Equity Offering.
If less than all of the Notes are to be redeemed, selection of Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided that the
Notes may be redeemed in part in multiples of $1,000 only. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest ceases to accrue on the Notes or portions of them called for
redemption, unless the Company defaults in such payments due on the redemption
date.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase (the "Change of Control Payment") on a date (the "Change of Control
Payment Date") no later than 60 Business Days after the occurrence of the
Change of Control. Within 35 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes
pursuant to the procedures required by the Indenture and described in such
notice, which offer shall remain open for at least 20 Business Days following
its commencement, but in any event no longer than 30 Business Days. The
Company and the Guarantor will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of a Change of Control. To the extent that the provisions of
any such securities laws or regulations conflict with the provisions of this
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paragraph, compliance by the Company or the Guarantor with such laws and
regulations shall not in and of itself cause a breach of its obligations under
such covenant.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding Designated Senior Indebtedness or
obtain the requisite consents, if any, under all agreements governing
outstanding Designated Senior Indebtedness to permit the repurchase of Notes
required by this covenant. The Company will not be required to purchase any
Notes until it has complied with the preceding sentence, but the Company's
failure to make a Change of Control Offer when required or to purchase
tendered Notes when tendered would constitute an Event of Default.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management by increasing the capital required to effectuate such transactions.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company and Guarantor Senior Indebtedness may also contain
prohibitions of certain events that would constitute a Change of Control or
require such Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable, to be repurchased upon a Change of Control. Moreover, the exercise
by the Holders of their right to require the Company to repurchase the Notes
could cause a default under such Senior Indebtedness, or Guarantor Senior
Indebtedness, as applicable, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited
by the Company's then existing financial resources. There can be no assurance
that sufficient funds will be available when necessary to make any required
repurchases. Even if sufficient funds were otherwise available, the terms of
the Credit Agreement (and other Senior Indebtedness and Guarantor Senior
Indebtedness may) prohibit the Company's prepayment of Notes prior to their
scheduled maturity. Consequently, if the Company is not able to prepay the
Senior Bank Debt and any other Senior Indebtedness and Guarantor Senior
Indebtedness containing similar restrictions or obtain requisite consents, as
described above, the Company will be unable to fulfill its repurchase
obligations if Holders of Notes exercise their repurchase rights following a
Change of Control, thereby resulting in a default under the Indenture.
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If the Change of Control Payment Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any) due on such
Interest Payment Date will be paid to the Person in whose name a Note is
registered at the close of business on such Record Date, and such interest
(and Liquidated Damages, if applicable) will not be payable to Holders who
tender the Notes pursuant to the Change of Control Offer.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, engage in an Asset Sale in excess of $1.0 million, unless
(i) the Company (or such Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Equity Interests sold or otherwise disposed of and, in
the case of a lease of assets, a lease providing for rent and other conditions
which are no less favorable to the Company (or such Subsidiary, as the case
may be) in any material respect than the then prevailing market conditions
(evidenced in each case by a resolution of the Board of Directors of such
entity set forth in an Officers' Certificate delivered to the Trustee) and
(ii) at least 75% (100% in the case of lease payments) of the consideration
therefor received by the Company or such Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any Senior Indebtedness of
the Company or any Indebtedness of any Subsidiary (reflected on the Company's
or such Subsidiary's most recent balance sheet or in the notes thereto, but
excluding contingent liabilities and trade payables) that is assumed by the
transferee of any such assets and from which the Company or such Subsidiary
are unconditionally released from liability and (y) any notes, securities or
other obligations received by the Company or any such Subsidiaries from such
transferee that are promptly, but in no event more than 30 days after receipt,
converted by the Company or such Subsidiary into cash (to the extent of the
cash received), shall, in each case, be deemed to be cash for purposes of this
provision.
The Company or any of its Subsidiaries may apply the Net Proceeds from each
Asset Sale, at its option, within 360 days after the consummation of such
Asset Sale, (a) to reduce permanently any Senior Indebtedness or any
Indebtedness of its Subsidiaries (and in the case of any senior revolving
indebtedness of the Company or its Subsidiaries correspondingly permanently to
reduce commitments with respect thereto), (b) to make capital expenditures,
for the acquisition of another business or the acquisition of other long-term
assets, in each case, in the same or a Related Business, or (c) to reimburse
the Company or its Subsidiaries for expenditures made, and costs incurred, to
repair, rebuild, replace or restore property subject to loss, damage or taking
to the extent that the Net Proceeds consist of insurance proceeds received on
account of such loss, damage or taking. Pending the final application of any
such Net Proceeds, the Company may invest such Net Proceeds in any manner that
is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $5.0 million, the Company will be required to make an
unconditional and irrevocable offer to all Holders of Notes (an "Asset Sale
Offer") and to holders of other Indebtedness of the Company outstanding
ranking on a parity with the Notes with similar provisions requiring the
Company to make a similar offer with proceeds from asset sales, pro rata in
proportion to the respective principal amounts (or accreted values in the case
of Indebtedness issued with an original issue discount) of the Notes and such
other Indebtedness then outstanding, to purchase the maximum principal amount
(or accreted value, as applicable) of Notes and such other Indebtedness, if
any, that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to l00% of the principal amount (or accreted value, as
applicable) thereof, plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the date of purchase, in accordance with the procedures set
forth in the Indenture. If the aggregate principal amount (or accreted value,
as applicable) of Notes and such Indebtedness surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to
be purchased on a pro rata basis in increments of $1,000 with such
Indebtedness. Upon completion of such offer to purchase, regardless of whether
any Notes are tendered, the amount of Excess Proceeds shall be reset to zero.
Any Asset Sale Offer shall remain open for at least 20 Business Days, but in
any event no longer that 30 Business Days, and shall be made in compliance
with all applicable laws, rules, and regulations, including, if
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applicable, Regulation l4E of the Exchange Act and the rules and regulations
thereunder and all other applicable Federal and state securities laws. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this paragraph, compliance by the Company or any of its
Subsidiaries with such laws and regulations shall not in and of itself cause a
breach of its obligations under such covenant.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated
Damages, if any, due on such Interest Payment Date) will be paid to the Person
in whose name a Note is registered at the close of business on such Record
Date, and such interest (or Liquidated Damages, if applicable) will not be
payable to Holders who tender Notes pursuant to such Asset Sale Offer.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries directly or indirectly to: (i) declare or pay any dividend or
make any distribution on account of the Company or any of its Subsidiaries' or
any of its direct or indirect parent's Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company) (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or dividends
or distributions payable to the Company or any Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any direct or indirect parent of the Company or
other Affiliate or Subsidiary of the Company (other than any such Equity
Interests owned by the Company); (iii) make any principal payment on or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to or pari passu with (unless in the case of
pari passu Indebtedness only, such purchase, redemption, defeasance,
acquisition or retirement is made or offered (if applicable), pro rata with
the Notes or the Guarantees (if applicable)) the Notes or any Guarantee, as
applicable (and other than the Notes or any Guarantee, as applicable), except
for any scheduled repayment or at the final maturity thereof, or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable trailing four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the
Issue Date (including Restricted Payments permitted by clauses (i), (vi),
(vii) and (viii), but excluding Restricted Payments permitted by clauses
(ii), (iii), (iv), (v) and (ix) of the next succeeding paragraph), is less
than the sum of (i) 50% of the Consolidated Net Income (adjusted to exclude
any amounts that are otherwise included in this clause (c) to the extent
there would be, and to avoid, any duplication in the crediting of any such
amounts) of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the Issue
Date to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate Net
Cash Proceeds received directly by the Company after the Issue Date from a
Capital Contribution or from the issue or sale of Equity Interests of the
Company or of debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary or an Unrestricted Subsidiary of the
Company
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and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock), plus (iii) 100% of any cash dividends
received directly by the Company or a Wholly Owned Subsidiary of the
Company after the Issue Date from an Unrestricted Subsidiary, plus (iv)
100% of the Net Proceeds realized directly by the Company or a Wholly Owned
Subsidiary of the Company upon the sale of any Unrestricted Subsidiary of
the Company or any Wholly Owned Subsidiary of the Company (less the amount
of any reserve established for purchase price adjustments and less the
maximum amount of any indemnification or similar contingent obligation for
the benefit of the purchaser, any of its Affiliates or any other third
party in such sale, in each case as adjusted for any permanent reduction in
any such amount on or after the date of such sale, other than by virtue of
a payment made to such Person) to a Person other than the Company or a
Subsidiary or Unrestricted Subsidiary of the Company following the Issue
Date, plus (v) to the extent that any Restricted Investment that was made
after the Issue Date is sold to a Person other than the Company or a
Subsidiary or Unrestricted Subsidiary of the Company for cash or Cash
Equivalents or otherwise liquidated or repaid by a Person other than the
Company or a Subsidiary or Unrestricted Subsidiary of the Company for cash
or Cash Equivalents, the amount of Net Proceeds received directly by the
Company or a Wholly Owned Subsidiary of the Company with respect to such
Restricted Investment.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the making of any Restricted Investment, directly or
indirectly, in exchange for, or out of the Net Cash Proceeds of, the
substantially concurrent Capital Contribution or sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that any Net Cash Proceeds that are utilized for
any such Restricted Investment, and any Net Income resulting therefrom, shall
be excluded from clauses (c) (i) and (c) (ii) of the preceding paragraph;
(iii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company)
of other Equity Interests of the Company (other than any Disqualified Stock);
provided that any Net Cash Proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition, and any Net Income resulting
therefrom, shall be excluded from clauses (c) (i) and (c) (ii) of the
preceding paragraph; (iv) the defeasance, redemption, repurchase, acquisition
or other retirement of pari passu or subordinated Indebtedness with the cash
proceeds from an incurrence of Permitted Refinancing Indebtedness or, in
exchange for, or out of the Net Cash Proceeds of, the substantially concurrent
sale (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that any Net Cash Proceeds
that are utilized for any such defeasance, redemption, repurchase and any Net
Income resulting therefrom, shall be excluded from clauses (c) (i) and
(c) (ii) of the preceding paragraph; (v) the repurchase, redemption, or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company or Holdings held by any member of the Company's
(or any of its Subsidiaries) management pursuant to any management agreement
or stock option or other agreement entered into in good faith for proper
purposes in the ordinary course of business; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed the sum of (A) $5.0 million and (B) the aggregate cash
proceeds received by the Company from any reissuance of Equity Interests by
Holdings or the Company to members of management of the Company and its
Subsidiaries (provided that cash proceeds referred to in this clause (B) shall
be excluded from clause (c)(i) of the preceding paragraph), and no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction; (vi) so long as no Default or Event of Default shall have
occurred and be continuing, Restricted Payments in an aggregate amount not to
exceed $1.0 million made on and after the Issue Date; (vii) pro rata dividends
and other distributions on the Capital Stock of any Subsidiary of the Company
by such Subsidiary; (viii) payments in lieu of fractional shares in an amount
not to exceed $250,000 in the aggregate made on and after the Issue Date; (ix)
Permitted Payments to Holdings; (x) the sale or liquidation of a Restricted
Investment, provided no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; and (xi) the amount required
from the Company to discharge Holdings' obligations with respect to (A) the
Merger (including amounts paid with respect to appraisal rights, if any, and
any noncompetition agreements, and any execution bonuses), (B) the Tender
Offer and (C) any expenses directly related thereto.
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Additionally, the foregoing provisions of this covenant do not prohibit, so
long as no Default or Event of Default shall have occurred and be continuing,
any payment to Holdings (i) made not more than 10 Business Days after an
Interest Payment Date if the Company shall first have paid to the Holders all
principal, premium (if any) and interest (and Liquidated Damages, if any) due
and owing on the Notes on or prior to such Interest Payment Date and (ii) used
by Holdings concurrently with such payment (a) to make a scheduled interest
payment on its Senior Discount Notes as required by the terms of its Senior
Discount Notes relating to the amount and timing of interest payments and
maturity as they exist on the Issue Date, (b) to make a scheduled interest
payment or payment of principal on its Convertible Subordinated Debentures or
(c) to repurchase the Convertible Subordinated Debentures. The full amount of
any Restricted Payments made pursuant to clause (ii)(a) of this paragraph,
however, will be deducted in the calculation of the aggregate amount of
Restricted Payments available to be made pursuant to clause (c) of the first
paragraph of this covenant.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default. For purposes of
making such determination, all outstanding Investments by the Company and its
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of (x) the
net book value of such Investments at the time of such designation, (y) the
fair market value (as reasonably determined in good faith by the Board of
Directors of the Company) of such Investments at the time of such designation
and (z) the original fair market value (as reasonably determined in good faith
by the Board of Directors of the Company) of such Investments at the time they
were made. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Subsidiary to be designated
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "--Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) and that the Company will not issue any Disqualified
Stock and will not permit any of its Subsidiaries to issue any shares of
preferred stock or Disqualified Stock; provided, however, that the Company may
incur Indebtedness (including Acquired Indebtedness) or issue shares of
Disqualified Stock: if (a) the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to l (the "Ratio Test"),
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock or preferred stock had been issued, as the case may be,
at the beginning of such four-quarter period; and (b) no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof. For purposes of determining any particular amount of Indebtedness
under this covenant, guarantees, liens or obligations with respect to letters
of credit supporting Indebtedness otherwise included in the determination of
such particular amount shall be not included (except for any such guarantees,
liens or obligations with respect to letters of credit supporting Indebtedness
incurred by a Subsidiary in support of Indebtedness (other than Senior
Indebtedness) of the Company). The foregoing provisions will not apply to:
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(i) the incurrence of Indebtedness by the Company or its Subsidiaries
under the Credit Agreement in an aggregate principal amount at any time
outstanding (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and its
Subsidiaries thereunder) not to exceed an amount equal to $85.0 million,
less the aggregate amount of all Net Proceeds of Asset Sales applied to
reduce permanently the outstanding amount or, as applicable, the
commitments with respect to such Indebtedness pursuant to the covenant
described above under the caption "--Asset Sales;"
(ii) Existing Indebtedness;
(iii) the incurrence by the Company and Subsidiaries of the Company that
are Guarantors of Indebtedness represented by the Notes and the Guarantees
pursuant to the terms of the Indenture;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Subsidiary, in an aggregate principal amount at any time outstanding
(including any Indebtedness incurred to refinance, retire, renew, defease,
refund or otherwise replace any such Indebtedness) not to exceed $2.5
million;
(v) the incurrence by the Company or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund, Indebtedness
that was permitted by the Indenture pursuant to the Ratio Test or Clauses
(ii) or (iii) of this covenant to be incurred or was outstanding on the
Issue Date, after giving effect to the Transactions;
(vi) the incurrence by the Company or any of its Wholly Owned Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries or between or among any Wholly Owned
Subsidiaries; provided, however, that (i) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than a Wholly Owned Subsidiary and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations or purchase of foreign currencies that are incurred for the
purpose of (i) fixing or hedging interest rate risk with respect to any
floating rate Indebtedness or (ii) fixing or hedging currency risks that is
permitted by the Indenture to be incurred;
(viii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in an aggregate amount at any time outstanding (including any
Indebtedness incurred to refinance, retire, renew, defease, refund or
otherwise replace any such Indebtedness) not to exceed $12.5 million;
(ix) the incurrence by the Company or any Subsidiary of Indebtedness in
respect of judgment, appeal, surety, performance and other like bonds,
bankers acceptance and letters of credit provided by the Company and its
Subsidiaries in the ordinary course of business in an aggregate amount
(including any indebtedness incurred to refinance, retire, renew, defease,
refund or otherwise replace any such indebtedness) at any time outstanding
of not more than $10.0 million; and
(x) Indebtedness incurred by the Company or any of its Subsidiaries
arising from agreements or their respective bylaws providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees of letters of credit, surety bonds or performance bonds
securing the performance of the Company or any of its Subsidiaries to any
Person acquiring all or a portion of such business or assets of a
Subsidiary of the Company for the purpose of financing such acquisition, in
a principal amount not to exceed 25% of the gross proceeds (with proceeds
other than cash or Cash Equivalents being valued at the fair market value
thereof as determined by the Board of Directors of the Company in good
faith) actually received by the Company or any of its Subsidiaries in
connection with such disposition.
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Indebtedness or Disqualified Stock of any Person which is outstanding at the
time such Person becomes a Subsidiary of the Company (including upon
designation of any subsidiary or other Person as a Subsidiary) or is merged
with or into or consolidated with the Company or a Subsidiary of the Company
shall be deemed to have been incurred at the time such Person becomes such a
Subsidiary of the Company or is merged with or into or consolidated with the
Company or a Subsidiary of the Company, as applicable.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income
or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens, unless the Notes are secured by such Lien
on an equal and ratable basis; provided that if the Obligation secured by any
Lien is subordinate or junior in right of payment to the Notes, the Lien
securing such Obligation shall be subordinate and junior to the Lien securing
the Notes with the same or lesser relative priority as such Obligation shall
have been with respect to the Notes.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i) (a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (l) on its Capital
Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Subsidiaries, (ii) make loans or advances to the Company or any of
its Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the Credit Agreement as in effect as
of the date of the Indenture and, any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, (c) the Indenture and the Notes or the Guarantees, as applicable, or
Indebtedness permitted to be incurred pursuant to the Indenture and ranking
pari passu with the Notes to the extent such restrictions are no more
restrictive than those of the Indenture, (d) applicable law, (e) any
instrument governing Acquired Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Subsidiaries as in effect at the time of
such acquisition (except to the extent such Acquired Indebtedness was incurred
in connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired, (f) by reason of customary non-assignment provisions in leases and
licenses entered into in the ordinary course of business and consistent with
past practices, (g) Purchase Money Obligations or Capital Lease Obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above only on the
property so acquired, (h) agreements relating to the financing of the
acquisition of real or tangible personal property acquired after the date of
the Indenture, provided that such encumbrance or restriction relates only to
the property which is acquired and in the case of any encumbrance or
restriction that constitutes a Lien, such Lien constitutes a Permitted Lien as
set forth in clause (xi) of the definition of "Permitted Lien," (i) any
restriction or encumbrance contained in contracts for sale of assets permitted
by this Indenture in respect of the assets being sold pursuant to such
contract, (j) Senior Indebtedness or Guarantor Senior Indebtedness permitted
to be incurred under the Indenture and incurred on or after the date of the
Indenture, (k) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness refinanced thereby, or (l) any restriction with
respect to a Subsidiary (or any of its property or assets) imposed pursuant to
an agreement entered into for the direct or indirect sale or disposition of
all or substantially all of the Capital Stock or assets of such Subsidiary (or
the property or assets that are subject to such restriction) pending the
closing of such transaction.
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LIMITATION ON LAYERING DEBT
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that by its
terms or the terms of any document or instrument relating thereto is
subordinate or junior in right of payment to any Senior Indebtedness and
senior in any respect in right of payment to the Notes, and (ii) the
Guarantors will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that by its terms or the terms of any
document or instrument relating thereto is subordinate or junior in right of
payment to any Guarantor Senior Indebtedness and senior in any respect in
right of payment to the Guarantee.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company will not in a single transaction or
series of related transactions consolidate or merge with or into (whether or
not the Company is the surviving corporation), or directly or indirectly,
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person, or entity, unless (i) the
Company is the surviving corporation or the entity or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; (iv) the Company, or the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will, at the time of such transaction
and after giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and (v) the Company shall have delivered to the Trustee an
Officer's Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. Notwithstanding the foregoing, the transactions
constituting the Transactions shall be deemed to be expressly permitted under
the Indenture and shall not require the execution and delivery of a
supplemental indenture.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged
or to which such transfer is made shall succeed to and (except in the case of
a lease) be substituted for, and may exercise every right and power of, the
Company under the Indenture with the same effect as if such successor
corporation had been named therein as the Company, and (except in the case of
a lease) the Company shall be released from the obligations under the Notes
and the Indenture except with respect to any obligations that arise from, or
are related to, such transaction.
For the purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise) of all or substantially all of the properties and assets of one
or more Subsidiaries of the Company, the Company's interest in which
constitutes all or substantially all of the properties and assets of the
Company shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to enter into any transaction (including the sale, lease,
exchange, transfer or other disposition of any of its properties or assets or
services, or the purchase of any property, assets or services), or enter into
or make any contract,
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agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions entered into
after the date of the Indenture involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an officers'
certificate certifying that such Affiliate Transactions comply with clause
(i) above and that such Affiliate Transactions have been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transactions or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, a
favorable written opinion as to the fairness to the Company or such Subsidiary
of such Affiliate Transactions from a financial point of view issued by an
investment banking firm of national standing in the United States, or in the
event such transaction is a type that investment bankers do not generally
render fairness opinions, a valuation or appraisal firm of national standing;
provided that the following shall not be deemed to be Affiliate Transactions:
(A) the Development Agreement as in effect on the Issue Date, so long as no
Event of Default shall have occurred and be continuing; (B) the Stockholders
Agreement among Holdings and the stockholders listed as signatories thereto;
(C) indemnification agreements entered into by the Company with any of its
officers and directors; (D) any employment or consulting agreement entered
into by the Company or any of its Subsidiaries in good faith and in the
ordinary course of business and consistent with the past practice of the
Company or such Subsidiary (including the Lee Employment Agreement and the
George Employment Agreement as in effect on the Issue Date); (E) transactions
between or among the Company and/or its Wholly Owned Subsidiaries; and (F)
transactions permitted by the provisions of the Indenture described above
under the caption "Restricted Payments." In addition, none of the Transactions
shall be deemed to be Affiliate Transactions.
LINE OF BUSINESS
The Indenture provides that neither the Company nor any of its Subsidiaries
shall directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of the Company, is a Related Business.
REPORTS
The Indenture provides that for so long as Holdings is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act and the
Company is a wholly owned Subsidiary of Holdings, the Company shall deliver to
the Trustee, and to each Holder, Holdings' annual, quarterly and current
reports pursuant to Section 13 or 15(d) of the Exchange Act within 15 days
after such reports have been filed with the SEC; provided, however, that in
the event that either (i) Holdings is no longer subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or (ii) the Company is
no longer a wholly owned Subsidiary of Holdings, then whether or not required
by the rules and regulations of the Commission so long as any Notes are
outstanding, the Company will furnish to the Holders of Notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms l0-Q and 10-K if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information and a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, at any time after the effectiveness
of a registration statement with respect to the Exchange Offer, the Company
and Holdings, as the case may be, will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and Holdings (for so long as the Company is a wholly owned Subsidiary
of Holdings) have agreed that, for so long as any Notes remain outstanding,
they will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule l44A(d) (4) under the Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default (i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any on the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company to comply with the provisions described under the caption
"Repurchase at the Option of Holders"; (iv) failure by the Company for 60 days
after notice given to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% of the aggregate principal amount of
Notes outstanding to comply with any of its other agreements in the Indenture
or the Notes; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after the
date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium on such Indebtedness at maturity (after giving effect
to any applicable grace period provided in such Indebtedness) or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been
such a payment default or the maturity of which has been so accelerated,
aggregates $5.0 million or more; (vi) failure by the Company or any of its
Significant Subsidiaries to pay nonappealable final judgments (not fully
covered by insurance) aggregating in excess of $5.0 million, which judgments
are not paid, bonded, discharged or stayed within a period of 60 days; (vii)
except as permitted by the Indenture, any Guarantee shall be held in a
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting
on behalf of any Guarantor, shall deny or disaffirm its obligations under its
Guarantee; and (viii) certain events of bankruptcy or insolvency with respect
to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately by notice in
writing to the Company (and to the Trustee if given by the Holders).
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, or any
Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding Notes will become
due and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes, except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal, premium, or interest) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may, generally, on behalf of the Holders
of all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest or Liquidated Damages on, or the principal
or premium of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"), except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including nonpayment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Event of Default or Default shall have
occurred and be continuing on the date of such deposit (other than an Event of
Default or Default resulting from the borrowing of funds to be applied to such
deposit); (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under, the Credit Agreement
or any other material agreement or instrument (other than the Indenture) to
which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound; (vi) the Company must have
delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company must deliver to
the Trustee an Officers Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers Certificate and an opinion of counsel, each
stating that all conditions precedent provided for, in the case of the
Officers' Certificate, (i) through (vii) and, in the case of the opinion of
counsel, clauses (i) (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph relating to the
Legal Defeasance or the Covenant Defeasance, as applicable, have been complied
with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange
offer for Notes) and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of each Holder affected thereby, an amendment or waiver
may not (with respect to any Notes held by a non-consenting Holder): (i)
reduce the aggregate principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (neither of the covenants described above under the
caption "--Repurchase at the Option of Holders" shall constitute a provision
with respect to the redemption of the Notes), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of Liquidated Damages or principal of, or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of a majority in aggregate principal amount of the
Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in currency other than that stated in
the Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of, or premium, if any, or interest on the Notes, (vii) waive a
redemption payment with respect to any Note (a payment required by either of
the covenants described above under the caption "Repurchase at the Option of
Holders" shall not constitute a redemption payment), or (viii) make any change
in the foregoing amendment and waiver provisions. In addition, any amendment
to the subordination provisions of the Indenture will require the consent of
the holders of Designated Senior Indebtedness.
Notwithstanding the foregoing, without the consent of any Holder of Notes
(but subject to the consent of the Holders of Designated Senior Indebtedness
in the case of any amendment of or supplement to the subordination provisions
of the Indenture), the Company and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders
of Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders of Notes
(including the addition of any Guarantors) or that does not adversely affect
the legal rights under the Indenture of any such Holder, to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act, or to comply
with the procedures of the Depositary with respect to the provisions of the
Indenture and the Notes relating to transfers and/or exchanges of the Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue, or resign.
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The Holders of a majority in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent Person in
the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company at 6350
San Ignacio Avenue, San Jose, California 95119, Attention: Assistant
Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 15% or more of the voting securities of
a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease (other than operating leases),
conveyance or other disposition that does not constitute a Restricted Payment
or an Investment by such Person of any of its non-cash assets (including,
without limitation, by way of a sale and leaseback and including the issuance,
sale or other transfer of any of the capital stock of any Subsidiary of such
Person but excluding Cash Equivalents liquidated in the ordinary course of
business) other than to the Company or to any of its Wholly Owned Subsidiaries
(including the receipt of proceeds of insurance paid on account of the loss of
or damage to any asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceeding, and including the receipt
of proceeds of business interruption insurance); and (ii) the issuance of
Equity Interests in any Subsidiaries or the sale of any Equity Interests in
any Subsidiaries, in each case, in one or a series of related transactions,
provided that notwithstanding the foregoing, the term "Asset Sale" shall not
include: (a) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company, as permitted pursuant to
the covenant entitled "Merger, Consolidation or Sale of Assets," (b) the sale
or lease of equipment, inventory, accounts receivable or other assets in the
ordinary course of business consistent with past practice, (c) the sale or
disposal of damaged, worn out or other obsolete personal property in the
ordinary course of business so long as such property is no longer necessary
for the proper conduct of the business of the Company or such Subsidiary, as
applicable; (d) a transfer of assets by the Company to a Wholly Owned
Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary, (e) an issuance of Equity Interests by a Wholly Owned
Subsidiary to the Company or to another Wholly Owned Subsidiary, (f) the
surrender or waiver of contract rights or the settlement, release or surrender
of contract, tort
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or other claims of any kind, in each case undertaken in good faith, (g) the
grant in the ordinary course of business of any non-exclusive license of
patents, trademarks, registrations therefor and other similar intellectual
property, (h) the sale of the assets described in the letter agreement dated
July 7, 1998 between the Company and Pactuco, Inc. (relating to the sale of
certain Rantoul, Illinois manufacturing assets), (i) Permitted Investments or
Permitted Liens, or (j) the sale, lease, conveyance or other disposition of
any Restricted Investment or the assets of, equity interest in, or claims
against, any Unrestricted Subsidiary.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a Capital Lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Contribution" means any contribution to the equity of the Company
for which no consideration is given, or if consideration is given by the
Company, the only consideration given is common stock with no redemption
rights and no special privileges, preferences, or special voting rights.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $100
million or (ii) any bank whose short-term commercial paper rating from S&P is
at least A-l or the equivalent thereof or from Moody's is at least P-l or the
equivalent thereof (any such bank being an "Approved Lender"), in each case
with maturities of not more than twelve months from the date of acquisition,
(c) commercial paper and variable or fixed rate notes issued by any Approved
Lender (or by the parent company thereof) or any variable rate notes issued
by, or guaranteed by, any domestic corporation rated A-2 (or the equivalent
thereof) or better by S&P or P-2 (or the equivalent thereof) or better by
Moody's and maturing within twelve months of the date of acquisition, (d)
repurchase agreements with a bank or trust company or recognized securities
dealer having capital and surplus in excess of $100 million for direct
obligations issued by or fully guaranteed by the United States of America in
which the Company shall have a perfected first priority security interest
(subject to no other Liens) and having, on the date of purchase thereof, a
fair market value of at least 100% of the amount of repurchase obligations,
and (e) interests in regulated money market mutual funds which invest solely
in assets or securities of the type described in subparagraphs (a), (b), (c)
or (d) hereof.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof
(whether or not otherwise in compliance with the provisions of the Indenture);
(ii) (A) prior to the initial public offering (other than a public offering
pursuant to a registration statement on Form S-8) of the Common Stock of the
Company or of Holdings (for so long as the Company is a wholly owned
Subsidiary of Holdings), both (x) Brentwood Associates Buyout Fund II, L.P.
and Charlesbank Equity Fund IV, Limited Partnership and their Related Persons
(collectively, the "Permitted Holders") shall own directly or indirectly less
than 50% of the aggregate ordinary voting power for the election of directors
("Voting Power") represented by the issued and outstanding Capital Stock of
the Company and (y)
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any Person or Group (other than the Permitted Holders) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing
Voting Power greater than that owned by the Permitted Holders or (B)
subsequent to the initial public offering (other than a public offering
pursuant to a registration statement on Form S-8) of the Common Stock of the
Company or of Holdings (for so long as the Company is a wholly owned
Subsidiary of Holdings), both (x) the Permitted Holders shall directly or
indirectly own less than 30% of the aggregate Voting Power represented by the
issued and outstanding Capital Stock of the Company and (y) any other Person
or Group (other than the Permitted Holders) shall become the owner, directly
or indirectly, beneficially or of record, of shares representing greater than
35% of the aggregate Voting Power of the Company; (iii) during any two-year
period the directors who constituted the Board of Directors of the Company at
the beginning of such period, (together with any new directors whose election
by such Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of at least a majority of
the directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved or is any designee of the Permitted Holders or was
nominated by such Permitted Holders or any of their designees) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office; or (iv) at any time after the Issue Date, the Company no longer
continues, for Federal income tax purposes, to be a member of the affiliated
group of Holdings under circumstances that would accelerate, for Federal
income tax purposes, the recognition of any material unrealized gain in
respect of Holdings' investment account in the Company.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to the Company and its
Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) the Fixed Charges for such
period, plus (iii) provision for taxes based on income or profits for such
period, all determined in accordance with GAAP, (to the extent such income or
profits were considered in computing Consolidated Net Income for such period),
plus (iv) consolidated depreciation, amortization and other non-cash charges
of the Company and its Subsidiaries required to be reflected as expenses on
the books and records of the Company, all determined in accordance with GAAP,
minus (v) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (iv), and (vi) excluding the impact
of foreign currency translations. Notwithstanding the foregoing, the provision
for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated EBITDA only to the
extent (and in the same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of determination to be
paid as a dividend to the Company by such Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income
of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative
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effect of a change in accounting principles shall be excluded, (v) the Net
Income of, or any dividends or other distributions from, any Unrestricted
Subsidiary, to the extent otherwise included, shall be excluded, whether or
not distributed to the Company or one of its Subsidiaries, and (vi) all other
extraordinary nonrecurring gains and extraordinary nonrecurring losses shall
be excluded. See "Net Income."
"Convertible Subordinated Debentures" means 4 1/4% Convertible Subordinated
Debentures due 2000 of Holdings.
"Credit Agreement" means that certain Credit Agreement, dated as of August
17, 1998, by and among the Company and Societe Generale, as administrative
agent, and the lenders parties thereto, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed,
refunded, replaced, extended, restated or refinanced from time to time,
including any agreement restructuring or adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder and whether by the same or any
other agent, lender or group of lenders; provided that the total amount of
Indebtedness is not thereby increased beyond the amount that may then be
incurred at such time pursuant to the covenant described under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock."
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (i) so long as the Senior Bank Debt
is outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior
Indebtedness permitted under the Indenture the principal amount of which is
$25.0 million or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering of Equity Interests
of the Company, or of Holdings (for so long as the Company is a wholly owned
Subsidiary of Holdings), other than Disqualified Stock, pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, amortization of
deferred financing fees, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), all as determined in accordance with GAAP, (ii) the consolidated
interest expense of such Person and its Subsidiaries that was capitalized
during such period, all as determined in accordance with GAAP, (iii) any
interest expense on Indebtedness of another Person, all as determined in
accordance with GAAP, that is Guaranteed by such Person or one of its
Subsidiaries or secured by a Lien on assets of such Person or one of its
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend
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payments (and non-cash dividend payments in the case of a Person that is a
Subsidiary of the Company) on any series of preferred stock of such Person
payable to a party other than the Company or a Wholly Owned Subsidiary, times
(b) a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal state and local statutory tax rate
of such Person, expressed as a decimal, on a consolidated basis and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its
Subsidiaries for such period to the Fixed Charges of such Person and its
Subsidiaries for such period. In the event that the Company or any of its
Subsidiaries incurs, assumes, retires, Guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues preferred stock subsequent
to the commencement of the four-quarter reference period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, retirement,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. For purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing and refinancing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period, (ii) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of on or prior to
the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of on or prior to the Calculation
Date, shall be excluded, but only to the extent that the obligations giving
rise to such Fixed Charges will not be obligations of the referent Person or
any of its Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Wholly Owned Subsidiary of the Company
organized and incorporated in a jurisdiction outside the United States that
primarily conducts its business outside the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"George Employment Agreement" means the Amended and Restated Employment
Agreement dated as of February 17, 1998 among Holdings, the Company and Mary
J. George.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of agreements to
keep well, to purchase assets, goods, letters of credit, reimbursement
agreements, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole
or in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has corresponding meaning.
"Guarantor Senior Indebtedness" means (i) all Obligations in respect of the
Senior Bank Debt and any Guarantee by a Guarantor of the Senior Bank Debt and
(ii) any other Indebtedness incurred, created or assumed by a Guarantor
(including Post Petition Interest, Expense and Indemnity Claims, whether or
not allowable or enforceable as a claim in a case commenced under Bankruptcy
Law or any other receivership, reorganization, insolvency or liquidation
proceeding), unless the instrument under which such Indebtedness is incurred
expressly
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provides that it is on a parity with or subordinated in right of payment to
the Guarantee by a Guarantor of the Notes. Notwithstanding anything to the
contrary in the foregoing, Guarantor Senior Indebtedness will not include (w)
any liability for federal, state, local, or other taxes owed or owing by the
Guarantor, (x) any Indebtedness of a Guarantor (other than a Guarantee of
Senior Bank Debt under the Credit Agreement) to any of its Subsidiaries or
other Affiliates or (y) any trade payables.
"Guarantor" means (i) Holdings and (ii) any Subsidiary of the Company that
becomes a guarantor of the Notes pursuant to the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii)
other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Holdings" means Bell Sports Corp., a Delaware corporation, and its
successors and assigns.
"Indebtedness" means, with respect to any Person on the date of
determination, any (i) principal of, interest, premium, if any, and fees in
respect of indebtedness of such Person, whether or not contingent, in respect
of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable or warranty or service obligations in the
ordinary course of business incurred in the ordinary course of business, but
only (other than with respect to letters of credit and Hedging Obligations) if
and to the extent any of the foregoing indebtedness would appear as a
liability upon a consolidated balance sheet of such Person prepared in
accordance with GAAP, (ii) all obligations of such Person with respect to any
conditional sale or title retention agreement, (iii) the amount of all
Obligations of such Person with respect to redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any preferred stock, (iv) all indebtedness of others secured by a
Lien on any asset of such Person (whether or not such indebtedness is assumed
by such Person), and (v) to the extent not otherwise included, the Guarantee
by such Person of any Indebtedness of any other Person.
"Intercompany Note" means that certain promissory note made by Holdings in
favor of the Company as of the Issue Date.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding guarantees of Indebtedness of the Company or any Subsidiary to the
extent such guarantee is permitted by the covenant "Incurrence of Indebtedness
and Issuance of Preferred Stock"), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in good faith in the ordinary course of business), transfers of assets
outside the ordinary course of business other than Asset Sales, purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or
other securities and all other items that are or would be classified, as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other securities by the Company
for consideration consisting of common equity securities of the Company shall
not be deemed to be an Investment.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Junior Securities" means securities (i) that are subordinated, at least to
the same extent as the Notes are subordinated to Senior Indebtedness, to
Senior Indebtedness or Guarantor Senior Indebtedness, as applicable, and
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all securities issued in exchange for, or on account of, Senior Indebtedness
or Guarantor Senior Indebtedness, as applicable ("Reorganization Senior
Debt"), (ii) that have a final maturity date and Weighted Average Life to
Maturity that is the same or greater than the Notes or the Guarantee and (iii)
that are not secured by any collateral; provided, that, in the case of
subordination in respect of Senior Bank Debt under the Credit Agreement and
any Reorganization Senior Debt issued in exchange therefor or on account
thereof, "Junior Securities" means securities (i) that are subordinated, at
least to the same extent as the Notes are subordinated to Senior Indebtedness,
to all Obligations in respect of Senior Bank Debt and any guarantee thereof
and all Reorganization Senior Debt issued in exchange for, or on account of,
Obligations in respect of Senior Bank Debt or any such guarantee, as
applicable, (ii) that (A) have a final maturity date occurring after the last
scheduled final maturity date of all Senior Bank Debt under the Credit
Agreement or Reorganization Senior Debt issued in respect thereof that is
outstanding on the date of issuance of such securities and (B) are not subject
to any required principal payment, sinking fund payment or redemption prior to
such last scheduled final maturity date and (iii) that are not secured by any
collateral.
"Lee Employment Agreement" means the Amended and Restated Employment
Agreement dated as of February 17, 1998 among Holdings, the Company and Terry
G. Lee.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or similar statutes) of any jurisdiction).
"Liquidated Damages" means, the amounts payable by the Company, if any,
pursuant to the Registration Rights Agreement.
"Merger" means the merger of HB Acquisition Corporation, a Delaware
corporation with and into Holdings pursuant to an Agreement and Plan of
Recapitalization and Merger, as amended, dated as of February 17, 1998.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale or equity contribution in
respect of Qualified Capital Stock plus, in the case of an issuance of
Qualified Capital Stock upon any exercise, exchange or conversion of
securities (including options, warrants, rights and convertible or
exchangeable debt) of the Company that were issued for cash after the Issue
Date, the amount of cash originally received by the Company upon the issuance
of such securities (including options, warrants, rights and convertible or
exchangeable debt) less the sum of all payments, fees, commissions, and
customary and reasonable expenses (including, without limitation, the fees and
expenses of legal counsel and investment banking fees and expenses) incurred
in connection with such sale or equity contribution in respect of Qualified
Capital Stock.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash and Cash Equivalents received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale) and, with respect to
the covenant "Restricted Payments," by the Company or any Subsidiary in
respect of the sale of an Unrestricted Subsidiary
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and the sale, liquidation or repayment for cash of a Restricted Investment, in
each case, net of the direct costs relating thereto (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available
tax credits or deductions and any tax-sharing arrangements), and any reserve
for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness of a Person to the extent that under
the terms thereof and pursuant to applicable law, no personal recourse could
be had against such Person for the payment of the principal of or interest or
premium or any other amounts with respect to such Indebtedness or for any
claim based on such Indebtedness and that enforcement of obligations on such
Indebtedness is limited solely to recourse against interests in specified
assets.
"Obligations" means any principal, interest, fees, expense reimbursements,
indemnities and other liabilities payable, whether at maturity, upon
redemption, by declaration or otherwise, pursuant to the terms contained in
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investments in (i) the Company, (ii) a
Wholly Owned Subsidiary of the Company that is a Guarantor or (iii) a Foreign
Subsidiary, that, in the case of each of (i), (ii) and (iii) above, is engaged
in one or more Related Businesses; (b) Investments in Wholly Owned
Subsidiaries of the Company that are not Foreign Subsidiaries and that are
engaged in one or more Related Businesses in an amount not to exceed (at the
time of Investment) 35% of the total assets of the Company, as determined
pursuant to its most recently available balance sheet; (c) any Investments in
Cash Equivalents; (d) Investments by the Company or any Subsidiary of the
Company in a Person if as a result of such Investment (i) such Person becomes
a Wholly Owned Subsidiary of the Company that is engaged in one or more
Related Businesses or (ii) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or a Wholly Owned Subsidiary of the Company
and that is engaged in one or more Related Businesses; (e) Investments made as
a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales"; (f) Investments
outstanding as of the date of the Indenture, including but not limited to the
Intercompany Note; (g) Investments in the form of promissory notes of members
of the Company's management in consideration of the purchase by such members
of Equity Interests (other than Disqualified Stock) in the Company or the
Guarantor (not to exceed in the aggregate $1.0 million at any time); (h)
Investments which constitute Existing Indebtedness of the Company or any of
its Subsidiaries; (i) accounts receivable, endorsements for collection or
deposits arising in the ordinary course of business; and (j) other Investments
in any Person or Persons that do not in the aggregate exceed $5.0 million at
any time outstanding; provided, however, that to the extent there would be,
and to avoid, any duplication in determining the amounts of investments
outstanding under this clause (j) any amounts which were credited under clause
(c) of the covenant "Restricted Payments" shall reduce the amounts outstanding
under this clause (j).
"Permitted Liens" means (i) Liens securing Senior Indebtedness; (ii) Liens
in favor of the Company or a Wholly Owned Subsidiary; (iii) Liens on property
of a Person existing at the time such Person is merged into or consolidated
with the Company or any Subsidiary of the Company, including any Liens
securing Permitted Refinancing Indebtedness with respect thereto; provided
that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing
at the time of acquisition thereof by the Company or any Subsidiary of the
Company; provided that such Liens were in existence prior to the contemplation
of such acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (vi) Liens existing
on the date of the Indenture; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings, provided that any reserve
or other appropriate provision as shall be required in conformity with GAAP
shall have been made therefor; (viii) Liens incurred in the ordinary course of
business of the Company or any Subsidiary of the
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Company with respect to obligations that do not exceed in the aggregate $5.0
million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary; (ix) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (x) easements, rights-of-way, restrictions,
defects or irregularities in title and other similar charges or encumbrances
not interfering in any material respect with the business of the Company or
any of its Subsidiaries, (xi) Purchase Money Liens (including extensions and
renewals thereof); (xii) Liens securing reimbursement obligations with respect
to letters of credit which encumber only documents and other property relating
to such letters of credit and the products and proceeds thereof, (xiii)
judgment and attachment Liens not giving rise to an Event of Default;
(xiv) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements; (xv) Liens
arising out of consignment or similar arrangements for the sale of goods;
(xvi) any interest or title of a lessor in property subject to any capital
lease obligation or operating lease; (xvii) Liens on assets of Subsidiaries
with respect to Acquired Indebtedness (including Liens securing Permitted
Refinancing Indebtedness with respect thereto;) provided such Liens are only
on assets or property acquired with such Acquired Indebtedness and that such
Liens were not created in contemplation of or in connection with such
Acquisition; (xviii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith by appropriate proceeding, if such
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made in respect thereof; (xix) Liens upon specific items of
inventory or other goods and proceeds of any Person securing such Person's
obligations in respect of bankers' acceptances issued or created for the
account of such Person to facilitate the purchase, shipment, or storage of
such inventory or other goods; (xx) Liens securing Hedge Obligations that are
otherwise permitted under the Indenture; (xxi) Liens securing Indebtedness of
Foreign Subsidiaries of the Company; (xxii) leases or subleases granted to
others that do not materially interfere with the ordinary course of business
of the Company and its Subsidiaries; (xxiii) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xxiv) Liens in favor
of customs and revenue authorities arising as a matter of law to secure
payment of custom duties in connection with the importation of goods.
"Permitted Payments to Holdings" means without duplication, (a) payments to
Holdings in an amount sufficient to permit Holdings to pay reasonable and
necessary operating expenses and other general corporate expenses to the
extent such expenses relate or are fairly allocable to the Company and its
Subsidiaries including any reasonable professional fees and expenses not in
excess of $500,000 in the aggregate during any consecutive 12-month period,
(b) payment to Holdings to enable Holdings to pay foreign, federal, state or
local tax liabilities ("Tax Payment"), not to exceed the amount of any tax
liabilities that would be otherwise payable by the Company and its
Subsidiaries to the appropriate taxing authorities if they filed separate tax
returns, to the extent that Holdings has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Company or
its Subsidiaries; provided, however that (i), notwithstanding the foregoing,
in the case of determining the amount of a Tax Payment that is permitted to be
paid by Company and any of its U.S. Subsidiaries in respect of their Federal
income tax liability, such payment shall be determined assuming that Company
is the parent company of an affiliated group (the "Company Affiliated Group")
filing a consolidated Federal income tax return and that Holdings and each
such U.S. Subsidiary is a member of the Company Affiliated Group and (ii) any
Tax Payments shall either be used by Holdings to pay such tax liabilities
within 90 days of Holdings' receipt of such payment or refunded to the party
from whom Holdings received such payments.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (a) the
principal amount of such Permitted Refinancing Indebtedness does not exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with such refinancing and the amount of any premium or prepayment
penalty paid in connection with such Refinancing Transaction to the extent in
accordance with the terms of the document
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governing such Indebtedness (except for any modification to any such document
made in connection with or in contemplation of such refinancing) the lesser of
(i) the principal amount of the Indebtedness so extended refinanced, renewed,
replaced, defeased or refunded; and (ii) if such Indebtedness being Refinanced
was issued with an original issue discount, the accreted value thereof (as
determined in accordance with GAAP) at the time of such Refinancing, plus, in
each case accrued interest on such Indebtedness being Refinanced; (b) such
Permitted Refinancing Indebtedness has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (c) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to,
the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (d) such Indebtedness
is incurred either by the Company or by the Subsidiary who is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Post-Petition Interest, Expense and Indemnity Claims" means (i) in the case
of any Senior Bank Debt interest at the rate (including the applicable post-
default rate) set forth in the Credit Agreement and expense reimbursement and
indemnity claims accruing (or that, if allowable, would have accrued) after
commencement of a case under Bankruptcy Law or any other receivership,
reorganization, insolvency or liquidation proceeding, whether or not such
interest, expense reimbursement or indemnity is an allowable claim in such
proceeding), and (ii) in the case of any other Senior Indebtedness, interest
accruing after the date of the commencement of any bankruptcy proceeding at
the rate specified in the applicable governing documentation, whether or not
allowable as a claim in such proceeding.
"Purchase Money Lien" means a Lien granted on an asset or property to secure
a Purchase Money Obligation permitted to be incurred under the Indenture and
incurred solely to finance the acquisition, including, in the case of a
Capital Lease, the lease, of such asset or property; provided, however, that
such Lien encumbers only such asset or property and is granted within 180 days
of such acquisition.
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or another Person incurred or assumed to finance solely
the acquisition, including, in the case of a Capital Lease, the lease, of real
or personal property to be used in the business of such Person or any of its
Subsidiaries in an amount that is not more than 100% of the cost of such
property, and incurred within 180 days after the date of such acquisition
(excluding accounts payable to trade creditors incurred in the ordinary course
of business).
"Qualified Capital Stock" means any Capital Stock of the Company, or, if
expressly applicable, Holdings (for so long as the Company is a wholly owned
Subsidiary of Holdings), that is not Disqualified Stock.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any
and all businesses that in the good faith judgment of the Board of Directors
of the Company are materially related businesses.
"Related Person" with respect to any Permitted Holder means (A) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse, or
immediate family member (in the case of any individual) of such Permitted
Holder, (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
an 80% or more controlling interest of which, consist of such Permitted Holder
and/or such other Persons referred to in the immediately preceding clause (A),
or (C), in the case of Harvard Private Capital Holdings, Inc., Charlesbank
Equity Fund IV, Limited Partnership.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Bank Debt" means all Obligations in respect of the Indebtedness
outstanding under the Credit Agreement, including, without limitation, Post-
Petition Interest, Expense and Indemnity Claims whether or not
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allowable or enforceable as a claim in a case commenced under Bankruptcy Law
or any other receivership, reorganization, insolvency or liquidation
proceeding.
"Senior Discount Notes" means the 14% Senior Discount Notes due 2009 of
Holdings and any notes issued in substitution therefor having the same
interest rate, interest payment date and maturity date terms as they exist on
the Issue Date.
"Senior Indebtedness" means (i) the Senior Bank Debt and (ii) any other
Indebtedness permitted to be incurred, created or assumed by the Company
(including Post-Petition Interest, Expense and Indemnity Claims, whether or
not allowable or enforceable as a claim in a case commenced under Bankruptcy
Law or any other receivership, reorganization, insolvency or liquidation
proceeding) under the terms of the Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a parity
with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing, Senior Indebtedness will not
include (w) any liability for federal, state, local or other taxes owed or
owing by the Company, (x) any Indebtedness (other than Senior Bank Debt under
the Credit Agreement) of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables, or (z) any Indebtedness that is incurred
in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Exchange Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof). Unrestricted Subsidiaries shall not be included in the definition of
Subsidiary for any purposes of the Indenture (except, as the context may
otherwise require, for purposes of the definition of "Unrestricted
Subsidiary").
"Tender Offer" means the tender offer by Holdings for up to $62.5 million
aggregate principal amount of its Convertible Subordinated Debentures pursuant
to an Offer to Purchase dated as of June 30, 1998, as amended on July 24,
1998.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Subsidiary of
the Company, unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons who are not Affiliates
of the Company; (c) is a Person with respect to which neither the Company nor
any of its Subsidiaries has any direct or indirect obligation to subscribe for
additional Equity Interests or maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified level of operating
results; and (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Subsidiaries, and (ii) any Subsidiary of an Unrestricted Subsidiary. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolutions giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Subsidiary
of the Company as of such date (and, if such
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Indebtedness is not permitted nor incurred as of such date under the covenant
described under the caption "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Subsidiary; provided that such designation
shall be deemed to be an incurrence of Indebtedness by a Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) such Indebtedness is permitted
under the covenant described under the caption "Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock," and (ii) no Default or Event
of Default would be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each of the remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twentieth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
Unrestricted Subsidiaries shall not be included in the definition of Wholly
Owned Subsidiary for any purposes of the Indenture (except, as the context may
otherwise require, for purposes of the definition of "Unrestricted
Subsidiary.")
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Old Notes sold to qualified institutional buyers ("QIBs") initially have
been, and the New Notes initially will be, in the form of one or more
registered global notes without interest coupons (collectively, the "U.S.
Global Notes"). Upon issuance, the U.S. Global Notes will be deposited with
the Trustee, as custodian for the Depository Trust Company ("DTC" or the
"Depositary"), in New York, New York, and registered in the name of DTC or its
nominee for credit to the accounts of DTC's Direct Participants and Indirect
Participants (each as defined). The Old Notes offered and sold in offshore
transactions in reliance on Regulation S, if any, initially have been, and the
New Notes initially will be, in the form of one or more temporary, registered,
global book-entry notes without interest coupons (the "Reg S Temporary Global
Notes"). The Reg S Temporary Global Notes were deposited with the Trustee, as
custodian for DTC, in New York, New York and registered in the name of a
nominee of DTC for credit to the accounts of Indirect Participants
participating in DTC through the Euroclear System ("Euroclear") and Cedel
bank, societe anonyme ("CEDEL"). During the 40-day period commencing on the
day after the later of the commencement of the Offering and the original Issue
Date (as defined) of the Notes (the "Distribution Compliance Period"),
beneficial interests in the Reg S Temporary Global Notes may be held only
through Euroclear or CEDEL, and, pursuant to DTC's procedures, Indirect
Participants that hold a beneficial interest in the Reg S Temporary Global
Notes will not be able to transfer such interest to a person that takes
delivery thereof in the form of an interest in the U.S. Global Notes. Within a
reasonable time after the expiration of the Distribution Compliance Period,
the Reg S Temporary Global Notes will be exchanged for one or more permanent
global notes (the "Reg S Permanent Global Notes"; collectively with the Reg S
Temporary Global Notes, the "Reg S Global Notes") upon delivery to DTC of
certification of compliance with the transfer restrictions applicable to the
Notes and pursuant to Regulation S as provided in the Indenture. After the
Distribution Compliance Period, (i) beneficial interests in the Reg S
Permanent Global Notes may be transferred to a person that takes delivery in
the form of an interest in the U.S. Global Notes and (ii) beneficial interests
in the U.S. Global Notes may be transferred to a person that takes delivery in
the form of an interest in the Reg S Permanent Global Notes, provided, in each
case, that the certification requirements described below are complied with.
See "--Transfers of Interests in One Global Note for Interests in Another
Global Note." All registered global notes are referred to herein collectively
as "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes (as
defined), if any, will be subject to a certain restrictions on transfer and
will bear a restrictive legend. In addition, transfer of beneficial interests
in
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any Global Notes will be subject to the applicable rules and procedures of DTC
and its Direct Participants or Indirect Participants (including, if
applicable, those of Euroclear and CEDEL), which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be
exchanged for Notes in certificated form in certain limited circumstances. See
"--Transfer of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented from registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Issuer that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through
electronic book-entry changes in accounts of Participants. The Direct
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations, including Euroclear and CEDEL. Access to DTC's system is also
available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant (collectively, the
"Indirect Participants"). DTC may hold securities beneficially owned by other
persons only through the Direct Participants or Indirect Participants and such
other person's ownership interest and transfer of ownership interest will be
recorded only on the records of the Direct Participant and/or Indirect
Participant and not on the records maintained by DTC.
DTC has also advised the Issuer that, pursuant to DTC's procedures, (i) upon
deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes allocated to them by the Initial
Purchasers, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global Notes. Direct Participants and Indirect Participants must maintain
their own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. Investors in the Reg S
Temporary Global Notes may hold their interests therein directly through
Euroclear or CEDEL or indirectly through organizations that are participants
in Euroclear or CEDEL. After the expiration of the 40-Day Distribution
Compliance Period (but not earlier), investors may hold interests in the Reg S
Permanent Global Notes through organizations other than Euroclear and CEDEL
that are Direct Participants in the DTC system. Morgan Guaranty Trust Company
of New York, Brussels office is the operator and depositary of Euroclear and
Citibank, N.A. is the operator and depositary of CEDEL (each a "Nominee" of
Euroclear and CEDEL, respectively). Therefore, they will each be recorded on
DTC's records as the holders of all ownership interests held by them on behalf
of Euroclear and CEDEL, respectively. Euroclear and CEDEL must maintain on
their own records the ownership interests, and transfers of ownership
interests by and between, their own customers' securities accounts. DTC will
not maintain such records. All ownership interests in any Global Notes,
including those of customers' securities accounts held through Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that
they own. This may limit or curtail the ability to transfer beneficial
interests in a Global Note to such persons. Because DTC can act only on behalf
of Direct Participants, which in turn act
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on behalf of Indirect Participants and others, the ability of a person having
a beneficial interest in a Global Note to pledge such interest to persons or
entities that are not Direct Participants in DTC, or to otherwise take actions
in respect of such interests, may be affected by the lack of physical
certificates evidencing such interests. For certain other restrictions on the
transferability of the Notes see "--Reg S Temporary and Reg S Permanent Global
Notes" and "--Transfers of Interests in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "--TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY
OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS
OF HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Issuer, Holdings and the Trustee will
treat the persons in whose names the Notes are registered (including Notes
represented by Global Notes) as the owners thereof for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, Liquidated Damages, if any, and interest on
Global Notes registered in the name of DTC or its nominee will be payable by
the Trustee to DTC or its nominee as the registered holder under the
Indenture. Consequently, none of the Issuer, Holdings, the Trustee or any
agent of the Issuer, Holdings or the Trustee has or will have any
responsibility or liability for (i) any aspect of DTC's records or any Direct
Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Note or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to
the actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to
the beneficial owners of the Notes will be governed by standing instructions
and customary practices between them and will not be the responsibility of
DTC, the Trustee, the Issuer or Holdings. None of the Issuer, Holdings or the
Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the Notes, and
the Issuer and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
Notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect
Participants who hold an interest in the Notes through Euroclear or CEDEL) who
hold an interest through a Direct Participant will be effected in accordance
with the procedures of such Direct Participant but generally will settle in
immediately available funds. Transfers between and among Indirect Participants
who hold interests in the Notes through Euroclear and CEDEL will be effected
in the ordinary way in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between Direct Participants in DTC,
on the one hand, and Indirect Participants who hold interests in the Notes
through Euroclear or CEDEL, on the other hand, will be effected by Euroclear's
or CEDEL's respective Nominee through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL; however, delivery of instructions relating to
crossmarket transactions must be made directly to Euroclear or CEDEL, as the
case may be, by the counterparty in accordance with the rules and procedures
of Euroclear or CEDEL and within their established deadlines (Brussels time
for Euroclear and U.K. time for CEDEL). Indirect Participants who hold
interest in the Notes through Euroclear and CEDEL may not deliver instructions
directly to Euroclear's or CEDEL's Nominee. Euroclear or CEDEL will, if the
transaction meets its settlement requirements, deliver instructions to its
respective Nominee to deliver or receive interests on Euroclear's or CEDEL's
behalf in the
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relevant Global Note in DTC, and make or receive payment in accordance with
normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will
be credited, and any such crediting will be reported to Euroclear or CEDEL
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and CEDEL customers will not have
access to the cash amount credited to their accounts as a result of a sale of
an interest in a Reg S Permanent Global Note to a DTC Participant until the
European business day for Euroclear or CEDEL immediately following DTC's
settlement date.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and
to distribute such certificated forms of Notes to its Direct Participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Reg S Permanent Global Notes and in
the U.S. Global Notes among Direct Participants, including Euroclear and
CEDEL, they are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Issuer, Holdings, the Initial Purchasers or the Trustee shall have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective Direct Participants and Indirect Participants of their respective
obligations under the rules and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Issuer
believes to be reliable, but the Issuer takes no responsibility for the
accuracy thereof.
REG S TEMPORARY AND REG S PERMANENT GLOBAL NOTES
An Indirect Participant who holds an interest in the Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the Indenture certifying
that such Indirect Participant is either not a U.S. person (as defined) or has
purchased such interests in a transaction that is exempt from the registration
requirements under the Securities Act, and Euroclear or CEDEL, as the case may
be, must provide to the Trustee (or the Paying Agent, if other than the
Trustee) a certificate in the form required by the Indenture prior to any
exchange of such beneficial interests for beneficial interests in Reg S
Permanent Global Notes.
"U.S. Person" means (i) any natural person resident in the United States,
(ii) any partnership or corporation organized or incorporated under the laws
of the United States, (iii) any estate of which an executor or administrator
is a U.S. Person (other than an estate governed by foreign law and of which at
least one executor or administrator is a non-U.S. Person who has sole or
shared investment discretion with respect to its assets), (iv) any trust of
which any trustee is a U.S. Person (other than a trust of which at least one
trustee is a non-U.S. Person who has sole or shared investment discretion with
respect to its assets and no beneficiary of the trust (and no settler, if the
trust is revocable) is a U.S. Person), (v) any agency or branch of a foreign
entity located in the United States, (vi) any non-discretionary or similar
account (other than an estate or trust) held by a dealer or other fiduciary
for the benefit or account of a U.S. Person, (vii) any discretionary or
similar account (other than an estate or trust) held by a dealer or other
fiduciary organized, incorporated or (if any individual) resident in the
United States (other than such an account held for the benefit or account of a
non-U.S. Person), (viii) any
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partnership or corporation organized or incorporated under the laws of a
foreign jurisdiction and formed by a U.S. Person principally for the purpose
of investing in securities not registered under the Securities Act (unless it
is organized or incorporated and owned by "accredited investors" within the
meaning of Rule 501(a) under the Securities Act who are not natural persons,
estates or trusts); provided, however that the term "U.S. Person" shall not
include (A) a branch or agency of a U.S. Person that is located and operating
outside the United States for valid business purposes as a locally regulated
branch or agency engaged in the banking or insurance business, (B) any
employee benefit plan established and administered in accordance with the law,
customary practices and documentation of a foreign country and (C) the
international organizations set forth in Section 902(o)(7) of Regulation S
under the Securities Act and any other similar international organizations,
and their agencies, affiliates and pension plans.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL NOTE
Prior to the expiration of the Distribution Compliance Period, an Indirect
Participant who holds an interest in the Reg S Temporary Global Note through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes.
After the expiration of the Distribution Compliance Period, an Indirect
Participant who holds an interest in Reg S Permanent Global Notes will be
permitted to transfer its interest to a U.S. Person who takes delivery in the
form of an interest in U.S. Global Notes only upon receipt by the Trustee of a
written certification from the transferor to the effect that such transfer is
being made in accordance with the restrictions on transfer set forth under
"Notice to Investors" and set forth in the legend printed on the Reg S
Permanent Global Notes.
Prior to the expiration of the Distribution Compliance Period, a Direct
Participant or Indirect Participant who holds an interest in the U.S. Global
Note will not be permitted to transfer its interests to any person that takes
delivery thereof in the form of an interest in the Reg S Temporary Global
Notes. After the expiration of the 40-Day Restricted Period, a Direct
Participant or Indirect Participant who holds an interest in U.S. Global Note
may transfer its interests to a person who takes delivery in the form of an
interest in Reg S Permanent Global Notes only upon receipt by the Trustee of a
written certification from the transferor to the effect that such transfer is
being made in accordance with Rule 904 of Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection
with such transfer, appropriate adjustments will be made to reflect a decrease
in the principal amount of the one Global Note and a corresponding increase in
the principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC
(x) notifies the Issuer that it is unwilling or unable to continue as
depositary for the Global Notes and the Issuer thereupon fails to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Issuer, at its option, notifies
that Trustee in writing that it elects to cause the issuance of Certificated
Notes or (iii) there shall have occurred and be continuing a Default or an
Event of Default with respect to the Notes. In any such case, the Issuer will
notify the Trustee in writing that, upon surrender by the Direct Participants
and Indirect Participants of their interest in such Global Note, Certificated
Notes will be issued to each person that such Direct Participants and Indirect
Participants and the DTC identify as being the beneficial owner of the related
Notes.
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Beneficial interests in Global Notes held by any Direct Participants or
Indirect Participant may be exchanged for Certificated Notes upon request to
DTC, by such Direct Participant (for itself or on behalf of an Indirect
Participant), to the Trustee in accordance with customary DTC procedures.
Certificated Notes delivered in exchange for any beneficial interests in any
Global Note will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such Direct Participants or
Indirect Participants (in accordance with DTC's customary procedures).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Notice to Investors," unless the Issuer
determines otherwise in compliance with applicable law.
None of the Issuer, Holdings or the Trustee will be liable for any delay by
the holder of any Global Note or DTC in identifying the beneficial owners of
Notes, and the Issuer and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note or
DTC for all purposes.
TRANSFERS OF CERTIFICATED NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and, in certain circumstances, an
opinion of counsel) confirming that, in connection with such transfer, it has
complied with the restrictions on transfer required by applicable law.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of interests in such
Global Note. With respect to Certificated Notes, the Issuer will make all
payments of principal, premium, if any, interest and Liquidated Damages, if
any, by wire transfer of immediately available same day funds to the accounts
specified by the holders thereof or, if no such account is specified, by
mailing a check to each such holder's registered address. The Issuer expects
that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Issuer, Holdings (together, the "Obligors") and the Initial Purchasers
entered into the Registration Rights Agreement on August 17, 1998. In the
Registration Rights Agreement, the Obligors agreed to file the Registration
Statement (of which this Prospectus is a part) with the Commission within 90
days of the Closing, and to use their respective best efforts to have it
declared effective within 135 days of the Closing. The Obligors also agreed to
use their respective best efforts to cause the Exchange Offer Registration
Statement to be effective continuously, to keep the Exchange Offer open for a
period of not less than 20 business days and cause the Exchange Offer to be
consummated no later than the 30th business day after it is declared effective
by the Commission. Pursuant to the Exchange Offer, certain holders of the
Notes which constitute Transfer Restricted Securities (as defined) may
exchange their Transfer Restricted Securities for registered New Notes. To
participate in the Exchange Offer, each holder must represent that it is not
an affiliate of the Company, it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the New Notes that are issued in the
Exchange Offer and it is acquiring the New Notes in the Exchange Offer in its
ordinary course of business.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any holder of Old Notes which are Transfer Restricted
Securities notifies the Issuer prior to the 20th business day following the
consummation of the Exchange Offer that (a) it is prohibited by law or
Commission policy from participating in the Exchange Offer, (b) it may not
resell the New Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus, and the prospectus contained in the
Registration Statement of which this Prospectus is a part is not appropriate
or available for such resales by it, or (c) it is a broker-dealer and holds
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Old Notes acquired directly from the Issuer or any of the Issuer's affiliates,
the Obligors will file with the Commission a Shelf Registration Statement to
register for public resale the Transfer Restricted Securities held by any such
holder who provides the Issuer with certain information for inclusion in the
Shelf Registration Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each Old Note until the earliest on the date of which (i)
such Old Note is exchanged in the Exchange Offer and entitled to be resold to
the public by the holder thereof without complying with the prospectus
delivery requirements of the Securities Act, (ii) such Old Note has been
disposed of in accordance with the Shelf Registration Statement, (iii) such
Old Note is disposed of by a broker-dealer pursuant to the "Plan of
Distribution" contemplated by the Registration Statement of which this
Prospectus is a part (including delivery of the Prospectus contained therein)
or (iv) such Old Note is distributed to the public pursuant to Rule 144 under
the Securities Act.
The Registration Rights Agreement provides that (i) if the Obligors fail to
file an Exchange Offer Registration Statement with the Commission on or prior
to the 90th day after the Closing, (ii) if the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior to the 135th
day after the Closing, (iii) if the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement
is declared effective, (iv) if obligated to file the Shelf Registration
Statement and the Obligors fail to file the Shelf Registration Statement with
the Commission on or prior to the 30th business day after such filing
obligation arises, (v) if obligated to file a Shelf Registration Statement and
the Shelf Registration Statement is not declared effective on or prior to the
90th day after the obligation to file a Shelf Registration Statement arises,
or (vi) if the Exchange Offer Registration Statement or the Shelf Registration
Statement, as the case may be, is declared effective but thereafter ceases to
be effective or useable in connection with resales of the Transfer Restricted
Securities, for such time of non-effectiveness or non-usability (each, a
"Registration Default"), the Obligors agree to pay to each holder of Transfer
Restricted Securities affected thereby Liquidated Damages in an amount equal
to $0.05 per week per $1,000 in principal amount of Transfer Restricted
Securities held by such holder for each week or portion thereof that the
Registration Default continues for the first 90 day period immediately
following the occurrence of such Registration Default. The amount of the
Liquidated Damages shall increase by an additional $0.05 per week per $1,000
in principal amount of Transfer Restricted Securities at the beginning of and
for each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $0.50 per week, per
$1,000 in principal amount of Transfer Restricted Securities. The Obligors
shall not be required to pay Liquidated Damages for more than one Registration
Default at any given time. No holder of Transfer Restricted Securities will be
entitled to receive Liquidated Damages pursuant to the Registration Rights
Agreement unless and until such holder has provided certain information to the
Company for use in connection with the applicable Shelf Registration
Statement. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
All accrued Liquidated Damages shall be paid by the Obligors to holders
entitled thereto in the same manner as interest payments on the Notes on semi-
annual damages payment dates which correspond to interest payment dates for
the Notes.
101
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal
income tax consequences relevant to the purchase, ownership and disposition of
the Notes by the beneficial owners thereof ("Holders"). This discussion is
limited to the tax consequences to the initial Holders of Notes and does not
address the tax consequences to subsequent purchasers of Notes. This summary
does not purport to be a complete analysis of all of the potential United
States federal income tax consequences relating to the purchase, ownership and
disposition of the Notes, nor does this summary describe any federal estate
tax consequences. There can be no assurance that the Internal Revenue Service
("IRS") will take a similar view of the tax consequences described herein.
Furthermore, this discussion does not address all aspects of taxation that
might be relevant to particular purchasers in light of their individual
circumstances or to purchasers who are subject to special treatment under
United States federal tax law or to certain types of purchasers (including
dealers in securities, insurance companies, financial institutions, tax-exempt
entities and, except to the extent discussed below, Foreign Holders (as
defined below)). This discussion is based on the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
promulgated thereunder, and administrative and judicial interpretations
thereof, all as in effect as of the date hereof and all of which are subject
to change (possibly on a retroactive basis). The discussion below assumes that
the Notes are held as capital assets (generally, property held for investment)
within the meaning of Code Section 1221.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT SUCH INVESTOR'S TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF A PURCHASE OF NOTES IN LIGHT OF SUCH
INVESTOR'S PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF
THE CODE, AS WELL AS STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
The exchange of an Old Note for a New Note pursuant to the Exchange Offer is
not anticipated to be taxable to the exchanging Holder. As a result, an
exchanging Holder (i) would not be expected to recognize any gain or loss on
the exchange, (ii) would have a holding period for the New Note that includes
the holding period for the Old Note exchanged therefor, (iii) would have an
adjusted tax basis in the New Note equal to its adjusted tax basis in the Old
Note exchanged therefor and (iv) would recognize taxable gain or loss on a
subsequent sale, exchange, redemption or retirement of a New Note under the
same circumstances and conditions as a Holder of an Old Note would have with
respect to a sale, exchange, redemption or retirement of an Old Note.
The Exchange Offer is not expected to result in any United States federal
income tax consequences to a nonexchanging Holder.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Issuer has agreed
that for a period of one year after the thirtieth business day following the
Expiration Date (or such shorter period as will terminate when all of the Old
Notes offered for exchange hereby have been sold), it will make this
Prospectus, as amended or supplemented, available to any Participating Broker-
Dealer for use in connection with any such resale.
The Issuer will not receive any proceeds from any sales of the New Notes by
Participating Broker-Dealers. New Notes received by Participating Broker-
Dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such
102
<PAGE>
resale may be made directly to purchaser or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such Participating Broker-Dealer and/or the purchasers of any such New
Notes. Any Participating Broker-Dealer that resells the New Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the issuance of the New Notes offered hereby will be passed
upon for the Company by Sidley & Austin.
EXPERTS
The consolidated financial statements as of June 27, 1998 and June 28, 1997
and for each of the three years in the period ended June 27, 1998 included in
this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm.
103
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of June 28, 1997 and as of June 27, 1998.. F-3
Consolidated Statements of Operations for the years ended June 29, 1996,
June 28, 1997 and June 27, 1998......................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended June
29, 1996, June 28, 1997 and June 27, 1998............................... F-5
Consolidated Statements of Cash Flows for the years ended June 29, 1996,
June 28, 1997 and June 27, 1998......................................... F-6
Notes to the Consolidated Financial Statements........................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Bell Sports Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Bell
Sports Corp. and its subsidiaries at June 27, 1998, and June 28, 1997, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended June 27, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
July 27, 1998, except as to
Note 1, which is as of
August 17, 1998
F-2
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
ASSETS 1998 1997
- ------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 45,093 $ 29,008
Accounts receivable...................................... 63,472 75,915
Inventories.............................................. 39,679 46,549
Deferred taxes and other current assets.................. 12,234 16,048
-------- --------
Total current assets................................... 160,478 167,520
Property, plant and equipment.............................. 20,636 23,738
Goodwill................................................... 54,292 56,471
Intangibles and other assets............................... 11,661 21,025
-------- --------
Total assets........................................... $247,067 $268,754
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable......................................... $ 7,663 $ 11,299
Accrued compensation and employee benefits............... 5,541 3,998
Accrued expenses......................................... 16,158 20,209
Notes payable and current maturities of long-term debt
and capital lease obligations........................... 679 1,337
-------- --------
Total current liabilities.............................. 30,041 36,843
Long-term debt............................................. 86,625 106,454
Capital lease obligations and other liabilities............ 2,142 6,492
-------- --------
Total liabilities...................................... 118,808 149,789
-------- --------
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: 14,410,508 and
13,915,436 shares in 1998, respectively, and 14,248,114
and 13,753,042 shares in 1997, respectively............. 144 143
Additional paid-in capital............................... 143,905 142,486
Cumulative foreign currency translation adjustments...... (1,111) (407)
Accumulated deficit...................................... (9,461) (18,039)
-------- --------
133,477 124,183
Treasury stock, at cost, 495,072 shares.................. (5,218) (5,218)
-------- --------
Total stockholders' equity............................. 128,259 118,965
-------- --------
Total liabilities and stockholders' equity............. $247,067 $268,754
======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales....................................... $207,236 $259,534 $262,340
Cost of sales................................... 137,672 183,098 201,621
-------- -------- --------
Gross profit.................................... 69,564 76,436 60,719
Selling, general and administrative expenses.... 48,517 60,416 66,826
Amortization of goodwill and intangible assets.. 2,260 3,320 2,854
Loss on disposal of product lines and sale of
assets......................................... 700 25,360
Restructuring charges........................... 1,192 4,141 5,850
-------- -------- --------
Income (loss) from operations................... 16,895 (16,801) (14,811)
Net investment income........................... (1,716) (2,939) (2,877)
Interest expense................................ 4,715 7,289 8,691
-------- -------- --------
Net income (loss) before provision for (benefit
from) income taxes............................. 13,896 (21,151) (20,625)
Provision for (benefit from) income taxes....... 5,318 (2,963) (8,250)
-------- -------- --------
Net income (loss)............................... $ 8,578 $(18,188) $(12,375)
======== ======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED CUMULATIVE
HOLDING FOREIGN RETAINED TOTAL
ADDITIONAL LOSSES ON CURRENCY EARNINGS STOCK-
COMMON COMMON PAID-IN MARKETABLE TRANSLATION (ACCUMULATED TREASURY HOLDERS'
SHARES STOCK CAPITAL SECURITIES ADJUSTMENTS DEFICIT) STOCK EQUITY
------ ------ ---------- ---------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1,
1995................... 8,166 $ 82 $ 64,320 $(1,283) $ 173 $ 12,524 $ 75,816
Issuance of stock and
stock options for AMRE
Merger................ 5,988 59 77,152 77,211
Exercise of stock
options............... 70 1 175 176
Purchase of treasury
stock................. (523) $(5,517) (5,517)
Change in unrealized
holding losses on
marketable
securities............ 822 822
Currency translation
adjustment............ (92) (92)
Net loss............... (12,375) (12,375)
------ ---- -------- ------- ------- -------- ------- --------
Balance at June 29,
1996................... 13,701 142 141,647 (461) 81 149 (5,517) 136,041
Exercise of stock
options............... 24 1 1,138 1,139
Issuance of treasury
stock................. 28 (299) 299
Change in unrealized
holding losses on
marketable
securities............ 461 461
Currency translation
adjustment............ (488) (488)
Net loss............... (18,188) (18,188)
------ ---- -------- ------- ------- -------- ------- --------
Balance at June 28,
1997................... 13,753 143 142,486 -- (407) (18,039) (5,218) 118,965
Exercise of stock
options............... 166 1 1,419 1,420
Cancellation of
shares................ (4) --
Currency translation
adjustment............ (704) (704)
Net income............. 8,578 8,578
------ ---- -------- ------- ------- -------- ------- --------
Balance at June 27,
1998................... 13,915 $144 $143,905 $ -- $(1,111) $ (9,461) $(5,218) $128,259
====== ==== ======== ======= ======= ======== ======= ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-5
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net income (loss)................................. $ 8,578 $(18,188) $(12,375)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Write-off of goodwill and intangibles......... 14,531
Amortization of goodwill and intangibles...... 2,260 3,338 2,854
Depreciation.................................. 5,549 6,222 6,059
Loss on disposal of property, plant and
equipment.................................... 434 1,599 1,299
Provision for doubtful accounts............... 1,077 4,553 2,481
Loss on disposal of product lines and sale of
assets....................................... 700
Provision for inventory obsolescence.......... 2,340 2,876 3,602
Deferred income taxes......................... 3,997 (2,827) (7,546)
Changes in assets and liabilities, net of
adjustments for acquisitions and dispositions:
Accounts receivable........................... 8,542 (4,976) (14,819)
Inventories................................... (371) (7,782) 8,296
Other assets.................................. 5,310 (684) 717
Accounts payable.............................. (2,300) (288) 852
Other liabilities............................. (8,623) 2,536 (13,370)
------- -------- --------
Net cash provided by (used in) operating
activities....................................... 27,493 910 (21,950)
------- -------- --------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Capital expenditures............................ (5,496) (7,058) (5,312)
Proceeds from the sale of Service
Cycle/Mongoose................................. 20,515
Acquisition of other businesses, net of cash
acquired....................................... (1,493) (16,789)
Net sales of marketable securities.............. 8,458 29,779
Proceeds from the sale of SportRack............. 13,427
------- -------- --------
Net cash provided by investing activities......... 7,931 20,422 7,678
------- -------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
costs.......................................... 1,420 176
Treasury stock purchases........................ (5,517)
Payments on notes payable, long-term debt and
capital leases................................. (489) (869) (4,076)
Net payments on line of credit agreement........ (19,067) (14,403) (25,099)
------- -------- --------
Net cash used in financing activities............. (18,136) (15,272) (34,516)
------- -------- --------
Effect of exchange rate changes on cash........... (1,203) (192) (90)
------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 16,085 5,868 (48,878)
Cash and cash equivalents at beginning of period.. 29,008 23,140 72,018
------- -------- --------
Cash and cash equivalents at end of period........ $45,093 $ 29,008 $ 23,140
======= ======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-6
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY
Bell Sports Corp. ("the Company" or "Bell") is the leading manufacturer and
marketer of bicycle helmets worldwide and a leading supplier of a broad line
of bicycle accessories in North America. Bell is also a leading supplier of
auto racing helmets and a supplier of bicycle accessories worldwide. Recently,
the Company began marketing in-line skating, snowboarding, snow skiing and
water sport helmets.
In February 1998, HB Acquisition Corporation, a Delaware corporation ("HB
Acquisition"), and affiliate of Harvard Private Capital Holdings, Inc.
("Harvard Private Capital"), and Brentwood Associates Buyout Fund II, L.P.
("Brentwood"), and Bell entered into an Agreement and Plan of Recapitalization
and Merger (as amended, the "Merger Agreement"), which provides for the merger
of HB Acquisition with and into Bell, with Bell continuing as the surviving
corporation (the "Bell Merger"). On July 1, 1998, Harvard Private Capital
Group, Inc. separated from its parent company, Harvard Management Company, and
changed its name to Charlesbank Capital Partners, LLC ("Charlesbank"). As a
result, the portion of the investment in the Company formerly allocated to
Harvard Private Capital will be made by Charlesbank Equity Fund IV, Limited
Partnership, an investment affiliate of Charlesbank. Charlesbank Equity Fund
IV, Limited Partnership and Brentwood are hereinafter referred to collectively
as the "Investors." Consummation of the Bell Merger is subject to obtaining
the requisite vote of the Company's stockholders and the satisfaction of the
conditions set forth in the Merger Agreement. Under the Merger Agreement, as
of the effective time of the Bell Merger (the "Effective Time"), each share of
common stock, $.01 par value, of the Company (the "Common Stock") (other than
(i) shares of Common Stock held by HB Acquisition or shares of Common Stock
held directly or indirectly by the Company, which shares will be canceled and
(ii) shares of Common Stock held by persons perfecting appraisal rights) will
be converted into the right to receive $10.25 in cash (the "Per Share Merger
Consideration").
The Bell Merger was consummated on August 17, 1998.
In June 1998, the Company announced that it had commenced an offer (the
"Offer") to purchase up to $62.5 million aggregate principal amount of its 4
1/4% Convertible Subordinated Debentures due November 2000 (the "Debentures").
The Offer is expected to be completed in August 1998 in conjunction with the
Bell Merger and the offering of $110 million Senior Subordinated Notes (the
"Notes Offering") by Bell Sports, Inc. ("BSI"), a wholly-owned subsidiary of
the Company. In connection with the Notes Offering, the Company will guarantee
the Notes. Prior to the completion of the Notes Offering, American Recreation
Company Holdings, Inc. ("AMRE") a wholly-owned subsidiary of the Company will
be merged into BSI (the "BSI Merger"). Selected financial data of BSI and AMRE
is presented below on a pro forma combined basis as if the BSI Merger had been
completed on June 27, 1998 for the balance sheet data presented, and on
July 2, 1995 for the statement of operations data presented.
The Offer was consummated on August 17, 1998, and the BSI Merger was
consummated on July 29, 1998.
F-7
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PRO FORMA COMBINED BSI AND AMRE
<TABLE>
<CAPTION>
JUNE 27, 1998 JUNE 28, 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Selected Combined Balance Sheet
Data:
Cash and cash equivalents......... $ 34,662 $ 16,404
Current assets.................... 149,972 154,931
Non-current assets................ 47,916 61,053
Current liabilities............... 28,907 35,523
Non-current liabilities........... 116,070 140,124
Debt payable to unrelated
parties.......................... 2,134 22,621
Intercompany debt payable to the
Company.......................... 113,573 113,428
Stockholder's equity.............. 52,891 40,337
<CAPTION>
YEAR ENDED
-----------------------------------------
JUNE 27, 1998 JUNE 28, 1997 JUNE 29, 1996
------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Selected Combined Statement of
Operations Data:
Net sales......................... $207,236 $259,534 $262,340
Gross profit...................... 69,564 76,436 80,719
Total interest expense............ 449 1,489 3,093
Net income........................ 13,260 (15,369) (9,542)
</TABLE>
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Accounting Period
The consolidated financial statements include the accounts of Bell Sports
Corp. and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation. The Company's
fiscal year is either a 52 or 53 week accounting period ending on the Saturday
that is nearest to the last day of June. There were no 53 week periods in the
three fiscal years ended June 27, 1998.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Accounts Receivable and Concentration of Credit Risk
Accounts receivable at June 27, 1998 and June 28, 1997 are net of allowances
for doubtful accounts of $1.7 million and $5.0 million, respectively.
The Company's principal customers operate in the mass merchant, sporting
goods or independent bicycle dealer retail markets worldwide. The customers
are not geographically concentrated. As of June 27, 1998, and June 28, 1997,
respectively, 27% and 23% of the Company's gross accounts receivable were
attributed to one mass merchant customer. In addition, the same mass merchant
customer accounted for 21%, 18% and 17% of net sales during fiscal 1998, 1997
and 1996, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value). Costs included in inventories are (i) landed
purchased cost on sourced items and (ii) raw materials, direct labor and
manufacturing overhead on manufactured items.
F-8
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided using the straight-
line method over the estimated useful lives of the related assets. Leasehold
improvements and capital lease assets are amortized using the straight-line
method over the shorter of the base lease term or the estimated useful lives
of the related assets. Maintenance and repair costs are expensed as incurred.
Goodwill and Intangible Assets
The excess of the acquisition cost over the fair value of the net
identifiable assets of businesses acquired in purchase transactions has been
included in goodwill and is amortized on a straight-line basis over 25 to 40
years and is recorded net of accumulated amortization of $7.3 million and $5.5
million at June 27, 1998 and June 28, 1997, respectively. Other intangible
assets, which include non-compete agreements, acquisition costs, patents and
trademarks, and other items, are amortized over their estimated economic
lives, ranging from 2 to 17 years. Accumulated amortization of intangible
assets totaled $5.1 million and $4.2 million at June 27, 1998 and June 28,
1997, respectively. The Company's policy is to account for goodwill and all
other intangible assets at the lower of amortized cost or net realizable
value. As part of an ongoing review of the valuation and amortization of
intangible assets, management assesses the carrying value of the Company's
intangible assets to determine if changes in facts and circumstances suggest
that it may be impaired. If this review indicates that the intangible assets
will not be recoverable, as determined by a nondiscounted cash flow analysis
over the remaining amortization period, the carrying value of the Company's
intangible assets would be reduced to its estimated fair market value.
Management's Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Research and Development Expense
Research and development costs are expensed as incurred. These costs totaled
$3.6 million, $4.7 million and $4.7 million for fiscal 1998, 1997 and 1996,
respectively.
Advertising Costs
Advertising and related costs are expensed as incurred, except for ad
production costs which are expensed in the fiscal year in which the ad is
first run. These costs amounted to $5.5 million, $9.1 million, and $14.7
million for fiscal 1998, 1997 and 1996, respectively. The fiscal 1996 amount
includes $5.6 million related to a one-time advertising and promotional
campaign in connection with the launch of the Bell Pro helmet line and the
expansion of the Bell brand into the mass merchant channel.
Translation of Foreign Currency
Assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at the rates of exchange on the balance sheet date. Revenue and
expense items are translated at the average rates of exchange prevailing
during the fiscal year. Translation adjustments are recorded in the cumulative
foreign currency translation adjustment component of stockholders' equity.
F-9
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign Exchange Contracts
The Company periodically enters into forward foreign exchange contracts in
managing its foreign currency risk. Forward exchange contracts are used to
hedge various intercompany and external commitments with foreign subsidiaries
and inventory purchases denominated in foreign currencies. Exchange contracts
usually have maturities of less than one year. The Company has no significant
outstanding foreign exchange contracts at June 27, 1998, and had no
significant foreign exchange contract activity during the fiscal year then
ended.
Income Taxes
Consistent with the provisions of Statement of Financial Accounting Standard
("SFAS") No. 109 "Accounting for Income Taxes" ("SFAS 109"), the Company uses
the liability method of accounting for income taxes, which is an asset and
liability approach for financial accounting and reporting of income taxes.
Deferred tax assets and liabilities are recorded based upon temporary
differences between the tax basis of assets and liabilities and their carrying
values for financial reporting purposes. A valuation allowance is provided for
deferred tax assets when management concludes it is more likely than not that
some portion of the deferred tax assets will not be realized.
Accounting for Stock-Based Compensation
The Company has elected to continue to recognize compensation expense based
on the intrinsic value method.
Recent Accounting Pronouncements
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, and is required to be adopted for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier
periods for comparative purposes is required.
In June 1997, SFAS No. 131, "Disclosures About Segments of An Enterprise and
Related Information" ("SFAS 131") was issued. SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards
for related disclosures about products and services, geographic areas and
major customers. SFAS 131 is required to be adopted for fiscal years beginning
after December 15, 1997.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") was issued. SFAS 133 establishes a new model
for accounting for derivatives and hedging activities and supersedes and
amends a number of existing standards. SFAS 133 is required to be adopted for
fiscal years beginning after June 15, 1999. Upon initial application, all
derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be reassessed and documented pursuant
to the provisions of SFAS 133.
The Company plans to adopt SFAS 130 and SFAS 131 in fiscal 1999 and SFAS 133
in fiscal 2000 and does not expect such adoptions to have a material effect on
the consolidated financial statements.
F-10
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--NET INVESTMENT INCOME
Net investment income consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Dividend income.............................. $ 184 $ 610
Interest income.............................. $1,716 1,646 3,130
Proceeds from settlement of arbitration
case........................................ 1,815
Realized losses on sale of marketable
securities.................................. (654) (779)
Investment fees and other.................... (52) (84)
------ ------ ------
Total.................................... $1,716 $2,939 $2,877
====== ====== ======
</TABLE>
In fiscal 1997, net investment income included proceeds from the settlement
of an arbitration case related to the handling of certain marketable
securities by an outside investment advisor. The settlement proceeds, net of
related expenses and losses to sell certain securities, were $1.3 million.
NOTE 4--INVENTORIES
Inventories consist of the following components (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------- -------
<S> <C> <C>
Raw materials............................................. $ 3,539 $ 5,865
Work in process........................................... 2,010 2,125
Finished goods............................................ 34,130 38,559
------- -------
Total................................................. $39,679 $46,549
======= =======
</TABLE>
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
JUNE 27, JUNE 28, USEFUL
1998 1997 LIFE
-------- -------- ----------
<S> <C> <C> <C>
Land, buildings and leasehold
improvements............................ $ 9,809 $ 9,703 3-38 years
Machinery, equipment and tooling......... 24,468 21,239 3-10 years
Office equipment......................... 7,363 9,408 3-7 years
Other.................................... 786 475 3-7 years
-------- --------
42,426 40,825
Less: Accumulated depreciation and
amortization............................ (21,790) (17,087)
-------- --------
Total................................ $ 20,636 $ 23,738
======== ========
</TABLE>
NOTE 6--BANK CREDIT FACILITIES AND LONG-TERM DEBT
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.
F-11
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Credit Agreement expires in December 1999. Based on the provisions of
the agreement, the Company could borrow a maximum of $49.5 million as of June
27, 1998. There were no outstanding borrowings under the Credit Agreement at
June 27, 1998.
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 June 27, 1998, the quarterly commitment fee
was 0.30% per annum.
The Credit Agreement contains certain financial covenants, the most
restrictive of which are a minimum interest coverage ratio, a maximum funded
debt ratio and a minimum adjusted net worth amount. It also contains covenants
that prohibit the payment of cash dividends as well as restrict the amount
that the Company can repurchase of its subordinated debt and Common Stock. At
June 27, 1998 and June 28, 1997, the Company was in compliance with all bank
covenants.
The Company anticipates the Credit Agreement will be replaced by a new
facility following the consummation of the Bell Merger.
In November 1993, the Company issued an aggregate principal amount of $86.25
million of Convertible Subordinated Debentures (the "Debentures"), at par
value. Interest on the Debentures is payable on May 15 and November 15 of each
year. The Debentures are redeemable, in whole or in part, at the option of the
Company at any time on or after November 15, 1996, at specified redemption
prices. Principal is due at maturity on November 15, 2000. The Debentures are
convertible by the holder at any time prior to maturity, unless previously
redeemed, into shares of the Common Stock at a conversion price of $54.06 per
share, subject to adjustment in certain events. For the fiscal years ended
June 27, 1998, June 28, 1997, and June 29, 1996, interest expense relating to
the Debentures totaled $4.1 million in each year. This amount includes
$384,000 of amortization expense relating to debt issuance costs. Unamortized
debt issuance costs relating to the Debentures total $919,000 and $1.3 million
at June 27, 1998, and June 28 1997, respectively. Such costs are amortized on
an effective interest method over seven years.
The fair value of the Debentures at June 27, 1998, based on their quoted
market price of $84.0 at the close of business on June 27, 1998, was
approximately $72.5 million.
On June 30, 1998, the Company commenced an offer to purchase up to $62.5
million aggregate principal amount of the Debentures. The purchase price per
$1,000 principal amount of Debentures will be $905, plus accrued and unpaid
interest from May 15, 1998 up to, but not including, the date of payment. The
Company's obligation to purchase Debentures is conditioned upon, among other
things, the consummation of the Bell Merger and the receipt of financing.
F-12
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------- --------
<S> <C> <C>
Notes collateralized by certain equipment due at various dates
through December 2000 and bearing interest at fixed rates
ranging from 2.9% to 10.3%................................... $ 936 $ 1,841
Revolving credit agreement, maturing December 1999, bearing
interest at 4.63%............................................ -- 19,591
4 1/4% convertible subordinated debentures maturing November
2000......................................................... 86,250 86,250
------- --------
87,186 107,682
Less: Current maturities...................................... 561 1,228
------- --------
Total long-term debt...................................... $86,625 $106,454
======= ========
</TABLE>
Scheduled maturities, by fiscal year, of long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
1999...................................... $ 561
2000...................................... 353
2001...................................... 86,272
</TABLE>
NOTE 7--STOCKHOLDERS' EQUITY
Stock Options
The Company may grant, under various employee stock option plans (the
"Plans"), options to purchase up to 1,825,000 shares of Common Stock to
officers and key employees. Under the various Plans, the exercise price of
options granted may not be less than the fair market value of the Common Stock
at the date of grant. The options must be exercised within ten years of the
date of grant and typically vest equally over a three year period.
Under the 1993 Outside Directors Stock Option Plan (the "Directors' Plan"),
stock options for up to 205,000 shares may be granted to directors who are not
employees of the Company. Each non-employee director receives an option to
purchase 2,000 shares of Common Stock on the date of the Company's annual
meeting of stockholders at an exercise price equal to the fair market value of
the Common Stock on the date of grant. The options must be exercised within
ten years of the date of grant and vest equally over a three-year period. Each
non-employee director also receives an annual grant of immediately exercisable
options to purchase Common Stock, with an exercise price per share equal to
50% of the fair market value of Common Stock at the date of grant, in lieu of
a cash retainer fee. The number of shares subject to each option is determined
by dividing $10,000 by 50% of the fair market value of the Common Stock on the
date of grant. The Company recorded $70,000 in compensation expense in each of
fiscal 1998 and fiscal 1997 for options granted to non-employee directors
under this plan.
In April 1997, the Company provided Brunswick Corporation a three year
option to purchase 600,000 shares of the Company's Common Stock at an exercise
price of $7.50 per share pursuant to the sale of the Service Cycle/Mongoose
business. See Note 10. The options are immediately exercisable and must be
exercised within three years of the date of grant.
On August 27, 1996 the Management Stock Incentive Committee (the
"Committee") of the Board of Directors (the "Board") adopted a program
permitting employees eligible to participate in the Company's bonus program to
elect to forego their fiscal 1997 operating bonus and return all outstanding
stock options granted after April 1992 in exchange for replacement stock
options. In general, employees eligible to participate in the Company's bonus
program are eligible for 10% to 75% of their annual base salary if the Company
meets or exceeds certain Board approved net operating income goals.
F-13
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Senior management with long tenure agreed to cancel 40% of their existing
stock options, excluding stock options granted prior to April 1992, to
increase the number of stock options available for grant, thereby facilitating
the broadening of participation in the stock option program and enabling the
Company to create a voluntary program by which other employees participating
in the Company's bonus program would be able to replace existing stock options
in exchange for foregoing their fiscal 1997 operating bonus.
Under the replacement program, the number of shares of Common Stock subject
to a replacement option to be granted to an eligible employee was determined
by multiplying 80% of such employee's estimated fiscal 1997 operating bonus.
Each replacement option had an exercise price of $7.06 per share, the average
of the high and low transaction prices of a share of Common Stock as reported
by The Nasdaq Stock Market, and will become exercisable in equal one-third
increments over an eighteen month period with respect to options replacing
canceled options and over a three year period for replacement options granted
in excess of their existing options. Options with respect to 966,242 shares
with exercise prices ranging from $8.50 to $17.37 per share were exchanged
under the replacement program.
The following table summarizes option activity:
<TABLE>
<CAPTION>
NUMBER
OF SHARES WEIGHTED
UNDERLYING AVERAGE OPTIONS
OPTIONS EXERCISE PRICE EXERCISABLE
---------- -------------- -----------
<S> <C> <C> <C>
Options outstanding at July 1, 1995..... 1,152,675 $15.92 61,000
Options granted....................... 909,688 9.19
Options exercised..................... (70,607) 1.31
Options canceled...................... (75,000) 13.67
Options terminated.................... (70,167) 18.28
---------
Options outstanding at June 29, 1996.... 1,846,589 13.33 549,660
Options granted....................... 2,041,847 7.21
Options exercised..................... (23,754) 0.46
Options canceled...................... (966,242) 13.92
Options terminated.................... (566,677) 13.10
---------
Options outstanding at June 28, 1997.... 2,331,763 8.19 1,130,635
Options granted....................... 220,484 8.84
Options exercised..................... (165,935) 7.09
Options terminated.................... (194,706) 9.23
Options outstanding at June 27, 1998.... 2,191,606 8.25 1,670,035
=========
</TABLE>
Options outstanding at June 27, 1998 consisted of the following:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER WEIGHTED AVERAGE CONTRACTUAL LIFE
PRICES OF SHARES EXERCISE PRICE (IN YEARS)
------------- --------- ---------------- ----------------
<S> <C> <C> <C>
$ 1.713-$4.52 78,294 $ 2.67 7.9
$ 6.25-$7.88 1,651,359 7.28 8.2
$ 8.50-$9.19 250,500 9.15 9.0
$10.80-$13.12 94,786 11.94 5.3
$13.87-$15.12 63,667 14.11 6.7
$16.12-$19.75 23,000 17.07 5.9
$28.25-$42.37 30,000 37.66 5.4
---------
2,191,606
=========
</TABLE>
F-14
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options exercisable at June 27, 1998 consisted of the following:
<TABLE>
<CAPTION>
RANGE OF
EXERCISE NUMBER WEIGHTED AVERAGE
PRICES OF SHARES EXERCISE PRICE
------------- --------- ----------------
<S> <C> <C>
$ 1.713-$4.52 78,294 $ 2.67
$ 6.25-$7.88 1,364,280 7.31
$ 8.50-$9.13 31,006 9.04
$10.80-$13.12 79,788 11.75
$13.87-$15.12 63,667 14.11
$16.12-$19.75 23,000 17.07
$28.25-$42.37 30,000 37.66
---------
1,670,035
=========
</TABLE>
Pursuant to the Bell Merger, the Board will take all necessary or
appropriate steps to cause each option that is outstanding immediately prior
to the Bell Merger to be fully vested and exercisable. The holder of an option
that is not exercised prior to the Bell Merger will be entitled to receive,
for each share of Common Stock subject thereto, a cash payment in an amount
equal to the excess, if any, of $10.25 per share over the applicable per share
exercise price. Certain options to purchase Common Stock held by a member of
management will be exchanged for options to purchase capital stock of the
surviving corporation in the Bell Merger.
As required, the Company has adopted the disclosure provisions of SFAS No.
123 "Accounting for Stock Based Compensation" ("SFAS 123") for employee stock
options. The fair value of options granted during fiscal years 1998, 1997 and
1996 was computed using the Black-Scholes option pricing model. The weighted-
average assumptions used for stock option grants were an expected volatility
of the market price of the Company's Common Stock of 41%; weighted-average
expected life of the options of 4.9 years, no dividend yield and risk-free
interest rate of 6.50%. The interest rates are effective for option grant
dates made throughout the year. Adjustments for forfeitures are made as they
occur. The total value of options granted for the years ended June 27, 1998,
June 28, 1997 and June 29, 1996 was computed as approximately $949,000,
$1,405,000 and $75,000, respectively. If the Company had accounted for these
stock options issued to employees in accordance with SFAS 123, the effect on
net income (loss) for each fiscal year would have been reported as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported...................................... $8,578 $(18,188) $(12,375)
Pro forma for SFAS 123........................... 7,463 (19,045) (12,421)
</TABLE>
The pro forma effects of applying SFAS 123 may not be representative of the
effects on reported net income for future years since options vest over
several years and additional option awards are made each year.
Rights Plan
On September 22, 1994, the Board declared a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of Common Stock. The
dividend was awarded on October 3, 1994, to the holders of record of the
Common Stock at the close of business on October 3, 1994. One Right is also
associated with each share of Common Stock issued after October 3, 1994.
When the Rights become exercisable, each Right will entitle the holder
thereof (with certain exceptions) to purchase from the Company one one-
hundredth of a share of the Series A Junior Participating Preferred Stock,
F-15
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$.01 par value (the "Preferred Shares"), of the Company at a price of $75.00
per one one-hundredth of a Preferred Share, subject to adjustment (the
"Exercise Price"). Under certain circumstances, each Right (other than those
which have become void) will entitle the holder to purchase, at the Exercise
Price, Common Stock having a then current market value of two times the
Exercise Price; or, if the Company is acquired in a merger or other business
combination, each such Right will entitle the holder to purchase, at the
Exercise Price, common stock of the acquirer having a then current market
value of two times the Exercise Price.
The Rights become exercisable 10 business days after any person has
acquired, or announced its intention to commence a tender offer for, 15% or
more of the Common Stock. The Rights will also become exercisable 10 business
days after a determination by the disinterested members of the Board (as
defined in the Stockholders Rights Agreement dated as of September 22, 1994
and amended by the First Amendment dated as of February 15, 1995) that any
person beneficially owning 10% or more of the Common Stock intends to utilize
its position to seek short-term financial gain to the detriment of the best
long-term interests of the Company and its stockholders.
Under specified conditions, the Company will be entitled to redeem the
Rights at $.01 per Right.
Stock Repurchase
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. In fiscal
1997, the Company 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. No shares were repurchased in
fiscal 1998.
NOTE 8--COMMITMENTS AND CONTINGENCIES
The philosophy of the Company is to defend vigorously all product liability
claims. Although the Company intends to continue to defend itself aggressively
against all claims asserted against it, current pending proceedings and any
future claims are subject to the uncertainties attendant to litigation and the
ultimate outcome of any such proceedings or claims cannot be predicted. Due to
the self insurance retention amounts in the Company's product insurance
coverage, the assertion against the Company of a large number of claims could
have a material adverse effect on the Company. In addition, the successful
assertion against the Company of any, or a series of large, uninsured claims,
or of one or a series of claims exceeding insurance coverage, could have a
material adverse effect on the Company.
Due to the nature of the business of the Company, at any particular time the
Company may be a defendant in a number of product liability lawsuits for
serious personal injury or death allegedly related to the Company's products
and, in certain instances, products manufactured by others. Many such lawsuits
against the Company seek damages, including punitive damages, in substantial
amounts.
Due to certain deductibles, self-insured retention levels and aggregate
coverage amounts applicable under the Company's insurance policies, the
Company may bear responsibility for a significant portion, if not all, of the
defense costs (which include attorney's fees, settlement costs and the cost of
satisfying judgments) of any claim asserted against the Company or its
subsidiaries. There can be no assurance that the insurance coverage, if
available, will be sufficient to cover one or more large claims or that the
applicable insurer will be solvent at the time of any covered loss. Further,
there can be no assurance that the Company will obtain insurance coverage at
acceptable levels and costs in the future.
F-16
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's current product liability insurance for bicycling and auto
racing products covers claims based on occurrences within the policy period up
to a maximum of $50.0 million in the aggregate in excess of the Company's
self-insured retention of $1.0 million per occurrence for bicycle and auto
racing helmets and in excess of the Company's self-insured retention of
$250,000 for other bicycle-related products.
Insurance coverage for products manufactured by Giro, prior to the
acquisition by the Company in January 1996, include self-insured retentions of
$0.5 million per occurrence and $1.5 million in the aggregate for all product
claims, with $55.0 million coverage in excess of the self-insured retention
levels. The Company maintains an active role in the management of all Giro
related litigation. Giro claims served after December 31, 1996 are insured
under the same coverage provided to the Company.
In fiscal 1998, the Company secured a ten-year policy from AIG and Chubb for
insurance coverage for motorcycle helmets manufactured or licensed prior to
June 1991. The policy covers up to a maximum of $50.0 million in the aggregate
in excess of the Company's self-insured retention of $1.0 million per
occurrence, excluding all previous payments made on existing claims, in excess
of $2.0 million in the aggregate for known claims or $4.0 million in the
aggregate for incurred but not reported claims and new occurrences. The policy
covers all claims except the February 1996 and February 1998 judgments against
the Company.
From 1954 to 1991, the Company manufactured, marketed and sold motorcycle
helmets. The Company sold its motorcycle helmet manufacturing business in June
1991. Even though the purchaser assumed all responsibility for product
liability claims arising out of helmets manufactured prior to the date of the
disposition, the Company has paid certain costs associated with the defense of
such claims. If the purchaser is for any reason unable to pay the judgment,
settlement amount or defense costs arising out of any claim, the Company could
be held responsible for the payment of such amounts or costs. The Company
believes that the purchaser does not currently have the financial resources to
pay any significant judgment, settlement amount or defense costs arising out
of any claims. The Company has licensed the Bell trademark to the purchaser
for use on motorcycle helmets. The Company believes that, by virtue of its
status as licensor and the fact that such motorcycle helmets carry the Bell
name, it is possible that the Company could be named as a defendant in actions
involving liability for the motorcycle helmets manufactured by the purchaser
of the Company's motorcycle helmet business. In fiscal 1998, the Company
secured insurance coverage for certain liabilities associated with its
motorcycle helmets manufactured or licensed prior to June 1991.
As of June 27, 1998, there were 39 lawsuits pending relating to injuries
allegedly suffered from products made or sold by the Company. Of the 39
lawsuits, 11 involve motorcycle helmets, 15 involve bicycle helmets, one
involves an auto racing helmet, one involves a bicycle pedal, 10 involve
bicycles and one involves bicycle accessories.
Six of the 39 product liability lawsuits pending against the Company as of
June 27, 1998 are scheduled for trial prior to December 31, 1998. Of the six
lawsuits scheduled for trial prior to December 31, 1998, one involves a
motorcycle helmet claim resulting in a permanent eye injury, and five involve
bicycle helmet claims, three resulting in brain damage and two resulting in
death. The motorcycle helmet claim is a product liability action alleging
design defect and the bicycle helmet claims include allegations of failure to
warn and design defects.
During each of the last five fiscal years the Company has been served with
complaints in the following number of cases: 11 cases in fiscal 1994, five
cases in fiscal 1995, 12 cases in fiscal 1996, 15 cases in fiscal 1997 and 14
cases in fiscal 1998. Of the 14 cases served in fiscal 1998, which includes
Giro and AMRE lawsuits, six involve bicycles, one involves bicycle accessories
and seven involve bicycle helmets. Of these same 14 cases, three cases involve
a claim relating to death, three involve claims relating to serious,
permanently disabling injuries and eight involve less serious injuries such as
broken bones or lacerations. Typical product liability claims include
allegations of failure to warn, breach of express and implied warranties,
design defects and defects in the manufacturing process.
F-17
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In February 1996, a Toronto, Canada jury returned a verdict against the
Company based on injuries arising out of a 1986 motorcycle accident. The jury
found that the Company 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 the Company would be
responsible and the legal fees and tax implications associated therewith are
estimated to be between $3.0 and $4.0 million (based on current exchange
rates). This claim arose during a period in which the Company was self-
insured. The Company has filed an appeal of the Canadian verdict.
In February 1998, a Wilkes-Barre, Pennsylvania jury returned a verdict
against the Company relating to injuries sustained in a 1993 motorcycle
accident. The judgment totaled $6.8 million, excluding any interest, fees or
costs which may be assessed. This claim arose during a period in which the
Company was self-insured. The Company has filed post-trial motions to set
aside the jury's verdict, which are scheduled to be heard on August 6, 1998.
If the motions are denied, the Company intends to appeal the judgment against
the Company.
In June 1998, a Wilmington, Delaware jury returned a verdict against the
Company relating to injuries sustained in a 1991 off-road motorcycle accident.
The judgment totaled $1.8 million, excluding any interest, fees or costs which
may be assessed. The claim is covered by insurance; however, the Company is
responsible for a $1.0 million self-insured retention. The Company intends to
file post-trial motions to set aside the jury's verdict and to appeal any
judgment against the Company that might be entered in the action.
Based on management's extensive consultations with legal counsel prosecuting
the appeals and the Company's experience in pursuing reversals and settlements
after the entry of judgments against the Company, management currently
believes that the ultimate outcome of the pending judgments will not have a
material adverse affect on the financial condition of the Company.
Accordingly, the Company has only established reserves for estimated costs for
the defense of these and other known claims. The Company believes that after
giving effect to the Transactions, it will have adequate cash balances and
sources of capital available to satisfy such pending judgments. However, there
can be no assurance that the Company will be successful in appealing or
pursuing settlements of these judgments or that the ultimate outcome of the
judgments will not have a material adverse effect on the liquidity or
financial condition of the Company.
Following the announcement of the Merger Agreement, three purported class
action lawsuits were filed in Delaware Chancery Court seeking preliminary and
permanent injunctive relief against the consummation of the Bell Merger or,
alternatively, the recovery of damages in the event the Bell Merger is
consummated. The complaints, which were filed by Jeffrey Kaplan, Jerry Krim
and Cyrus Schwartz, purported stockholders of the Company, name the Company,
HB Acquisition, Chase Capital Partners, CBCI and the Company's current
directors as defendants. To the knowledge of the Company, none of the
complaints has been served. The complaints allege, among other things, that
the Bell Merger is unfair to the Company's public stockholders and that
certain defendants who are expected to exchange a portion of their shares of
Common Stock, options to purchase shares of Common Stock or other Common
Stock-based awards held by them for shares of common stock of HB Acquisition
in connection with the Bell Merger have a conflict of interest which has
caused them, and the Company's directors, to breach their fiduciary duties to
the Company's stockholders. The lawsuit filed by Jeffrey Kaplan was
subsequently withdrawn, without prejudice to refile. The Company believes that
the allegations contained in the complaints are without merit and intends to
vigorously defend each action.
Besides the litigation described above, the Company is not party to any
material litigation that, if adversely determined, would have a material
effect on its business.
F-18
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company leases certain equipment and facilities under various
noncancellable capital and operating leases. The total expense under these
operating leases amounted to approximately $4.2 million, $4.0 million, and
$3.4 million for fiscal 1998, 1997 and 1996, respectively.
At June 27, 1998, the future minimum annual rental commitments under all
noncancellable leases were as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1999.................................................... $ 3,917 $ 240
2000.................................................... 3,426 240
2001.................................................... 3,299 240
2002.................................................... 2,609 204
2003.................................................... 2,334 188
Thereafter.............................................. 12,482 698
------- ------
Total minimum lease commitments..................... $28,067 1,810
=======
Less: Interest portion.................................. 612
------
Present value of capital lease obligations.............. 1,198
Less: Current portion................................... 118
------
Total long-term capital lease obligations........... $1,080
======
</TABLE>
NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and short-term debt approximates fair value
because of the short maturity of these instruments. The following table
presents the carrying amounts and estimated fair value of the Company's other
financial instruments (in thousands):
<TABLE>
<CAPTION>
JUNE 27, 1998 JUNE 28, 1997
---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Long-term debt (Note 6)................ $86,625 $72,825 $106,454 $94,745
</TABLE>
The estimated fair value of the convertible debentures is based on quoted
market prices. The estimated fair value of other long-term debt approximates
its carrying value.
NOTE 10--ACQUISITIONS AND DISPOSITIONS
During fiscal 1998, the Company negotiated a letter of intent to sell the
assets of its domestic foam molding facility in Rantoul, Illinois and agreed
to sublet the building. The Company expects to enter into a foam molding
supply agreement with the purchaser. The Company recorded approximately
$600,000 in expense associated with the sale and related reorganization of the
Company's domestic foam molding facility.
On July 2, 1997, the Company completed the sale of substantially all of the
assets of SportRack (the "Sale of SportRack"), which designs, manufactures and
markets automobile roof rack systems, for $13.4 million to an affiliate of
Advanced Accessory System Canada, Inc. Subsequently, the Company recorded a
loss on the Sale of SportRack of approximately $2.0 million in fiscal 1998 in
connection with a purchase price adjustment related to such sale.
On April 29, 1997, the Company completed the sale of its Service
Cycle/Mongoose inventory, trademarks and certain other assets (the "Sale of
Service Cycle/Mongoose") to Brunswick Corporation for a sales price of $21.1
million. As part of the sales transaction, the Company provided Brunswick
Corporation a three-year option to purchase 600,000 shares of the Company's
Common Stock at an exercise price of $7.50 per share. The Company retained
customer accounts receivable related to the Service Cycle/Mongoose business of
approximately $19.4 million.
F-19
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the Sale of Service Cycle/Mongoose, the Company announced
plans to reorganize its North American distribution network and operations to
better utilize the distribution facilities. Included in the fiscal 1997 pre-
tax income were $25.4 million of costs associated with the Sale of Service
Cycle/Mongoose. The costs were comprised of the write-off of goodwill and
intangibles ($14.8 million), disposal and exit costs ($5.4 million), and
reorganization costs associated with the distribution network and operations
($5.2 million). During fiscal 1998, the Company reversed previously recorded
charges of $1.9 million, including a $600,000 benefit based on the
finalization of costs associated with the closure of distribution facilities,
and $1.3 million benefit related to the reversal of the remaining reserve for
uncollectible receivables established in fiscal 1997 in connection with the
divestiture of Service Cycle/Mongoose.
On January 22, 1996, the Company acquired, for $16.8 million, substantially
all of the assets of privately-owned, Giro Sport Design, Inc. of California
and all outstanding shares of Giro Sport Design International, Inc., the
holding company which owns Giro's Ireland operation (collectively "Giro").
Giro designs, manufactures and markets premium bicycle helmets in North
America, Europe and other parts of the world.
Effective July 3, 1995, the Company completed, for Common Stock, the merger
of a subsidiary of the Company with AMRE (the "AMRE Merger"), a world wide
designer, marketer and distributor of bicycles, bicycle helmets and bicycle
parts and accessories. The purchase price of $76.0 million was computed by
converting each of the 8.7 million outstanding shares of AMRE Common Stock
into .6890 shares of Bell Common Stock and multiplying the result by $12.70,
the average of the Bell Common Stock between June 9, 1995 and June 22, 1995.
The purchase price was increased by an additional $1.2 million, attributable
to outstanding AMRE stock options, which were converted into Bell stock
options. The purchase price has been allocated to the fair value of the net
assets of AMRE. The purchase price was approximately $52.8 million greater
than the fair value of the identifiable net assets acquired, and, accordingly,
goodwill was increased by this amount.
Acquisitions were accounted for as purchase transactions from their
respective effective dates. Accordingly, results of operations of the acquired
companies have been included in the accompanying statements of operations from
the effective dates of the acquisitions. The impact of these acquisitions,
other than the AMRE Merger, were not significant.
NOTE 11--RESTRUCTURING CHARGES
Restructuring Charges--1998
During fiscal 1998, 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 the fiscal 1998 pre-tax income are $1.2 million of estimated
restructuring charges related to this plan, including facility closing costs
and severance benefits.
The following table sets forth the details of activity during fiscal 1998
for restructuring charges and related accrued liabilities (in thousands):
<TABLE>
<CAPTION>
JUNE 28, RESTRUCTURING CASH NON-CASH JUNE 27,
1997 CHARGES PAYMENTS CHARGES 1998
-------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Lease payments and other
facility expenses......... $ 860 $ 191 $ (263) $(230) $ 558
Severance and other
employee related costs.... 2,917 820 (2,968) 122 891
Asset write-downs.......... 181 (140) 41
------ ------ ------- ----- ------
Total.................. $3,777 $1,192 $(3,371) $(108) $1,490
====== ====== ======= ===== ======
</TABLE>
F-20
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Restructuring Charges--1997
During fiscal 1997, the Company announced plans to significantly downsize
the Scottsdale, Arizona corporate office by consolidating certain Scottsdale
functions with the San Jose, California office. Included in the fiscal 1997
pre-tax income are $2.7 million of restructuring charges related to this plan.
Also included in the fiscal 1997 pre-tax income are $1.5 million of
restructuring charges related to the Program, as defined below, including
facility closing costs, severance and other employee related costs.
The following table sets forth the details of activity during fiscal 1997
for restructuring charges and related accrued liabilities (in thousands):
<TABLE>
<CAPTION>
JUNE 29, RESTRUCTURING CASH JUNE 28,
1996 CHARGES PAYMENTS 1997
-------- ------------- -------- --------
<S> <C> <C> <C> <C>
Lease payments and other facility
expenses........................... $ 942 $ 983 $(1,065) $ 860
Severance and other employee related
costs.............................. 4,215 3,158 (4,456) 2,917
------ ------ ------- ------
Total........................... $5,157 $4,141 $(5,521) $3,777
====== ====== ======= ======
</TABLE>
On June 27, 1995, the Company's stockholders approved the issuance of Common
Stock in connection with the Agreement and Plan of Merger dated February 15,
1995 among the Company, Bell Merger Co., a wholly owned subsidiary of the
Company, and AMRE. In contemplation of the merger, the Company formulated a
program (the "Program") to consolidate and integrate the operations of Bell,
SportRack and AMRE, as well as combine certain product lines. This Program
called for the consolidation of certain sales and marketing, research and
development, manufacturing, finance and management information systems
functions.
Restructuring Charges--1996
During fiscal 1996, the Company commenced significant organizational and
office consolidations including closing the Cerritos, Providence, Commack and
Calgary offices. Most U.S. sales, marketing and research and development
operations were consolidated in San Jose, California and all corporate
functions in Scottsdale, Arizona. Substantially all of the Canadian operations
were consolidated into one facility in Granby, Quebec. These consolidations
were finalized during the first half of fiscal 1997.
Included in fiscal 1996 pre-tax income is $5.9 million related to
restructuring charges, including facility closing costs, severance and other
employee related costs and costs to combine computer systems. The Company
eliminated 35 positions in sales and marketing, research and development,
finance and manufacturing. The other employee costs are due to various
employees relocating to San Jose or Scottsdale. The costs to combine computer
systems related to an implementation study and the write-off of redundant
software costs.
The following table sets forth the details of activity during fiscal 1996
for restructuring charges and related accrued liabilities (in thousands):
<TABLE>
<CAPTION>
ACQUISITION
ACCRUAL RESTRUC- NON-
JULY 1, RECORDED TO TURING CASH CASH JUNE 29,
1995 GOODWILL CHARGES PAYMENTS CHARGES 1996
------ ----------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Lease payments and other
facility expenses...... $ 769 $1,951 $ 528 $ (1,755) $(551) $ 942
Severance and other
employee related
costs.................. 453 7,965 2,328 (6,531) 4,215
Computer systems........ 2,994 (2,994)
------ ------ ------ -------- ----- ------
Total............... $1,222 $9,916 $5,850 $(11,280) $(551) $5,157
====== ====== ====== ======== ===== ======
</TABLE>
F-21
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--INCOME TAXES
Pre-tax income (loss) by jurisdiction for each fiscal year are as follows
(in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Domestic...................................... $ 9,496 $(23,882) $(22,395)
Foreign....................................... 4,400 2,731 1,770
------- -------- --------
Total..................................... $13,896 $(21,151) $(20,625)
======= ======== ========
</TABLE>
The provision for (benefit from) income taxes for each fiscal year is as
follows (in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Current expense (benefit):
U.S. Federal............................... $ 75 $ (757) $(1,254)
State and local............................ 60
Foreign.................................... 1,123 601 482
------ ------- -------
Total current............................ 1,258 (156) (772)
------ ------- -------
Deferred tax expense (benefit):
U.S. Federal............................... 3,368 (2,200) (6,402)
State and local............................ 722 (568) (1,144)
Foreign.................................... (93) (59)
------ ------- -------
Total deferred........................... 3,997 (2,827) (7,546)
------ ------- -------
Impact of stock option deduction credited to
equity...................................... 63 20 68
------ ------- -------
Total income tax provision (benefit)..... $5,318 $(2,963) $(8,250)
====== ======= =======
</TABLE>
The provision for (benefit from) income taxes for each fiscal year differs
from the U.S. statutory federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory U.S. rate.......................... 34.0% (34.0)% (34.0)%
Tax exempt investment income................. (0.2) (0.1) (0.2)
Nondeductible goodwill....................... 24.8 2.9
State income tax............................. 5.0 (2.7) (5.5)
Effective international tax rate............. (2.4) (1.5) (0.6)
Other items, net............................. 1.6 (0.5) (2.6)
---- ----- -----
Effective tax benefit rate................... 38.0% (14.0)% (40.0)%
==== ===== =====
</TABLE>
The majority of the nondeductible goodwill included in permanent differences
under the effective tax rate calculation for the year ended June 28, 1997 is
the write-off of goodwill due to the Sale of Service Cycle/ Mongoose.
F-22
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income tax assets and (liabilities) are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------- --------
<S> <C> <C>
Net operating losses and other tax loss
carryforwards...................................... $11,810 $ 14,142
Inventory and accounts receivable reserves.......... 1,485 3,692
Accrued liabilities................................. 4,778 6,066
Package design costs capitalized for tax purposes... 910 780
Other............................................... 915
------- --------
Gross deferred tax assets......................... 18,983 25,595
------- --------
Depreciation........................................ (760) (858)
Other............................................... (456) (276)
------- --------
Gross deferred tax liability...................... (1,216) (1,134)
------- --------
Deferred tax assets valuation allowance............. (1,798) (1,970)
------- --------
Net deferred tax assets........................... 15,969 22,491
Less: current portion............................. (8,970) (10,228)
------- --------
Long term deferred tax assets..................... $ 6,999 $ 12,263
======= ========
</TABLE>
Domestic net operating losses totaling approximately $32.7 million will be
carried forward and begin to expire in 2008. After the Bell Merger, there will
be a change of ownership of more than 50%, resulting in an annual limitation
of the loss carryforward which may delay or limit the eventual utilization of
the carryforwards. The consolidated return rules limit utilization of acquired
net operating loss and other carryforwards to income of the acquired companies
in years in which the consolidated group has taxable income.
General business tax credits of approximately $630,000 were accounted for
under the flow-through method and are being carried forward. Minimum tax
credits totaling approximately $500,000 are also being carried forward.
The deferred tax assets valuation allowance at June 27, 1998 and June 28,
1997 was required primarily for net operating loss carryforwards and
accounting reserves that, in management's view, will not be realized in the
foreseeable future.
The Company has not provided for U.S. federal income and foreign withholding
taxes of certain non-U.S. subsidiaries' undistributed earnings as of June 27,
1998, because such earnings are intended to be reinvested indefinitely. If
these earnings were distributed, the withholding tax would be due and foreign
tax credits should become available under current law to reduce the resulting
U.S. income tax liability.
NOTE 13--ADDITIONAL CASH FLOW STATEMENT INFORMATION
The Company's non-cash investing and financing activities and cash payments
for interest and income taxes for each fiscal year are summarized below (in
thousands):
<TABLE>
<CAPTION>
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Additional paid in capital arising from tax benefits
associated with the exercise of stock options...... $ 63 $ 20 $ 68
Issuance of stock and stock options for AMRE merger.. 77,211
Cash paid during the period for:
Interest.......................................... 4,100 7,050 8,816
Income taxes...................................... 795 748 116
</TABLE>
F-23
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--FOREIGN OPERATIONS AND EXPORT SALES
Information regarding geographic sales, net income and assets are as follows
(in thousands):
<TABLE>
<CAPTION>
UNITED
STATES EUROPE CANADA TOTAL
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Year ending June 27, 1998:
Sales to unaffiliated customers........... $162,298 $22,213 $22,725 $207,236
Net income................................ 5,539 1,816 1,223 8,578
Total assets.............................. 233,801 8,237 5,029 247,067
Year ending June 28, 1997:
Sales to unaffiliated customers........... $212,634 $21,419 $25,481 $259,534
Net (loss) income......................... (20,778) 1,441 1,149 (18,188)
Total assets.............................. 233,189 8,581 26,984 268,754
Year ending June 29, 1996:
Sales to unaffiliated customers........... $222,613 $17,408 $22,319 $262,340
Net (loss) income......................... (13,644) 688 581 (12,375)
Total assets.............................. 262,568 10,956 25,111 298,635
</TABLE>
Included in the figures for the United States in the above table are sales
and income in Asia, and the assets of Bell Sports Australia, which are not
significant enough to be broken-out in the periods depicted.
NOTE 15--SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED)
The unaudited information presented below has been prepared in accordance
with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation of
financial position and results of operations have been made.
Summary quarterly financial data is as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------
<S> <C> <C> <C> <C>
Year ending June 27, 1998:
Net sales................................. $43,632 $42,590 $ 52,332 $68,682
Gross profit.............................. 13,477 13,286 18,200 24,601
Net income................................ 637 322 3,160 4,459
Year ending June 28, 1997:
Net sales................................. $62,068 $56,623 $ 70,575 $70,268
Gross profit.............................. 17,508 16,006 20,713 22,209
Net income (loss)......................... 3 (475) (21,943) 4,227
</TABLE>
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING NOT CON-
TAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN-
TATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY NOR DOES IT CON-
STITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING THE OF-
FER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME, SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 14
The Transactions......................................................... 23
Use of Proceeds.......................................................... 24
Capitalization........................................................... 25
The Exchange Offer....................................................... 26
Holdings Unaudited Pro Forma Historical
Condensed Consolidated Financial Statements............................. 35
Holdings Selected Historical Consolidated Financial and Other Data....... 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 42
Business................................................................. 50
Management............................................................... 62
Related Party Transactions............................................... 64
Description of Senior Secured Credit Facility............................ 66
Description of Holdings' Indebtedness.................................... 67
Description of Issuer Capital Stock...................................... 67
Description of Notes..................................................... 67
Certain United States Federal Income Tax Considerations.................. 102
Plan of Distribution..................................................... 102
Legal Matters............................................................ 103
Experts.................................................................. 103
Index to the Financial Statements........................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$110,000,000
LOGO
BELL SPORTS, INC.
OFFER TO EXCHANGE 11% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
FOR
ANY AND ALL OUTSTANDING 11% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
----------------
PROSPECTUS
----------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bell Sports Corp. ("Holdings") is incorporated under the laws of the State
of Delaware. Reference is made to Section 145 of the General Corporation Law
of the State of Delaware (the "Delaware GCL") which provides for
indemnification of directors and officers in certain circumstances.
Holdings' Amended and Restated Certificate of Incorporation (the "Holdings
Certificate") provides that a director of Holdings will not be personally
liable to Holdings or its stockholders for monetary damages for breach of
fiduciary duty as a director of Holdings, except to the extent exculpation
from liability is not permitted under the Delaware GCL at the time such
liability is determined.
The Holdings Certificate provides indemnification for directors, officers,
employees, representatives and agents to the full extent permitted by the
Delaware GCL, except that Holdings is not obligated to indemnify any such
person with respect to proceedings initiated by or on behalf of any such
person. It also provides for the advancement to indemnified persons of
litigation expenses.
The Holdings Certificate states that the indemnification previously
described is not deemed exclusive of other indemnification rights arising
under any bylaw agreement, vote of directors or stockholders or otherwise.
Pursuant to Section 145 and the Holdings Certificate, Holdings maintains
directors' and officers' liability insurance coverage which insures Holdings,
its subsidiaries and the elected officers and directors of Holdings and its
subsidiaries (including the Issuer), against damages, judgments, settlements
and costs incurred by reason of certain acts committed by such persons in
their capacities as officers and directors.
Bell Sports, Inc. (the "Issuer") is incorporated under the laws of the State
of California. Reference is made to Section 204(10) of the California General
Corporation Law (the "California GCL") which permits the inclusion in the
articles of incorporation of a California corporation of a provision
eliminating or limiting the personal liability of a director for monetary
damages in an action brought by or in the right of a corporation for breach of
a director's duties to the corporation and its shareholders. The foregoing
provision is subject to certain qualifications set forth in the California GCL
including, without limitation, that such provision may not limit or limit
liability of directors for (i) intentional misconduct, (ii) transactions from
which a director derived an improper personal benefit, (iii) reckless
disregard of the director's duties, and (iv) an unexcused pattern of
inattention.
The Issuer's Amended and Restated Articles of Incorporation provide that the
liability of directors of the Issuer for monetary damages are eliminated to
the fullest extent permissible under California law and that the Issuer is
authorized to provide indemnification to its agents for breach of duty to the
Issuer and its stockholders in excess of the indemnification otherwise
permitted by Section 317 of the California GCL, subject to the limits on
indemnification set forth in Section 204 of the California GCL.
In addition, Article IV of the Issuer's Amended and Restated Bylaws requires
that the Issuer indemnify any person who was or is a party or is threatened to
be made a party to any third party proceeding by reason of the fact that such
person is or was an agent of the Issuer, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the Issuer and, in
the case of a criminal third party proceeding, had no reasonable cause to
believe the conduct of such person was unlawful. In a corporate proceeding,
the Issuer is required to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
by or in the right of the Issuer to procure a judgment in its favor by reason
of the fact that such person is or was an agent of the Issuer against monetary
damages and expenses actually and reasonably incurred by such person in
connection with the defense or
II-1
<PAGE>
settlement of such corporate proceeding if such person acted in good faith, in
a manner such person believed to be in the best interests of the Issuer and
its shareholders, except that no indemnification shall be made: (i) in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Issuer in the performance of such person's duty to the
Issuer and its shareholders, unless and only to the extent that the court in
which such proceeding is or was pending shall determine upon application that,
in view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for expenses and then only to the extent that the court
shall determine; (ii) of amounts paid in settling or otherwise disposing of a
pending action without court approval; or (iii) of expenses incurred in
defending a pending action which is settled or otherwise disposed of without
court approval. To the extent that an agent of the Issuer has been successful
on the merits in defense of any third party or corporate proceedings or in
defense of any claim, issue or matter therein, the agent shall be indemnified
against expenses actually and reasonably incurred by the agent in connection
therewith. To the extent that an agent of the Issuer has not been successful
on the merits of any corporate proceeding or in defense of any claim, issue or
matter therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith; provided, however,
that an agent of the Issuer may not be indemnified for expenses incurred in
connection with such a proceeding, or in defense of any claim, issue or matter
therein, if the agent has been unsuccessful on the merits with respect to: (i)
acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law; (ii) acts of omission that an agent believes to be
contrary to the best interests of the Issuer or its shareholders or that
involve the absence of good faith on the part of the agent; (iii) any
transaction from which an agent derived an improper personal benefit; (iv)
acts or omissions that show a reckless disregard for the agent's duty to the
Issuer or its shareholders in circumstances in which the agent was aware, or
should have been aware, in the ordinary course of performing an agent's
duties, of a risk of serious injury to the Corporation or its shareholders;
(v) acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of an agent's duty to the Issuer or its shareholders;
(vi) transactions in violation of Section 310 of the California GCL; or (vii)
actions in violation of Section 316 of the California GCL.
Any indemnification shall be made by the Issuer only if authorized in the
specific case, upon a determination that indemnification of the agent is
proper in the circumstances because the agent has met the applicable standard
of conduct. Such determination shall be made: (i) by a majority vote of a
quorum consisting of directors who are not parties to such proceeding; (ii) if
such a quorum of directors is not obtainable, by independent legal counsel in
a written opinion; (iii) by approval of the shareholders, with the shares
owned by the person to be indemnified not being entitled to vote thereon; or
(iv) by the court in which such proceeding is or was pending upon application
made by the Issuer or the agent or the attorney or other person rendering
services in connection with the defense, whether or not such applicable by the
agent, attorney, or other person is opposed by the Issuer.
Expenses incurred in defending any proceeding may be advanced by the Issuer
prior to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the agent to repay such amount unless it shall
be determined ultimately that the agent is entitled to be indemnified by the
Issuer.
II-2
<PAGE>
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
2.1 Agreement and Plan of Recapitalization and Merger, dated as of
February 17, 1998, between HB Acquisition and Holdings (incorporated
by reference to Exhibit 2 to Holdings' Current Report on Form 8-K
dated February 17, 1998).
2.2 First Amendment to Agreement and Plan of Recapitalization and Merger,
dated as of April 8, 1998, between HB Acquisition and Holdings
(incorporated by reference to Exhibit 2 to Holdings' Current Report
on Form 8-K dated April 8, 1998).
3.1 Amended and Restated Certificate of Incorporation of Holdings
(incorporated by reference to Exhibit 4.2 to Holdings' Current Report
on Form 8-K dated August 17, 1998 (the "August 1998 8-K")).
3.2 Bylaws of Holdings (incorporated by reference to Exhibit 4.3 to the
August 1998 8-K).
3.3 Articles of Incorporation of the Issuer.
3.4 Amended and Restated Bylaws of the Issuer.*
4.1 Shareholders Agreement, dated as of August 17, 1998, among Holdings
and the stockholders party thereto.
4.2 Indenture, dated as of August 17, 1998, among Holdings, the Issuer and
Harris Trust and Savings Bank, as Trustee, relating to the Issuer's
Series A and Series B Senior Subordinated Notes due 2008
(incorporated by reference to Exhibit 4.1 to the August 1998 8-K).
4.3 Registration Rights Agreement, dated as of August 17, 1998, between
the Issuer, Holdings and Donaldson, Lufkin & Jenrette Securities
Corporation, NationsBank Montgomery Securities LLC and Societe
Generale Securities Corporation.
4.4 Form of 11% Series B Senior Subordinated Note due 2008.
4.5 Form of 11% Series A Senior Subordinated Note due 2008
4.6 Indenture, dated as of November 15, 1993, between Holdings and Harris
Trust and Savings Bank, as Trustee, relating to Holdings' 4 1/4%
Convertible Subordinated Debentures due 2000 (incorporated by
reference to Exhibit 4.1 to Holdings' Current Report on Form 8-K dated
October 26, 1993).
5.1 Opinion of Sidley & Austin regarding the securities being issued.
10.1 Credit Agreement, dated August 17, 1998, among the Issuer, Holdings,
the financial institutions parties thereto as Lenders, Societe
Generale and DLJ Capital Funding, Inc.
10.2 Borrower Pledge and Security Agreement, dated August 17, 1998, between
the Issuer and Societe Generale.
10.3 Guarantor Pledge and Security Agreement, dated August 17, 1998, among
Holdings, Giro Sport Design International, Inc. and Societe Generale.
10.4 Corporate Development and Administrative Services Agreement, dated
August 17, 1998 among Holdings, the Issuer, Charlesbank Capital
Partners, LLC and Brentwood Private Equity, L.L.C.
10.5 Amended and Restated Employment Agreement, dated as of February 17,
1998, among Holdings, the Issuer and Terry G. Lee (incorporated by
reference to Exhibit 10.1 to Holdings' Quarterly Report on Form 10-Q
for the quarter ended March 28, 1998 (the "March 1998 10-Q")).
10.6 Noncompetition Agreement dated December 8, 1997 between Holdings, the
Issuer and Terry G. Lee (incorporated by reference to Exhibit 10.2 to
Holdings' Quarterly Report on Form 10-Q for the quarter ended
December 27, 1997 (the "December 1997 10-Q")).
10.7 Amended and Restated Employment Agreement, dated as of February 17,
1998, among Holdings, the Issuer and Mary J. George (incorporated by
reference to Exhibit 10.2 to the March 1998 10-Q).
10.8 Employment Agreement, dated as of April 25, 1997, among Holdings, the
Issuer and Linda K. Bounds (incorporated by reference to Exhibit
10.12 to Holdings' Quarterly Report on Form 10-Q for the quarter
ended March 29, 1997).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.9 Memorandum of Understanding, dated January 28, 1998, between Holdings
and Linda K. Bounds (incorporated by reference to Exhibit 10.3 to the
March 1998 10-Q).
10.10 Memorandum reference Employment Outline for Bill Bracy, dated November
26, 1997 (incorporated by reference to Exhibit 10.6 to the December
1997 10-Q).
10.11 Severance Agreement, dated December 1, 1997, between Holdings, the
Issuer and Bill Bracy (incorporated by reference to Exhibit 10.7 to
the December 1997 10-Q).
10.12 Promissory Note, dated April 8, 1998, between the Issuer and Bill
Bracy (incorporated by reference to Exhibit 10.4 to the March 1998
10-Q).
10.13 Collateral Pledge Agreement, dated April 8, 1998, between the Issuer
and Bill Bracy (incorporated by reference to Exhibit 10.5 to the
March 1998 10-Q).
10.14 Employment Agreement, dated as of June 13, 1995, among Holdings, the
Issuer and Harry H. Manko (incorporated by reference to Exhibit 10.1
to Holdings' Annual Report on Form 10-K for the fiscal year ended
July 1, 1995).
10.15 Form of Vehicle Lease Agreement between the Issuer and Mission Leasing
(incorporated by reference to Exhibit 10.77 to Holdings' Registration
Statement on Form S-1, File No. 33-45868).
10.16 Form of Equipment Lease between the Issuer and Mission Leasing
(incorporated by reference to Exhibit 10.78 to Holdings' Registration
Statement on Form S-1, File No. 33-45868).
10.17 Lease of Aircraft between the Issuer and Hayden Leasing, L.C. dated
November 1, 1995 (incorporated by reference to Exhibit 10.18 to
Holdings' Annual Report on Form 10-K for the fiscal year ended
June 29, 1996).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sidley & Austin (contained in Exhibit 5.1).
24.1 Power of Attorney (included in the Signature Pages in Part II of the
Registration Statement).
25.1 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-4
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(5) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it
became effective.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 20 or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on September 30, 1998.
BELL SPORTS CORP.
/s/ Mary J. George
By: _________________________________
Mary J. George
Chief Executive Officer,
President and Director
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mary J. George and William Bracy, or any of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities (including his or her capacity as a
director and/or officer of Bell Sports Corp.), to sign any or all amendments
(including post-effective amendments) to this registration statement and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or her or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Terry G. Lee Chairman of the Board of September 30, 1998
____________________________________ Directors
Terry G. Lee
/s/ Mary J. George Chief Executive Officer, September 30, 1998
____________________________________ President and Director
Mary J. George (principal executive
officer)
/s/ Linda K. Bounds Chief Financial Officer, September 30, 1998
____________________________________ Senior Vice President,
Linda K. Bounds Secretary and Treasurer
(principal financial and
accounting officer)
/s/ William M. Barnum Director September 30, 1998
____________________________________
William M. Barnum
/s/ Kim G. Davis Director September 30, 1998
____________________________________
Kim G. Davis
/s/ John F. Hetterick Director September 30, 1998
____________________________________
John F. Hetterick
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Edward L. McCall Director September 30, 1998
____________________________________
Edward L. McCall
/s/ Tim R. Palmer Director September 30, 1998
____________________________________
Tim R. Palmer
/s/ John M. Sullivan Director September 30, 1998
____________________________________
John M. Sullivan
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on September 30, 1998.
BELL SPORTS, INC.
/s/ Mary J. George
By: _________________________________
Mary J. George
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mary J. George and William Bracy, or any of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities (including his or her capacity as a
director and/or officer of Bell Sports, Inc.), to sign any or all amendments
(including post-effective amendments) to this registration statement and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or her or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Mary J. George President (principal September 30, 1998
____________________________________ executive officer)
Mary J. George
/s/ Linda K. Bounds Chief Financial Officer September 30, 1998
____________________________________ (principal financial and
Linda K. Bounds accounting officer)
/s/ Terry G. Lee Director September 30, 1998
____________________________________
Terry G. Lee
/s/ Tim R. Palmer Director September 30, 1998
____________________________________
Tim R. Palmer
/s/ William M. Barnum Director September 30, 1998
____________________________________
William M. Barnum
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
2.1 Agreement and Plan of Recapitalization and Merger, dated as of
February 17, 1998, between HB Acquisition and Holdings (incorporated
by reference to Exhibit 2 to Holdings' Current Report on Form 8-K
dated February 17, 1998).
2.2 First Amendment to Agreement and Plan of Recapitalization and Merger,
dated as of April 8, 1998, between HB Acquisition and Holdings
(incorporated by reference to Exhibit 2 to Holdings' Current Report
on Form 8-K dated April 8, 1998).
3.1 Amended and Restated Certificate of Incorporation of Holdings
(incorporated by reference to Exhibit 4.2 to Holdings' Current Report
on Form 8-K dated August 17, 1998 (the "August 1998 8-K")).
3.2 Bylaws of Holdings (incorporated by reference to Exhibit 4.3 to the
August 1998 8-K).
3.3 Articles of Incorporation of the Issuer.
3.4 Amended and Restated Bylaws of the Issuer.*
4.1 Shareholders Agreement, dated as of August 17, 1998, among Holdings
and the stockholders party thereto.
4.2 Indenture, dated as of August 17, 1998, among Holdings, the Issuer and
Harris Trust and Savings Bank, as Trustee, relating to the Issuer's
Series A and Series B Senior Subordinated Notes due 2008
(incorporated by reference to Exhibit 4.1 to the August 1998 8-K).
4.3 Registration Rights Agreement, dated as of August 17, 1998, between
the Issuer, Holdings and Donaldson, Lufkin & Jenrette Securities
Corporation, NationsBank Montgomery Securities LLC and Societe
Generale Securities Corporation.
4.4 Form of 11% Series B Senior Subordinated Note due 2008.
4.5 Form of 11% Series A Senior Subordinated Note due 2008
4.6 Indenture, dated as of November 15, 1993, between Holdings and Harris
Trust and Savings Bank, as Trustee, relating to Holdings' 4 1/4%
Convertible Subordinated Debentures due 2000 (incorporated by
reference to Exhibit 4.1 to Holdings' Current Report on Form 8-K dated
October 26, 1993).
5.1 Opinion of Sidley & Austin regarding the securities being issued.
10.1 Credit Agreement, dated August 17, 1998, among the Issuer, Holdings,
the financial institutions parties thereto as Lenders, Societe
Generale and DLJ Capital Funding, Inc.
10.2 Borrower Pledge and Security Agreement, dated August 17, 1998, between
the Issuer and Societe Generale.
10.3 Guarantor Pledge and Security Agreement, dated August 17, 1998, among
Holdings, Giro Sport Design International, Inc. and Societe Generale.
10.4 Corporate Development and Administrative Services Agreement, dated
August 17, 1998 among Holdings, the Issuer, Charlesbank Capital
Partners, LLC and Brentwood Private Equity, L.L.C.
10.5 Amended and Restated Employment Agreement, dated as of February 17,
1998, among Holdings, the Issuer and Terry G. Lee (incorporated by
reference to Exhibit 10.1 to Holdings' Quarterly Report on Form 10-Q
for the quarter ended March 28, 1998 (the "March 1998 10-Q")).
10.6 Noncompetition Agreement dated December 8, 1997 between Holdings, the
Issuer and Terry G. Lee (incorporated by reference to Exhibit 10.2 to
Holdings' Quarterly Report on Form 10-Q for the quarter ended
December 27, 1997 (the "December 1997 10-Q")).
10.7 Amended and Restated Employment Agreement, dated as of February 17,
1998, among Holdings, the Issuer and Mary J. George (incorporated by
reference to Exhibit 10.2 to the March 1998 10-Q).
10.8 Employment Agreement, dated as of April 25, 1997, among Holdings, the
Issuer and Linda K. Bounds (incorporated by reference to Exhibit
10.12 to Holdings' Quarterly Report on Form 10-Q for the quarter
ended March 29, 1997).
</TABLE>
<PAGE>
EXHIBIT INDEX--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.9 Memorandum of Understanding, dated January 28, 1998, between Holdings
and Linda K. Bounds (incorporated by reference to Exhibit 10.3 to the
March 1998 10-Q).
10.10 Memorandum reference Employment Outline for Bill Bracy, dated November
26, 1997 (incorporated by reference to Exhibit 10.6 to the December
1997 10-Q).
10.11 Severance Agreement, dated December 1, 1997, between Holdings, the
Issuer and Bill Bracy (incorporated by reference to Exhibit 10.7 to
the December 1997 10-Q).
10.12 Promissory Note, dated April 8, 1998, between the Issuer and Bill
Bracy (incorporated by reference to Exhibit 10.4 to the March 1998
10-Q).
10.13 Collateral Pledge Agreement, dated April 8, 1998, between the Issuer
and Bill Bracy (incorporated by reference to Exhibit 10.5 to the
March 1998 10-Q).
10.14 Employment Agreement, dated as of June 13, 1995, among Holdings, the
Issuer and Harry H. Manko (incorporated by reference to Exhibit 10.1
to Holdings' Annual Report on Form 10-K for the fiscal year ended
July 1, 1995).
10.15 Form of Vehicle Lease Agreement between the Issuer and Mission Leasing
(incorporated by reference to Exhibit 10.77 to Holdings' Registration
Statement on Form S-1, File No. 33-45868).
10.16 Form of Equipment Lease between the Issuer and Mission Leasing
(incorporated by reference to Exhibit 10.78 to Holdings' Registration
Statement on Form S-1, File No. 33-45868).
10.17 Lease of Aircraft between the Issuer and Hayden Leasing, L.C. dated
November 1, 1995 (incorporated by reference to Exhibit 10.18 to
Holdings' Annual Report on Form 10-K for the fiscal year ended
June 29, 1996).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sidley & Austin (contained in Exhibit 5.1).
24.1 Power of Attorney (included in the Signature Pages in Part II of the
Registration Statement).
25.1 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BELL SPORTS, INC.
A California corporation
I
The name of this corporation is BELL SPORTS, INC.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
This corporation is authorized to issue only one class of shares of
stock of $0.01 par value per share; and the total number of shares which the
corporation is authorized to issue is ten million (10,000,000).
IV
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law, as
amended from time to time.
V
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the Corporations Code) for breach of duty to the
Corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by Section 317 of the California Corporations Code, as amended from time to
time, subject to the limits on such excess indemnification set forth in Section
204 of the California Corporations Code, as amended from time to time.
<PAGE>
VI
This corporation elects to be governed by all of the provisions of the
California General Corporations Law of 1977 not otherwise applicable to it under
Chapter 23 thereof.
<PAGE>
EXHIBIT 4.1
SHAREHOLDERS AGREEMENT
----------------------
This Shareholders Agreement (the "Agreement") is effective as of the
---------
closing of the Merger, as defined below, on August 17th, 1998 by and among Bell
Sports Corp., a Delaware corporation (the "Company"), the successor by merger to
-------
the obligations of HB Acquisition Corporation, a Delaware corporation ("Newco"),
-----
Mary J. George ("George" and together with any other management investors, the
------
"Management Shareholders" and each a "Management Shareholder"), CB Capital
- ------------------------ ----------------------
Investors, L.P., a Delaware limited partnership ("CBCI"), Charlesbank Bell
----
Sports Holdings, Limited Partnership., a Massachusetts limited partnership
("Charlesbank") and Brentwood Associates Buyout Fund II, L.P., a Delaware
- -------------
limited partnership, ("Brentwood" and together with Charlesbank, the
---------
"Investors"; collectively the Management Shareholders, CBCI and the Investors
---------
are referred to herein as the "Shareholders").
------------
Recitals
--------
WHEREAS, pursuant to an Agreement and Plan of Recapitalization and Merger
dated February 17, 1998, by and between the Company and Newco, as amended by
Amendment No. 1 to the Recapitalization Agreement dated as of April 8, 1998 (the
"Recapitalization Agreement"), Newco will be merged with and into the Company
--------------------------
(the "Merger") with the Company continuing as the surviving corporation (the
------
"Surviving Corporation");
- ----------------------
WHEREAS, pursuant to the Recapitalization Agreement, at the Effective Time,
each outstanding share of common stock, $.01 par value per share, of the Company
(the "Company Common Stock") shall be converted into the right to receive $10.25
--------------------
in cash, without interest thereon;
WHEREAS, pursuant to a Stock Subscription Agreement, CBCI exchanged an
aggregate of 487,805 shares of Company Common Stock held by CBCI immediately
prior to the Effective Time for an aggregate of 80,097 shares of Common Stock,
$.01 par value per share (the "Newco Common Stock"), of Newco and an aggregate
------------------
of 97,087 shares of Series A Preferred Stock, $.01 par value per share (the
"Series A Preferred Stock"), of Newco;
- -------------------------
WHEREAS, pursuant to a Stock Option Subscription Agreement, George
exchanged an aggregate of options to purchase 96,336 shares of Company Common
Stock with an aggregate exercise price of $680,132 held by George immediately
prior to the Effective Time for options to purchase an aggregate of 16,921
shares of Newco Common Stock at an exercise price of $0.44 per share and an
aggregate of 20,511 shares of Series A Preferred Stock of Newco at an exercise
price of $36.15 per share;
<PAGE>
WHEREAS, pursuant to a Stock Subscription Agreement, immediately prior to
the Effective Time, each of Charlesbank and Brentwood subscribed for 360,437
shares of Newco Common Stock and 436,893 shares of Series A Preferred Stock of
Newco;
WHEREAS, pursuant to the Merger, each share of Newco Common Stock will be
exchanged for one share of common stock of the Surviving Corporation and each
share of Series A Preferred Stock will be exchanged for one share of Series A
Preferred Stock of the Surviving Corporation, and each option to purchase shares
of Series A Preferred Stock of Newco will be converted into and exchanged for an
option to purchase share of Series A Preferred Stock of the Surviving
Corporation, and each option to purchase shares of Common Stock of Newco will be
converted into and exchanged for an option to purchase share of Common Stock of
the Surviving Corporation;
WHEREAS, immediately following the Effective Time, the shares of common
stock of the Surviving Corporation then outstanding shall become Class A Common
Stock of the Surviving Corporation and a new Class B Common Stock and Class C
Common Stock of the Surviving Corporation shall be authorized;
WHEREAS, certain Management Shareholders shall purchase shares of Class B
Common Stock of the Surviving Corporation and shares of Class C Common Stock of
the Surviving Corporation (the Class A Common Stock, Class B Common Stock and
Class C Common Stock of the Surviving Corporation shall be referred to
collectively as the "Common Stock");
------------
WHEREAS, certain capitalized terms used herein but not otherwise defined
herein shall have the meaning ascribed to them in the Recapitalization
Agreement; and
WHEREAS, the parties believe that it is in the best interests of the
Company and the Shareholders to: (i) provide that the Shares (as hereinafter
defined) shall be transferable only upon compliance with the terms hereof; (ii)
provide the Company, the Investors, CBCI and the Management Shareholders with
certain rights and obligations with respect to the purchase of the Shares under
certain circumstances; (iii) provide for certain rights and obligations with
respect to the election of directors of the Company; and (iv) set forth their
agreements on certain other matters.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Shareholders hereby agree as follows:
1. Prohibited Transfers.
--------------------
-2-
<PAGE>
1.1 None of the Shareholders shall pledge, hypothecate or mortgage or in any
way encumber all or any part of the Shares owned by it, whether directly or
indirectly, involuntarily, by operation of law or otherwise.
1.2 None of the Shareholders shall sell, assign, transfer, grant a
participation interest in, or dispose of, by gift or otherwise, all or any part
of the Shares (as hereinafter defined) owned by it, whether directly or
indirectly, involuntarily, by operation of law or otherwise, except in
compliance with the terms of this Agreement. For purposes of this Agreement,
the term "Shares" shall mean all shares (or rights, options or warrants to
------
acquire such shares) in the capital of the Company owned, directly or
indirectly, by any Shareholder, whether presently held or hereafter, including
without limitation the Common Stock and the Series A Preferred Stock. "Shares"
owned by the Shareholders shall include Shares owned by any Affiliate of any
Shareholders if such Affiliate holds, directly or indirectly, Shares (assuming
the conversion and exercise by such Shareholders of all securities convertible
into or exercisable for Shares).
2. Right of First Offer on Dispositions by Shareholders.
----------------------------------------------------
2.1 No Shareholder (the "Selling Shareholder") shall sell, assign, transfer,
-------------------
grant a participation interest in, or otherwise dispose of any or all Shares
owned by him to a third party unless (i) such Selling Shareholder shall have
received a bona-fide offer to purchase such Shares (the "Shareholders' Offered
---------------------
Shares") from such third party (a "Third Party Offer"), (ii) such third party is
- ------ -----------------
acting at arm's length from the Selling Shareholder and (iii) the Selling
Shareholder first submits a written offer pursuant to this Section 2 (the
"Offer") to the Company, the Investors and CBCI, together with a copy of the
-----
Third Party Offer, identifying the third party to whom the Shareholders' Offered
Shares are proposed to be sold and the terms of the proposed sale and offering
to the Company and to the Investors the opportunity to purchase such Shares on
terms and conditions, including price, not less favorable to the Company and to
the Investors than those on which the Selling Shareholder proposes to sell such
Shares to such third party; provided, however, that if the Shareholders' Offered
-------- -------
Shares are to be sold other than for cash, the Company, the Investors and CBCI
shall have the opportunity to purchase such Shares for cash.
2.2 The Company shall have the first right to purchase all or a portion of the
Shareholders' Offered Shares upon the terms of the Offer. The Company shall act
upon the Offer as soon as practicable and in any event within 15 days after the
receipt thereof. In the event that the Company shall elect to purchase all or a
portion of the Shareholders' Offered Shares, the Company shall communicate in
writing such election to purchase to the Selling Shareholder, which
communication shall be delivered by hand or mailed to the Selling Shareholder at
the address provided herein, and shall, when taken in conjunction with the
Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of the Shareholders' Offered Shares covered
thereby, subject to the provisions of Section 2.4 hereof.
-3-
<PAGE>
2.3 In the event that the Company elects not to purchase all of the
Shareholders' Offered Shares, each Investor and CBCI (and each Qualified
Transferee (as defined below)) shall have the right to purchase up to that
number of the available Shareholders' Offered Shares (less those Shareholders'
Offered Shares purchased by the Company) (the "Remaining Shareholders' Offered
-------------------------------
Shares") as shall be equal to the aggregate number of the Remaining
- ------
Shareholders' Offered Shares multiplied by a fraction, the numerator of which is
the number of Shares of the Company then held by such Investor or CBCI and the
denominator of which is the total number of Shares held by all of the Investors
and CBCI. The number of the Remaining Shareholders' Offered Shares that each
Investor and CBCI is entitled to purchase under this Section 2 shall be referred
to as his, her or its "Pro Rata Fraction." Each of the Investors and CBCI shall
-----------------
act upon the Offer as soon as practicable and in any event within 15 days after
receipt of notification as to the amount of Shares to be purchased by the
Company. Each Investor and CBCI may elect to accept the Offer as to all or a
portion of the Remaining Shareholders' Offered Shares, regardless of such
Investor's and CBCI's Pro Rata Fraction. In the event that an Investor or CBCI
shall elect to purchase all or a portion of the Remaining Shareholders' Offered
Shares, such Investor or CBCI shall individually communicate in writing such
election to purchase to the Selling Shareholder, which communication shall be
delivered by hand or mailed to the Selling Shareholder at the address provided
herein, and shall, when taken in conjunction with the Offer, be deemed to
constitute a valid, legally binding and enforceable agreement for the sale and
purchase of the Remaining Shareholders' Offered Shares covered thereby, subject
to the provisions of Section 2.4 hereof, to the extent of the number of the
Remaining Shareholders' Offered Shares, if any, allocated to such Investor or
CBCI in accordance with the following sentence. Upon the expiration of all
applicable periods under this Section 2, the number of Shares to be purchased by
each Investor and CBCI shall be determined as follows: (i) there shall first be
allocated to each Investor and CBCI a number of the Remaining Shareholders'
Offered Shares equal to the lesser of (x) the number of the Remaining
Shareholders' Offered Shares as to which such Investor or CBCI accepted the
Offer or (y) such Investor's or CBCI's Pro Rata Fraction, and (ii) the balance,
if any, not allocated under clause (i) above, shall be allocated to those
Investors and CBCI who accepted the Offer as to a number of Shares which
exceeded their respective Pro Rata Fractions, in each case on a pro rata basis
in proportion to the amount of such excess.
2.4 In the event that the Company, the Investors and CBCI, individually or
together, do not purchase all of the Shareholders' Offered Shares, then the
Selling Shareholder may, at its election, (i) sell such partial number of the
Shareholders' Offered Shares to the Company, the Investors and CBCI as specified
in their acceptances of the Offer, or (ii) reject the partial acceptances of the
Company, the Investors and CBCI and in either case the Selling Shareholder may
sell all or any part of the Shareholders' Offered Shares at any time within 120
days after receipt of the Offer. Any such sale shall be to the person
originally named in the Offer as the proposed purchaser or transferee and shall
be at not less than the price and upon the same terms and conditions as those
specified in the Third Party Offer. Any Shares sold after such 120-day period,
or, if prior to such 120-day period, to a different purchaser, at a lower price
or otherwise on more favorable terms, shall be subject to the requirements of a
-4-
<PAGE>
prior offer pursuant to this Section 2. The transferee of any Shares, as
permitted by this Section 2, shall hold such Shares so acquired with all the
rights conferred by, and subject to all the restrictions imposed by, this
Agreement upon the Shareholders, and shall be required, as a condition of such
transfer, to execute and deliver to the Shareholders and the Company a written
acknowledgment of such fact.
2.5 The Right of First Offer granted to the Company and the Investors under
this Section 2 shall terminate upon the closing of a qualified public offering
of the Company ("Qualified Public Offering"). For purposes of this Agreement,
-------------------------
"Qualified Public Offering" shall mean a public offering of shares of the
Company's Common Stock after which the Investors will have sold 30% of the
Common Stock for which they originally subscribed.
2.6 For purposes of this Agreement, a "Qualified Transferee" shall mean any
--------------------
person who (i) is an Affiliate of an Investor or CBCI or (ii) acquired any
Preferred Stock and/or Common Stock then held by an Investor or CBCI in
accordance with this Agreement. An "Affiliate" of a person or entity shall mean
---------
another person or entity that is directly or indirectly controlling, controlled
by or under common control with such person or entity; provided that for
-------------
purposes of this definition, the direct and indirect limited and general
partners of Charlesbank and Brentwood shall constitute Affiliates of Charlesbank
and Brentwood, respectively. "Control" shall mean the right to cast, directly or
-------
indirectly, more than 50% of the voting interests in a person or entity.
3. Right of Participation in Sales.
-------------------------------
3.1 If at any time any Shareholder wishes, or in accordance with Section 2, is
required to sell, or otherwise dispose of, any Shares owned by him, her or it to
any person (the "Purchaser") in a transaction which is subject to the provisions
---------
of Section 2 hereof, each Investor and CBCI that has not elected to purchase any
of the shares pursuant to Section 2 hereof, shall have the right to participate
pro rata in such transaction, and, accordingly, shall have the right to require,
as a condition to such sale or disposition, that the Purchaser purchase from
such Investor or CBCI at the same price per Share and on the same terms and
conditions as involved in such sale or disposition by the Selling Shareholder up
to that number of Common Shares which represents the same percentage of Shares
then held by such Investor or CBCI, as the number of Shares of the Company,
directly or indirectly, proposed to be sold or disposed of by the Selling
Shareholder represents with respect to that number of Shares of the Company then
owned, directly or indirectly, by such Shareholder, provided, however, that any
-------- -------
purchase by the Purchaser of less than all of the Shares offered by such
Shareholders shall be made from such Shareholders pro rata based upon the
percentage of the Company proposed to be sold by each. Each Investor and CBCI
that has not elected to purchase any of the Shareholders' Offered Shares
pursuant to Section 2 hereof, wishing so to participate in any such sale or
disposition shall individually communicate such election to the Selling
Shareholder as soon as practicable after receipt of the Offer made pursuant to
Section 2, and in all events within 15 days after receipt thereof, which
communication shall be delivered by hand or
-5-
<PAGE>
mailed to the Selling Shareholder at the address furnished in accordance with
Section 13. The term "Purchaser" in this Section 3 shall include the Investor
---------
or CBCI that may have elected to exercise their rights of first refusal provided
for in Section 2 hereof.
3.2 If a sale to a Purchaser by any or all of the Investors constitutes a
Change of Control transaction ("Change of Control"), each Management Shareholder
-----------------
and CBCI shall have the right to participate pro rata in such transaction, and,
accordingly, shall have the right to require, as a condition to such Change of
Control transaction, that the Purchaser purchase from such Management
Shareholder or CBCI at the same price per Share and on the same terms and
conditions as involved in such sale or disposition by the Investors up to that
number of Common Shares which represents the same percentage of Shares then held
by such Management Shareholder or CBCI, as the number of Shares of the Company,
directly or indirectly, proposed to be sold or disposed of by the Investors
represents with respect to that number of Shares of the Company then owned,
directly or indirectly, by the Investors, provided, however, that any purchase
-------- -------
by the Purchaser of less than all of the Shares offered by such Shareholders
shall be made from such Shareholders pro rata based upon the percentage of the
Company proposed to be sold by each. For purposes of this Agreement, "Change of
---------
Control" shall mean (i) any change in the ownership of the capital stock of the
- -------
Company if, immediately after giving effect thereto, any person (or group of
persons acting in concert) other than the Investors and their Affiliates will
have the direct or indirect power to elect a majority of the members of the
Board; (ii) any sale or other disposition of all or substantially all of the
assets of the Company (including without limitation by way of a merger or
consolidation or through the sale of all or substantially all of the stock of
its subsidiaries or sale of all or substantially all of the assets of the
Company and its subsidiaries, taken as a whole) to another person (the "Change
------
of Control Transferee") if, immediately after giving effect thereto, any person
- ---------------------
(or group of persons acting in concert) other than the Investors and their
Affiliates will have the power to elect a majority of the members of the board
of directors (or other similar governing body) of the Change of Control
Transferee; or (iii) any change in the ownership of the capital stock of the
Company if, immediately after giving effect thereto, the Investors and their
Affiliates shall own, in the aggregate, less than 25% of the equity interests of
the Company.
3.3 The co-sale rights granted to the Investors, CBCI and the Management
Shareholders under this Section 3 shall terminate upon the closing of a
Qualified Public Offering of the Company.
4. Take-Along Right.
----------------
4.1 Subject to prior compliance with Sections 2 and 3 hereof, the Management
Shareholders and CBCI hereby agree, if requested by the Majority Shareholders
(for purposes of this Section 4 collectively, the "Proposed Sellers") to
----------------
transfer for value all of the Shares then owned by such Shareholders to any
person not affiliated with any of the Proposed Sellers (for purposes of this
Section 4, the "Proposed Buyer") in the manner and on the terms set forth in
--------------
-6-
<PAGE>
this Section 4 in connection with a sale by the Proposed Sellers. "Majority
--------
Shareholders" shall mean the holders of two-thirds (2/3) of the shares of
- ------------
capital stock of the Company held by the Investors.
4.2 If the Proposed Sellers elect to exercise their rights under this Section
4, a notice (the "Take Along Notice") shall be furnished by the Proposed Sellers
-----------------
to the Management Shareholders and CBCI which notice may be satisfied by
delivery of the offer received by the Proposed Sellers for the purchase of their
Shares. The Take Along Notice shall set forth the principal terms of the
proposed Sale insofar as it relates to the Shares, including the maximum and
minimum purchase price and the name and address of the Proposed Buyer. If at
the end of the one hundred eightieth (180th) day following the date of the
effectiveness of the Take Along Notice the Proposed Sellers have not completed
the proposed sale, the Management Shareholders and CBCI shall be released from
their obligations under the Take Along Notice, the Take Along Notice shall be
null and void, and it shall be necessary for a separate Take Along Notice to
have been furnished and the terms and provisions of this Section 4 separately
complied with, in order to consummate such sale pursuant to this Section 4.
5. Lock-up. The Shareholders and any Qualified Transferees shall not transfer
-------
any Shares for a period beginning seven days immediately preceding, and ending
on the 180th day following, any public offering of the Company's securities
without the prior written consent of the underwriters managing the offering. In
addition, the Shareholders and any Qualified Transferees shall enter further
written agreements having provisions limiting transfers of Shares no more
restrictive than the provisions of this Section 5 at the request of the Company
in connection with such a public offering.
6. Board of Directors.
------------------
6.1 The Management Shareholders, CBCI and the Investors and their Affiliates
agree to vote all of the Company's Common Shares and any other voting securities
of the Company now owned or hereafter acquired or controlled by them
(collectively, the "Voting Securities"), and otherwise use their respective best
-----------------
efforts as shareholders or directors of the Company, to cause and maintain the
election to the Board of Directors of (a) 3 persons designated by Charlesbank,
(b) 3 persons designated by Brentwood and (c) for as long as her Employment
Agreement requires, George. The initial designees of Charlesbank shall be Tim
R. Palmer, Kim G. Davis and John F. Hetterick, and the initial designees of
Brentwood shall be Edward L. McCall, William M. Barnum and John M. Sullivan.
Each Shareholder hereby acknowledges and agrees that the initial directors of
the Company shall be Mary J. George, Terry G. Lee, Tim R. Palmer, Kim G. Davis,
Edward L. McCall, William M. Barnum, John M. Sullivan and John F. Hetterick.
6.2 In the absence of any designation from any party hereto, the director
previously designated by such party and then serving shall be reelected if still
eligible to serve as provided herein. No party hereto shall vote to remove any
member of the Board of Directors designated
-7-
<PAGE>
in accordance with the aforesaid procedure unless the designating party or
parties so vote, and if the designating party or parties so vote then the non-
designating party or parties shall likewise so vote. Any vacancy on the Board of
Directors created by the resignation, removal, incapacity or death of any person
designated under this Section 6 shall be filled by another person designated by
the original designating party or parties. The Shareholders shall vote their
respective Voting Securities in accordance with such new designation, and any
such vacancy shall not be filled in the absence of a new designation by the
original designating party.
6.3 The Company agrees not to give effect to any action by any holder of Shares
or any other person in contravention of this Agreement.
6.4 Notwithstanding any other provision of this Agreement to the contrary, the
rights of the Shareholders under this Section 6 are personal to the Shareholders
and may not be transferred to, or be exercised by, any party other than an
Affiliate of any of the Investors.
7. Piggyback Registration.
----------------------
7.1 Whenever the Company proposes to register any shares of its Class A Common
Stock for its own or others' account under the Securities Act for a public
offering (a "Public Offering"), the Company shall furnish each Shareholder
---------------
prompt written notice of its intent to do so. Upon the request of any
Shareholder given by notice to the Company within twenty (20) days after the
effectiveness of such notice from the Company, the Company will use its best
efforts to cause to be included in such registration all of the shares of Class
A Common Stock which such holder requests. Notwithstanding the foregoing
provisions of this Section 7.1, if the Company is advised in writing in good
faith by any managing underwriter of the securities being offered pursuant to
any Public Offering under this Section 7.1 that the number of shares to be sold
by persons other than the Company in such Public Offering is greater than the
number of such shares which can be included in such Public Offering without
adversely affecting such Public Offering, the Company may reduce pro rata (based
upon the number of Shares held by such persons) the number of shares of Class A
Common Stock offered for the accounts of such persons other than the Company to
a number of shares of Class A Common Stock deemed satisfactory by such managing
underwriter.
7.2 The Company shall pay all expenses of the holders of Shares participating
in any Public Offering pursuant to Section 7.1, including without limitation the
fees and charges of one legal counsel or other advisor retained by any such
holders, other than underwriting discounts and commissions, if any, and
applicable transfer taxes, if any.
7.3 Notwithstanding the preceding provisions of this Section 7, no holder of
Shares shall have any right of participation or otherwise with respect to a
Public Offering (i) relating to employee benefit plans on Form S-8 or any
similar form then in effect or (ii) relating to the
-8-
<PAGE>
issuance of any shares in connection with the acquisition of any entity or
business on Form S-4 or any similar form then in effect.
7.4 In the event of any registration of any Shares under the Securities Act
pursuant to this Section 7, and in connection with any registration statement or
any other disclosure document produced by or on behalf of the Company pursuant
to which securities of the Company are sold (whether or not for the account of
the Company), the Company will, and hereby does, indemnify and hold harmless
each seller of Shares, any other holder of securities who is or might be deemed
to be a controlling person of the Company within the meaning of Section 15 of
the Securities Act, their respective direct and indirect partners, advisory
board members, directors, officers and stockholders, and each other person, if
any, who controls any such seller or any such holder within the meaning of
Section 15 of the Securities Act (each such person being referred to herein as a
"Covered Person"), against any losses, claims, damages or liabilities, joint or
--------------
several, and reasonable expenses (including, without limitation, reasonable
legal and other fees and expenses incurred by any Covered Person in defending or
investigating any action or claim in respect thereof) to which such Covered
Person may be or become subject under the Securities Act, any other securities
or other law of any jurisdiction, common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained or incorporated by reference in
any registration statement under the Securities Act, any preliminary prospectus
or final prospectus included therein, or any related summary prospectus, or any
amendment or supplement thereto, or any document incorporated by reference
therein, or any other such disclosure document, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse such
Covered Person for any legal or any other expenses incurred by it in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that the Company shall not be liable to any
-------- -------
Covered Person in any such case to the extent that any such loss, claim, damage,
liability, action or proceeding arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement, incorporated document or other such
disclosure document in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such Covered
Person specifically stating that it is for use in the preparation thereof. The
indemnities of the Company and of its subsidiaries contained in this Section 7
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Covered Person and shall survive any transfer of securities.
7.5 The Company may require, as a condition to including any securities in any
registration statement filed pursuant to this Section 7, that the Company shall
have received an undertaking satisfactory to it from each prospective seller of
such securities, to indemnify and hold harmless the Company, each director of
the Company, each officer of the Company who shall
-9-
<PAGE>
sign such registration statement and each other person (other than such seller),
if any, who controls the Company within the meaning of Section 15 of the
Securities Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus or final prospectus included
therein, or any amendment or supplement thereto, or any document incorporated
therein, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument executed by such seller specifically stating that it is for use in
the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, or incorporated
document. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling person and shall survive any transfer of securities.
7.6 Each party entitled to indemnification under this Agreement (the
"Indemnified Party") shall give notice to the party required to provide
- ------------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
--------
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
-------- -------
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
-------- -------
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. In Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
7.7 If the indemnity provided for in Sections 7.4 or 7.5 is available, each
indemnified party will be indemnified thereunder to the full extent provided in
such section without regard to the relative fault of the indemnifying party or
the indemnified party or the other equitable considerations referenced in this
Section 7.7. If the indemnification provided for in Sections 7.4 or 7.5 hereof
is unavailable to a party that would have been an indemnified party under any
such Section in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each party
that would have been an indemnifying party thereunder shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is
-10-
<PAGE>
appropriate to reflect the relative fault of such indemnifying party on the one
hand and such indemnified party on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof). The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such indemnifying party or
such indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties agree that it would not be just or equitable if contribution
pursuant to this Section 7.7 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in the preceding sentence. The amount paid or payable
by a contributing party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7.7 shall include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7.8 The liability of each holder of Shares in respect of any indemnification or
contribution obligation of such holder arising under this Section 7 shall not in
any event exceed an amount equal to the net proceeds to such holder (after
deduction of all underwriters' discounts and commissions and all other expenses
paid by such holder in connection with the registration in question) from the
disposition of the Shares disposed of by such holder pursuant to such
registration.
8. Voting Agreement. Notwithstanding anything to the contrary in this
----------------
Agreement, Charlesbank and Brentwood agree to cast all votes to which such
holders are entitled in respect of the Shares, now or hereafter owned or
controlled by such holders, whether at any annual or special meeting of
stockholders, by written consent or otherwise, together in a manner upon which
such holders mutually agree.
9. Director Indemnification. In the event that any director elected pursuant
------------------------
to the terms of this Agreement shall be made or threatened to be made a party to
any action, suit or proceeding with respect to which he may be entitled to
indemnification by the Company pursuant to its Certificate of Incorporation, By-
laws or administrative resolutions or otherwise, he shall be represented in such
action, suit or proceeding by counsel selected by the Company unless such
representation would be inappropriate due to actual or potential differing
interests, as reasonably determined by either the director or the Company,
between the director and the Company, in which case the director shall be
entitled to be represented by counsel of his choice and, to the fullest extent
permitted by law, the reasonable expense of such representation shall be
reimbursed by the Company to the extent provided in or authorized by said By-
laws or administrative resolutions or other provisions.
-11-
<PAGE>
10. Permitted Transfers. Anything herein to the contrary notwithstanding, the
-------------------
provisions of Sections 1 and 2 shall not apply to: (a) any sale of Shares by an
Investor to one of its Affiliates; (b) any sale of Shares in a public offering
and (c) any transfer of Shares by a Management Shareholder to a Member of the
Immediate Family of such Management Shareholder; provided, however, that no
-------- -------
transfer under subsection (c) of this Section 10 shall be effective until such
Member of the Immediate Family has delivered to the Company a written
acknowledgment and agreement in form and substance reasonably satisfactory to
the Company that the Shares to be received by such Member of the Immediate
Family are subject to all the provisions of this Agreement and that such Member
of the Immediate Family is bound hereby and a party hereto to the same extent as
a Management Shareholder. In the event of any such transfer pursuant to
subsection (a) of this Section 10, the transferee of the Shares shall hold the
Shares so acquired with all the rights conferred by, and subject to all the
restrictions imposed by this Agreement, and shall be required as a condition to
the transfer to execute and deliver a written acknowledgment of such fact
addressed to the parties hereto. For the purposes of this Agreement, "Members
-------
of the Immediate Family" shall mean, with respect to any individual, each
- -----------------------
spouse, parent, brother, sister or child of such individual, each spouse of any
such person, each child of any of the aforementioned persons, each trust created
solely for the benefit of one or more of the aforementioned persons, each
custodian or guardian of any property of one or more of the aforementioned
persons in his or her capacity as such custodian or guardian and any partnership
all of the interests of which are owned by any one of or a combination of the
aforementioned persons.
11. Termination. This Agreement, and the respective rights and obligations of
-----------
the parties hereto, shall terminate upon the earlier of the closing of a
Qualified Public Offering of the Company or a Change of Control, as defined in
Section 3; above.
12. Certain Conditions.
------------------
12.1. At any closing pursuant to the acceptance of an Offer in accordance with
Section 2, it shall be a condition precedent to the purchasing Shareholder's (or
Qualified Transferee's) obligation to purchase that:
12.1.1 the seller shall deliver the certificates representing its Shares duly
endorsed for transfer and shall execute all such deeds, documents, instruments
and agreements as shall be reasonably necessary (in the opinion of legal counsel
to the purchaser, acting reasonably) in order to convey to such purchaser all
the right, title and interest of the seller in and to the Shares held by the
seller; and
12.1.2 the seller shall represent and warrant that its Shares are sold with
good and marketable title, free and clear of all liens and encumbrances of any
nature whatsoever, other than restrictions on transfer imposed by securities
laws.
Such closing shall take place at 10:00 a.m. (New York time) on the date
specified for closing, at the registered office of the Company.
-12-
<PAGE>
13. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been received when delivered or three days
after being mailed by first class, registered or certified mail (air mail if to
or from outside the United States), return receipt requested, postage prepaid,
or by express delivery providing receipt of delivery, at the address set forth
below,
and if to the Company, at:
Bell Sports Corp.
6350 San Ignacio
San Jose, California 95119
Attn: Chief Executive Officer
and if to the Investors, at:
Charlesbank Bell Sports Holdings, Limited Partnership
c/o Charlesbank Equity Fund IV, Limited Partnership
600 Atlantic Avenue
26th Floor
Boston, Massachusetts 02210
ATTN: Tim R. Palmer
Tami E. Nason, Esq.
and
---
Brentwood Associates Buyout Fund II, L.P.
c/o Brentwood Associates Private Equity
11150 Santa Monica Boulevard, Suite 1200
Los Angeles, California 90025
ATTN: William M. Barnum
with a copy to:
--------------
Ropes & Gray
One International Place
Boston, Massachusetts 02110
ATTN: Larry Jordan Rowe, Esq.
and if to CBCI, at:
-13-
<PAGE>
CB Capital Investors, L.P.
380 Madison Ave.
12th Floor
New York, New York 10017
Attn: Arnold L. Chavkin
and if to George, at
Mary J. George
33822 Bridgehampton
Dana Point, California 92677
with a copy to:
--------------
Winston & Strawn
35 West Wacker Drive
Suite 4700
Chicago, Illinois 60601
ATTN: Robert F. Wall, Esq.
or in any case to such other address as the addressee shall have furnished to
the other parties hereto in the manner prescribed by this Section 13.
14. Specific Performance. The rights of the parties under this Agreement are
--------------------
unique and, accordingly, the parties shall, in addition to such other remedies
as may be available to any of them at law or in equity, have the right to
enforce their rights hereunder by actions for specific performance to the extent
permitted by law.
15. Legend. The certificates representing the Shares shall bear on their face
------
a legend indicating the existence of this Agreement and of the restrictions
imposed hereby.
16. Entire Agreement. This Agreement constitutes the entire agreement among
----------------
the parties with respect to the subject matter hereof and supersedes and cancels
all prior agreements and understandings between them or any of them as to such
subject matter.
17. Waiver and Further Agreements. Neither this Agreement nor any provision
-----------------------------
hereof may be waived, modified, terminated or amended except by a written
agreement signed by the parties hereto. Any waiver by any party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach of that provision or of any other provision hereof. Each
of the parties hereto agrees to execute all such further instruments and
documents and to take all such further action as any party may reasonably
require in order to effectuate the terms and purposes of this Agreement.
-14-
<PAGE>
18. Assignment; Successors and Assigns. This Agreement shall be binding upon
----------------------------------
and shall inure to the benefit of the parties and their respective heirs,
executors, legal representatives, successors and permitted transferees, except
as may be expressly provided otherwise herein.
19. Severability. In case any one or more of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement and such invalid, illegal and
unenforceable provision shall be reformed and construed so that it will be
valid, legal and enforceable to the maximum extent permitted by law.
20. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instruments.
21. Section Headings. The headings contained in this Agreement are for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
22. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware.
23. Additional Shareholders. The Company covenants and agrees that it shall
-----------------------
not sell, issue or grant to any employee of or consultant to the Company any
shares of capital stock of the Company, or other securities convertible into or
exchangeable for capital stock of the Company, or options, warrants or rights to
purchase capital stock or convertible or exchangeable securities of the Company,
until such employee or consultant agrees with the Company to become a party to
this Agreement as a Shareholder hereunder and executes a counterpart hereof.
[The remainder of this page has been intentionally left blank.]
-15-
<PAGE>
[Shareholders Agreement]
IN WITNESS WHEREOF, the parties have caused this Shareholders Agreement to
be duly executed as of the date first above written.
BELL SPORTS CORP.
By____________________________
Name:
Title:
CHARLESBANK BELL SPORTS HOLDINGS, LIMITED
PARTNERSHIP
By: CHARLESBANK EQUITY FUND IV,
LIMITED PARTNERSHIP,
a general partner
By: CHARLESBANK EQUITY FUND IV GP,
LIMITED PARTNERSHIP,
By____________________________
Authorized Signatory
By____________________________
Authorized Signatory
BRENTWOOD ASSOCIATES
BUYOUT FUND II, L.P.
By: BRENTWOOD PRIVATE EQUITY LLC,
a general partner
By____________________________
Managing Member
<PAGE>
[Shareholders Agreement]
CB CAPITAL INVESTORS, L.P.
By: _____________________________,
a general partner
By____________________________
Title:
MANAGEMENT SHAREHOLDERS
-----------------------
______________________________
Mary J. George
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of August 17, 1998
by and among
Bell Sports, Inc.
Bell Sports Corp.
and
Donaldson, Lufkin & Jenrette Securities Corporation
SG Cowen Securities Corporation
and
NationsBanc Montgomery Securities LLC
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
---------
entered into as of August 17, 1998, by and among Bell Sports, Inc., a California
corporation (the "COMPANY"), Bell Sports Corp., a Delaware corporation
-------
("Holdings," and together with the other guarantors of the Notes, the
"GUARANTORS"), and Donaldson, Lufkin & Jenrette Securities Corporation, SG Cowen
- -----------
Securities Corporation and NationsBanc Montgomery Securities LLC (each an
"INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each of whom
- ------------------ ------------------
has agreed to purchase the Company's 11% Series A Senior Subordinated Notes due
2008 (the "SERIES A NOTES") pursuant to the Purchase Agreement (as defined
--------------
below).
This Agreement is made pursuant to the Purchase Agreement, dated
August 10, 1998 (the "PURCHASE AGREEMENT"), by and among the Company, Holdings
------------------
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Series A Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the obligations of the Initial Purchasers set forth
in Section 3 of the Purchase Agreement. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them the Indenture, dated
August 17, 1998, between the Company and Harris Trust and Savings Bank, as
Trustee, relating to the Series A Notes and the Series B Notes (the
"INDENTURE").
---------
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
ACT: The Securities Act of 1933, as amended.
---
AFFILIATE: As defined in Rule 144 of the Act.
---------
BROKER-DEALER: Any broker or dealer registered under the Exchange
-------------
Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
-----------------------
Indenture.
CLOSING DATE: The date hereof.
------------
COMMISSION: The Securities and Exchange Commission.
----------
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes tendered by
Holders thereof pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
---------------------
1
<PAGE>
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof.
----------------------
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
------------
EXCHANGE OFFER: The exchange and issuance by the Company of a
--------------
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
--------------
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act, and pursuant to Regulation S
under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
---------------
HOLDERS: As defined in Section 2 hereof.
-------
PROSPECTUS: The prospectus included in a Registration Statement at
----------
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(e) hereof.
-------------------
REGISTRATION DEFAULT: As defined in Section 5 hereof.
--------------------
REGISTRATION STATEMENT: Any registration statement of the Company and
----------------------
the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
REGULATION S: Regulation S promulgated under the Act.
------------
RULE 144: Rule 144 promulgated under the Act.
--------
SERIES B NOTES: The Company's 11% Series B Senior Subordinated Notes
--------------
due 2008 to be issued pursuant to the Indenture: (i) in the Exchange Offer or
(ii) as contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
----------------------------
SUSPENSION NOTICE: As defined in Section 6(e) hereof.
-----------------
2
<PAGE>
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
---
77bbbb) as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Note, until the
------------------------------
earliest to occur of (a) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes), or (c) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act (and purchasers thereof have been issued Series B Notes) and each Series B
Note until the date on which such Series B Note is disposed of by a Broker-
Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including the delivery of the Prospectus contained
therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
------
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 90 days after the
Closing Date (such 90th day being the "FILING DEADLINE"), (ii) use its best
---------------
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 135 days after the
Closing Date (such 135th day being the "EFFECTIVENESS DEADLINE"), (iii) in
----------------------
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) commence the Exchange Offer upon the effectiveness of such Exchange Offer
Registration Statement, and Consummate the Exchange Offer. The Exchange Offer
Registration Statement shall be on the appropriate form permitting (i)
registration of the Series B Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes
by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their respective best
3
<PAGE>
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 business days thereafter (such 30/th/
day being the "CONSUMMATION DEADLINE").
---------------------
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted Securities
that were acquired for the account of such Broker-Dealer as a result of market-
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any Affiliate of the Company), may
exchange such Transfer Restricted Securities pursuant to the Exchange Offer.
Such "Plan of Distribution" section shall also contain all other information
with respect to such sales by such Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Transfer Restricted Securities held by any such Broker-Dealer, except to the
extent required by the Commission as a result of a change in policy, rules or
regulations after the date of this Agreement. See the Shearman & Sterling no-
action letter (available July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company and
Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use
their respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Section 6(a) and (d) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
one year from the Consummation Deadline or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold pursuant thereto. The Company and the Guarantors shall provide
sufficient copies of the latest version of such Prospectus to such Broker-
Dealers, promptly upon request, and in no event later than one day after such
request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted
------------------
by applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation Deadline that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Series B Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or any of its Affiliates, then the
Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of
(i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i)
4
<PAGE>
above and (ii) the date on which the Company receives the notice specified in
clause (a)(ii) above, (such earlier date, the "FILING DEADLINE"), a shelf
---------------
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (the "SHELF REGISTRATION
-------------------
STATEMENT")), relating to all Transfer Restricted Securities, and
- ---------
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 60 days after the
Filing Deadline for the Shelf Registration Statement (such 60th day the
"EFFECTIVENESS DEADLINE").
----------------------
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Sections 6(b) and (d) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(d)(i)) following the Closing
Date, or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto.
(b) Provision by Holders of Certain Information in Connection with
--------------------------------------------------------------
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
- --------------------------------
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded (subject to Section 6(d)
hereof) immediately by a post-effective amendment to such Registration Statement
that cures such failure and that is itself declared effective
5
<PAGE>
immediately thereafter (each such event referred to in clauses (i) through (iv),
a "REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly
--------------------
and severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues for the
first 90-day period immediately following the occurrence of such Registration
Default. The amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.50 per week
per $1,000 in principal amount of Transfer Restricted Securities; provided that
the Company and the Guarantors shall in no event be required to pay liquidated
damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-
effective amendment to the Registration Statement or an additional Registration
Statement that causes the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement) to again be declared effective or
made usable in the case of (iv) above, the liquidated damages payable with
respect to the Transfer Restricted Securities as a result of such clause (i),
(ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated
damages are due cease to be Transfer Restricted Securities, all obligations of
the Company and the Guarantors to pay liquidated damages with respect to
securities shall survive until such time as such obligations with respect to
such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(d) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by applicable
federal law, the Company and the Guarantors hereby agree to seek a no-action
letter or other favorable decision from the Commission allowing the Company and
the Guarantors to Consummate an Exchange Offer for such Transfer Restricted
Securities. The Company and the Guarantors hereby agree to pursue the issuance
of such a decision to the Commission staff level. In connection with the
foregoing, the Company and the Guarantors hereby agree to take all such other
actions as may be requested by the Commission or otherwise required in
connection with the issuance of such decision, including without limitation (A)
participating in telephonic
6
<PAGE>
conferences with the Commission, (B) delivering to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases, if
any, upon which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be favorable)
by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker-Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company and the Guarantors (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Series B
Notes to be issued in the Exchange Offer and (C) it is acquiring the Series B
Notes in its ordinary course of business. As a condition to its participation
in the Exchange Offer each Holder using the Exchange Offer to participate in a
distribution of the Series B Notes shall acknowledge and agree that, if the
resales are of Series B Notes obtained by such Holder in exchange for Series A
Notes acquired directly from the Company or an Affiliate thereof, it (1) could
not, under Commission policy as in effect on the date of this Agreement, rely on
the position of the Commission enunciated in Morgan Stanley and Co., Inc.
----------------------------
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
----------------------------------
13, 1988), as interpreted in the Commission's letter to Shearman & Sterling
-------------------
dated July 2, 1993, and similar no-action letters (including, if applicable, any
no-action letter obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental letter to
the Commission (A) stating that the Company and the Guarantors are registering
the Exchange Offer in reliance on the position of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and
- ---------------------------------- ------------------
Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to
- ---------
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action letter
- -------------------
obtained pursuant to clause (i) above, (B) including a representation that none
of the Company or any of the Guarantors has entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be received in
the Exchange Offer and that, to the best of the Company's and each of the
Guarantor's information and belief, each Holder participating in the Exchange
Offer is acquiring the Series B Notes in its ordinary course of business and has
no arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer and (C) any
other undertaking or representation required by the Commission as set forth in
any no-action letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company and the Guarantors shall (i) comply with all
the provisions of Section 6(d) below and use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors will prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods
7
<PAGE>
and otherwise in accordance with the provisions hereof.
(ii) issue, upon the request of any Holder or purchaser of
Series A Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to the
aggregate principal amount of Series A Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Company for cancellation; the
Company shall register Series B Notes on the Shelf Registration Statement for
this purpose and issue the Series B Notes to the purchaser(s) of securities
subject to the Shelf Registration Statement in the names as such purchaser(s)
shall designate.
(c) Adjustments. The Company and the Guarantors covenant and agree
-----------
that they will include in the first Registration Statement filed with the
Commission the same adjustments made to EBITDA (as defined in the Offering
Memorandum) to compute Adjusted EBITDA (as defined in the Offering Memorandum)
that are contained in the Offering Memorandum under the captions "Summary
Historical and Pro Forma Consolidated Financial Data" and "Business--Cost
Reduction Initiatives," and that the Company shall use its reasonable efforts
to, and shall use its reasonable efforts to cause its independent public
accountants to use their reasonable efforts to, defend the inclusion of such
adjustments in such Registration Statement with the Commission. In the event
that Commission policy prevents the presentation of such adjustments in tabular
form, the Company shall use its reasonable efforts to, and shall cause its
independent public accountants to use their reasonable efforts to, present and
defend such adjustments in a textual format. In no event shall the final refusal
of the Commission, after compliance by the Company and the Guarantors with this
Section 6(c), to allow the Company and the Guarantors to include in the final
effective Registration Statement the same adjustments made to EBITDA to compute
Adjusted EBITDA that are contained in the above-referenced sections of the
Offering Memorandum be deemed a breach of this Agreement.
(d) General Provisions. In connection with any Registration
------------------
Statement and any related Prospectus required by this Agreement, the Company and
the Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial statements
for the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain an untrue statement
of material fact or omit to state any material fact necessary to make the
statements therein not misleading or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company and the Guarantors shall file promptly an appropriate
amendment to such Registration Statement curing such defect, and, if Commission
review is required, use their respective best efforts to cause such amendment to
be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully
with Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
8
<PAGE>
(iii) advise each Holder promptly and, if requested by such
Holder, confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in the
Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Company and the Guarantors shall use their respective best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time;
(iv) subject to Section 6(d)(i), if any fact or event
contemplated by Section 6(d)(iii)(D) above shall exist or have occurred, prepare
a supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading;
(v) furnish to each Holder in connection with such exchange or
sale, if any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or supplements to
any such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and comment of such
Holders in connection with such sale, if any, for a period of at least five
Business Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to which
such Holders shall reasonably object within five Business Days after the receipt
thereof. A Holder shall be deemed to have reasonably objected to such filing if
such Registration Statement, amendment, Prospectus or supplement, as applicable,
as proposed to be filed, contains an untrue statement of a material fact or
omits to state any material fact necessary to make the statements therein not
misleading or fails to comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, provide
copies of such document to each Holder who so request in connection with such
exchange or sale, if any, make the Company's and each of the Guarantor's
representatives available for discussion of such document and other customary
due diligence matters, and include such information in such document prior to
the filing thereof as such Holders may reasonably request;
9
<PAGE>
(vii) make available, at reasonable times, for inspection by
each Holder and any attorney or accountant retained by such Holders, all
financial and other records, pertinent corporate documents of the Company and
the Guarantors and cause the Company's and each of the Guarantor's officers,
directors and employees to supply all information reasonably requested by any
such Holder, attorney or accountant in connection with such Registration
Statement or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
(viii) if requested by any Holders in connection with such
exchange or sale, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Holders may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be included in such
Prospectus supplement or post-effective amendment;
(ix) furnish to each Holder in connection with such exchange
or sale, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(x) deliver to each Holder without charge, as many copies of
the Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Holders reasonably may request; the Company and the
Guarantors hereby consent to the use (in accordance with law) of the Prospectus
and any amendment or supplement thereto by each selling Holder in connection
with the offering and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto;
(xi) upon the request of any Holder, enter into such
agreements (including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of the Transfer Restricted Securities
pursuant to any applicable Registration Statement contemplated by this Agreement
as may be reasonably requested by any Holder in connection with any sale or
resale pursuant to any applicable Registration Statement. In such connection,
the Company and the Guarantors shall:
(A) upon request of any Holder, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be furnished) to
each Holder, upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the case may be:
(1) a certificate, dated such date, signed on behalf of
the Company and each Guarantor by (x) the President or any Vice President
and (y) a principal financial or accounting officer of the Company and such
Guarantor, confirming, as of the date thereof, the matters set forth in
Sections 6(aa), 9(a) and 9(b) of the Purchase Agreement and such other
similar matters as such Holder may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company and the
Guarantors covering matters similar to those set
10
<PAGE>
forth in paragraph (h) of Section 9 of the Purchase Agreement and such
other matters as such Holder may reasonably request, and in any event
including a statement to the effect that such counsel has participated in
conferences with officers and other representatives of the Company and the
Guarantors, representatives of the independent public accountants for the
Company and the Guarantors and has considered the matters required to be
stated therein and the statements contained therein, although such counsel
has not independently verified the accuracy, completeness or fairness of
such statements; and that such counsel advises that, on the basis of the
foregoing (relying as to materiality to the extent such counsel deems
appropriate upon the statements of officers and other representatives of
the Company and the Guarantors) and without independent check or
verification), no facts came to such counsel's attention that caused such
counsel to believe that the applicable Registration Statement, at the time
such Registration Statement or any post-effective amendment thereto became
effective and, in the case of the Exchange Offer Registration Statement, as
of the date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such Registration Statement
as of its date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of Consummation,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently verified,
the accuracy, completeness or fairness of the financial statements, notes
and schedules and other financial data included in any Registration
Statement contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of effectiveness of
the Shelf Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters of the
type customarily covered in comfort letters to underwriters in connection
with underwritten offerings, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 9(k) of the Purchase
Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance with the
matters covered in clause (A) above and with any customary conditions
contained in the any agreement entered into by the Company and the
Guarantors pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in connection
with the registration and qualification of the Transfer Restricted Securities
under the securities or Blue Sky laws of such jurisdictions as the selling
Holders may request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable Registration Statement;
provided, however, that neither the Company nor the Guarantors shall be required
to register or qualify as a foreign corporation where it is not now so qualified
or to take any action that would subject it to the service of process in suits
or to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
11
<PAGE>
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and to register
such Transfer Restricted Securities in such denominations and such names as the
selling Holders may request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject to
the proviso contained in clause (xii) above;
(xv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under the
Indenture with printed certificates for the Transfer Restricted Securities which
are in a form eligible for deposit with the Depository Trust Company;
(xvi) otherwise use their respective best efforts to comply
with all applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable Registration
Statement, as soon as practicable, a consolidated earnings statement meeting the
requirements of Rule 158 (which need not be audited) covering a twelve-month
period beginning after the effective date of the Registration Statement (as such
term is defined in paragraph (c) of Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner; and
(xviii) provide promptly to each Holder, upon request, each
document filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(e) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(d)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(d)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
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Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(d)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
--------------
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
- ----
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the
12
<PAGE>
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by a number of days equal to the number of days
in the period from and including the date of delivery of the Suspension Notice
to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and each of the
Guarantor's performance of or compliance with this Agreement will be borne by
the Company, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses;
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses whether for exchanges, sales or otherwise), messenger
and delivery services and telephone; (iv) all fees and disbursements of counsel
for the Company, the Guarantors and subject to Section (b) below the Holders of
Transfer Restricted Securities; and (v) all fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and each of the Guarantor's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities who are tendering Series A Notes into in the Exchange Offer and/or
selling or reselling Series A Notes or Series B Notes pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to any Holder or any prospective purchaser of
Series B Notes or registered Series A Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are (i) caused by an
untrue statement or omission or alleged untrue statement or omission that is
based upon information relating to any of the Holders
13
<PAGE>
furnished in writing to the Company by any of the Holders or (ii) arise out of
such Holder's noncompliance with Section 6(e) hereof if the supplemented or
amended Prospectus contemplated by Sections 6(e)(i) and 6(d)(iv) hereof or the
Prospectus and additional or supplemental filings contemplated by Section
6(e)(ii) hereof cured such untrue statement or alleged untrue statement of a
material fact contained in the Prospectus delivered in violation of Section 6(e)
hereof or such omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantors,
and their respective directors and officers, and each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, or the Guarantors to the same extent as the foregoing
indemnity from the Company and the Guarantors set forth in section (a) above,
but only with reference to (x) information relating to such Holder furnished in
writing to the Company by such Holder expressly for use in any Registration
Statement. In no event shall any Holder, its directors, officers or any Person
who controls such Holder be liable or responsible for any amount in excess of
the amount by which the total amount received by such Holder with respect to its
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages that such Holder, its directors,
officers or any Person who controls such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
- ------------------
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
-------------------
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of
the Holders, in the case of the parties indemnified pursuant to Section 8(a),
and by the Company and Guarantors, in the case of parties indemnified pursuant
to Section 8(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business
14
<PAGE>
days after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in any
case where such fees and expenses are at the expense of the indemnifying party)
and, prior to the date of such settlement, the indemnifying party shall have
failed to comply with such reimbursement request. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party, other than on account of
Sections 8(a)(i) or (ii), in respect of any losses, claims, damages, liabilities
or judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or judgments (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Guarantors, on the one hand,
and the Holders, on the other hand, from their sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company and the Guarantors, on the one hand, and of the Holder, on
the other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Guarantors, on the one hand, and of the Holder, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Guarantors, on the one hand, or by the Holder, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and judgments
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company, the Guarantors and each Holder agree that it would not
be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any matter,
including any action that could have given rise to such losses, claims, damages,
liabilities or judgments. Notwithstanding the provisions of this Section 8, no
Holder, its directors, its officers or any Person, if any, who controls such
Holder shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total received by such Holder with respect to the
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution
15
<PAGE>
from any person who was not guilty of such fraudulent misrepresentation. The
Holders' obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
SECTION 9. RULE 144A AND RULE 144
The Company and the Guarantors agrees with each Holder, for so long
as any Transfer Restricted Securities remain outstanding and during any period
in which the Company or such Guarantors (i) is not subject to Section 13 or
15(d) of the Exchange Act, to make available, upon request of any Holder, to
such Holder or beneficial owner of Transfer Restricted Securities in connection
with any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree
--------
that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and each of the Guarantor's obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. None of the Company or any of the
--------------------------
Guarantors will, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor the Guarantors has previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's and each of the Guarantor's securities under any
agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may
----------------------
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case of
Section 5 hereof and this Section 10(c)(i), the Company has obtained the written
consent of Holders of all outstanding Transfer Restricted Securities and (ii) in
the case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of
16
<PAGE>
a majority of the outstanding principal amount of Transfer Restricted Securities
subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or any of the Guarantors:
Bell Sports, Inc./Bell Sports Corp.
6350 San Ignacio Avenue
San Jose, California 95119
Telecopier No.: (408) 574-3436
Attention: Chief Financial Officer
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; provided, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Transfer Restricted Securities in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
17
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(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
BELL SPORTS, INC.
______________________________________
By:
Name:
Title:
BELL SPORTS CORP.
______________________________________
By:
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
_______________________________________
By:
Name:
Title:
SG COWEN SECURITIES CORPORATION
_______________________________________
By:
Name:
Title:
NATIONSBANC MONTGOMERY SECURITIES LLC
_______________________________________
By:
Name:
Title:
19
<PAGE>
Exhibit 4.4
[FORM OF NOTE]
BELL SPORTS, INC.
11% SERIES B SENIOR SUBORDINATED NOTE
DUE 2008
CUSIP: __________
No. $_________________
Bell Sports, Inc., a California corporation (hereinafter called the
"Company" which term includes any successors under this Indenture hereinafter
referred to), for value received, hereby promises to pay to __________, or
registered assigns, the principal sum of __________ Dollars, on August 15, 2008.
Interest Payment Dates: February 15 and August 15; commencing February 15,
1999.
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note on the reverse
side, which will, for all purposes, have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
Dated: ____________, 1998
BELL SPORTS, INC.
a California corporation
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Notes described in the within-mentioned Indenture.
Harris Trust and Savings Bank
as Trustee
By:_____________________________
Authorized Signatory
Dated:______________, 1998
2
<PAGE>
(Back of Note)
11% Series B Senior Subordinated Notes due 2008
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHER WISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFER ABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO SECTION 2.6 OF THE INDENTURE, (II) THIS GLOBAL
NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(a)
OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE
FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS
GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY.]/1/
____________________
/1/ This paragraph should be included only for the Global Securities.
3
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them in
this Indenture referred to below unless otherwise indicated.
1. Interest. Bell Sports, Inc., a California corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 11% per annum
and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of
the Registration Rights Agreement referred to below. The Company will pay
interest and Liquidated Damages semi-annually on February 15 and August 15 of
each year, or if any such day is not a Business Day, on the preceding Business
Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance; provided that if there is no existing
Default in the payment of interest, and if this Note is authenticated between a
Record Date (defined below) referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be February 15, 1999. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a
4
<PAGE>
rate that is 1% per annum in excess of the rate then in effect; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, to the Persons who are
registered Holders of Notes at the close of business on the February 1 or August
1 next preceding the Interest Payment Date (each, a "Record Date"), even if such
Notes are cancelled after such Record Date and on or before such Interest
Payment Date, except as provided in Section 2.12 of this Indenture with respect
to defaulted interest. The Notes will be payable as to principal, premium,
interest and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose within the City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders at their addresses set forth in the
register of Holders, and provided that payment by wire transfer of immediately
available funds will be required with respect to principal of, interest, premium
and Liquidated Damages, if any, on all Global Notes and all other Notes the
Holders of which shall have provided wire transfer instructions to the Company
or the Paying Agent. Such payment shall be in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts.
3. Paying Agent and Registrar. Initially, Harris Trust and Savings Bank,
the Trustee under this Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as of
August 17, 1998 ("Indenture") between the Company, Holdings and the Trustee.
The terms of the Notes include those stated in this Indenture and those made
part of this Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to this Indenture and such Act for a statement
of such terms. The Notes are unsecured obligations of the Company limited to
$150,000,000 (of which $110,000,000 will be issued as of August 17, 1998) in
aggregate principal amount.
5
<PAGE>
5. Optional Redemption.
(a) Except as set forth in clause (b) of this Section of this Note,
the Company shall not have the option to redeem the Notes prior to August 15,
2003. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, from time to time, upon not less than 30 nor more than 60 days
notice to the Holders, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the applicable redemption date, if
redeemed during the twelve-month period beginning on August 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.....................................105.500%
2004.....................................103.667%
2005.....................................101.833%
2006 and thereafter......................100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section of
the Notes, at any time prior to August 15, 2001, the Company may (but shall not
have the obligation to) redeem up to 35% of the aggregate principal amount of
the Notes issued under the Indenture at a redemption price of 111.00% of the
principal amount thereof, in each case plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the Net Cash
Proceeds received by the Company from one or more of Equity Offerings; provided
that at least 65% of the aggregate principal amount of Notes issued under the
Indenture remain outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of such Equity Offering.
(c) Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder whose Notes are to be
redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part but only in integral multiples of $1,000, unless all of
the Notes held by a Holder are to be redeemed. On and after the redemption date
interest ceases to accrue on Notes or portions thereof called for redemption
unless the Company defaults in such payments due on the redemption date.
6. Mandatory Redemption.
6
<PAGE>
The Company shall not be required to make mandatory redemption or sinking
fund payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase on a
date (the "Change of Control Payment") no later than 60 Business Days after the
occurrence of the Change of Control. Within 35 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes pursuant to the procedures required by this Indenture and
described in such notice, which offer shall remain open for at least 20 Business
Days following its commencement, but in any event no longer than 30 Business
Days. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any such securities laws or regulations conflict with the
provisions of this paragraph, compliance by the Company or any of the Guarantors
with such laws and regulations shall not in and of itself cause a breach of its
obligations under such covenant.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions of this covenant, but in any event
7
<PAGE>
within 30 days following a Change of Control, the Company will either repay all
outstanding Designated Senior Indebtedness or obtain the requisite consents, if
any, under all agreements governing outstanding Designated Senior Indebtedness
to permit the repurchase of Notes required by this covenant. The Company will
not be required to purchase any Notes until it has complied with the preceding
sentence, but the Company's failure to make a Change of Control Offer when
required or to purchase tendered Notes when tendered would constitute an Event
of Default. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(b) The Company will not, and will not permit any of its Subsidiaries to,
engage in an Asset Sale in excess of $1,000,000 unless (i) the Company (or such
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets or Equity Interest
sold or otherwise disposed of and, in the case of a lease of assets, a lease
providing for rent and other conditions which are no less favorable to the
Company (or the Subsidiary, as the case may be) in any material respect than the
then prevailing market conditions (evidenced in each case by a resolution of the
Board of Directors of such entity set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests sold or otherwise
disposed of, and (ii) at least 75% (100% in the case of lease payments) of the
consideration therefor received by the Company or such Subsidiary is in the form
of cash or Cash Equivalents; provided that the amount of (x) any Senior
Indebtedness of the Company or any Indebtedness of any Subsidiary (as shown on
the Company's or such Subsidiary's most recent balance sheet or in the notes
thereto, but excluding contingent liabilities and trade payables) that is
assumed by the transferee of any such assets and from which the Company or such
Subsidiary are unconditionally released from liability and (y) any notes,
securities or other obligations received by the Company or any such Subsidiaries
from such transferee that are promptly, but in no event more than 30 days after
receipt, converted by the Company or such Subsidiary into cash (to the extent of
the cash received) shall be deemed to be cash for purposes of this provision and
the receipt of such cash shall be treated as cash received from the Asset Sale
for which such Notes or obligations were received.
The Company or any of its Subsidiaries may apply the Net Proceeds from each
Asset Sale, at its option within 360 days, (a) to permanently reduce any Senior
Indebtedness and any Indebtedness of a Subsidiary (and in the case of any senior
revolving indebtedness of the Company or its Subsidiaries correspondingly
permanently to reduce commitments with respect thereto), (b) to make capital
expenditures,
8
<PAGE>
for the acquisition of another business or the acquisition of other long-term
assets, in each case, in the same or a Related Business, or (c) to reimburse the
Company or its Subsidiaries for expenditures made, and costs incurred, to
repair, rebuild, replace or restore property subject to loss, damage or taking
to the extent that the Net Proceeds consist of insurance proceeds received on
account of such loss, damage or taking. Pending the final application of any
such Net Proceeds, the Company may invest such Net Proceeds in any manner that
is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5,000,000, the Company will be required to make an
unconditional and irrevocable offer to all Holders of Notes (an "Asset Sale
Offer") and to holders of other Indebtedness of the Company outstanding ranking
on a parity with the Notes with similar provisions requiring the Company to make
a similar offer with proceeds from asset sales, pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other Indebtedness
then outstanding, to purchase the maximum principal amount (or accreted value,
as applicable) of Notes and such other Indebtedness, if any, that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount (or accreted value, as applicable)
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase, in accordance with the procedures set forth in
this Indenture. If the aggregate principal amount (or accreted value, as
applicable) of Notes and such Indebtedness surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis in increments of $1,000 with such Indebtedness.
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
8. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in this Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by this Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or
9
<PAGE>
during the period between a Record Date and the corresponding Interest Payment
Date.
9. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions, this
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of a majority in aggregate principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of this
Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes. Without
the consent of any Holder of a Note, this Indenture or the Notes may be amended
or supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes (including the
addition of any Guarantor) or that does not adversely affect the legal rights
under this Indenture of any such Holder, or to comply with the requirements of
the SEC in order to effect or maintain the qualification of this Indenture under
the Trust Indenture Act.
11. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages, if any, on the
Notes; (ii) default in payment when due of principal of or premium, if any, on
the Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company to comply with Section 4.7 and 4.8 of this Indenture; (iv)
failure by the Company for 60 days after notice to the Company by the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with certain other agreements in this Indenture or the
Notes; (v) default under certain other agreements relating to Indebtedness of
the Company which default results in the acceleration of such Indebtedness prior
to its express maturity; (vi) certain nonappealable final judgments for the
payment of money that remain undischarged for a period of 60 days; (vii) a
declaration that the Guaranty is unenforceable; or (viii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately by
10
<PAGE>
notice in writing to the Company (and to the Trustee if given by the Holders).
Notwithstand ing the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will become
due and payable without further action or notice. Holders may not enforce this
Indenture or the Notes except as provided in this Indenture. Subject to certain
limitations, Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withhold ing notice
is in their interest. The Holders of a majority in aggregate principal amount
of the Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Notes waive any existing Default or Event of Default and
its conse quences under this Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes. The
Company is required to deliver to the Trustee annually a statement regarding
compliance with this Indenture, and the Company is required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
12. Subordination. The Indebtedness evidenced by the Notes and the
payment of principal of, premium, if any, and interest on and Liquidated
Damages, if any, in respect of the Notes will be subordinated in right of
payment to the prior payment in full of Senior Indebtedness as set forth in
Article 10 of the Indenture.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obliga tions of the Company under the Notes or this Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
11
<PAGE>
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Notes. In
addition to the rights provided to Holders of Notes under this Indenture,
Holders of Transferred Restricted Notes shall have all the rights set forth in
the Registration Rights Agreement dated as of the date of this Indenture,
between the Company and the parties named on the signature pages thereof (the
"Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. Notation of Guarantee. As more fully set forth in the Indenture, each
of Holdings and the Persons constituting Guarantors from time to time, in
accordance with the provisions of the Indenture, unconditionally and jointly and
severally guarantee, in accordance with Section 11.1 of the Indenture, to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, that: (a) the principal of, and premium, if
any, Liquidated Damages, if any, and interest on the Notes will be duly and
punctually paid in full when due, whether at maturity, by acceleration or
otherwise, and interest on overdue principal of, and premium, if any, Liquidated
Damages, if any and (to the extent permitted by law) interest on any interest,
if any, on the Notes and all other obligations of the Company to the Holders or
the Trustee hereunder or under the Notes (including fees, expenses or other)
will be promptly paid in full or performed, all in accordance with the terms
hereof; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration, call for redemption, upon a Change
of Control Offer, upon an Asset Sale Offer or otherwise. Such guarantees are
subordinated in right of payment to the prior payment in full of all Obligations
in respect of Guarantor Senior Indebtedness as set forth in Article 10 of the
Indenture and shall
12
<PAGE>
cease to apply, and shall be null and void, with respect to any Guarantor who,
pursuant to Article 11 of the Indenture, is released from its Guaranty or whose
Guaranty otherwise ceases to be applicable pursuant to the terms of the
Indenture.
When a successor assumes all the obligations of its predecessor under the
Notes and the Indenture, the predecessor will be released from those
obligations.
20. Governing Law. THE INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
The Company will furnish to any Holder upon written request and without
charge a copy of this Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Bell Sports, Inc.
6350 San Ignacio Avenue
San Jose, California 95119
Telecopier No.: (408) 574-3436
Attention: Chief Financial Officer
13
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee:
________________________________________________________________________________
14
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.7 or 4.8 of this Indenture, check the box below:
[_] Section 4.7 Section 4.8
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.7 or Section 4.8 of this Indenture, state the amount you
elect to have purchased: $___________
Date: Your Signature:
(Sign exactly as your name appears on the Note)
Tax Identification No.:____________________
Signature Guarantee:
________________________________________________________________________________
15
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE/4/
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
Date of Exchange Amount of decrease in
----------------
Principal Amount of
this Global Note Amount of increase in
----------------
Principal Amount of
this Global NotePrincipal Amount of this Global Note
----------------
following such decrease (or increase) Signature of
-------------
authorized officer of
Trustee or Note
Custodian
---------
____________________
/4/ This should be included only if the Note is issued in global form.
16
<PAGE>
Exhibit 4.5
[FORM OF NOTE]
BELL SPORTS, INC.
11% SERIES A SENIOR SUBORDINATED NOTE
DUE 2008
CUSIP: __________
No. $_________________
Bell Sports, Inc., a California corporation (hereinafter called the
"Company" which term includes any successors under this Indenture hereinafter
referred to), for value received, hereby promises to pay to __________, or
registered assigns, the principal sum of __________ Dollars, on August 15, 2008.
Interest Payment Dates: February 15 and August 15; commencing February 15,
1999.
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note on the reverse
side, which will, for all purposes, have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
Dated: ____________, 1998
BELL SPORTS, INC.
a California corporation
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Notes described in the within-mentioned Indenture.
Harris Trust and Savings Bank
as Trustee
By:_____________________________
Authorized Signatory
Dated:______________, 1998
2
<PAGE>
(Back of Note)
11% Series A Senior Subordinated Notes due 2008
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO SECTION 2.6 OF THE INDENTURE, (II) THIS GLOBAL
NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(a)
OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE
FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS
GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY.]/1/
____________________
/1/ This paragraph should be included only for the Global Securities.
3
<PAGE>
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL IN iNTEREST HEREIN, THE HOLDER: (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D
UNDER THE SECURITIES ACT) (AN "IAI") OR (C) IT HAS ACQUIRED THIS NOTE IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (C) IN AN OFFSHORE
4
<PAGE>
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN
BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, IF THE COMPANY SO REQUESTS, THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, IF THE
COMPANY SO REQUESTS) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER
THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING./2/
Capitalized terms used herein shall have the meanings assigned to them in
this Indenture referred to below unless otherwise indicated.
____________________
/2/ This paragraph should be included only for the Transfer Restricted
Securities.
5
<PAGE>
1. Interest. Bell Sports, Inc., a California corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 11% per annum
and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of
the Registration Rights Agreement referred to below. The Company will pay
interest and Liquidated Damages semi-annually on February 15 and August 15 of
each year, or if any such day is not a Business Day, on the preceding Business
Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance; provided that if there is no existing
Default in the payment of interest, and if this Note is authenticated between a
Record Date (defined below) referred to on the face hereof and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date; provided, further, that the first Interest
Payment Date shall be February 15, 1999. The Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1% per annum in excess of the rate then in effect; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, to the Persons who are
registered Holders of Notes at the close of business on the February 1 or August
1 next preceding the Interest Payment Date (each, a "Record Date"), even if
such Notes are cancelled after such Record Date and on or before such Interest
Payment Date, except as provided in Section 2.12 of this Indenture with respect
to defaulted interest. The Notes will be payable as to principal, premium,
interest and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose within the City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders at their addresses set forth in the
register of Holders, and provided that payment by wire transfer of immediately
available funds will be required with respect to principal of, interest, premium
and Liquidated Damages, if any, on all Global Notes and all other Notes the
Holders of which shall have provided wire transfer instructions to the Company
or the Paying Agent. Such payment shall be in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts.
6
<PAGE>
3. Paying Agent and Registrar. Initially, Harris Trust and Savings Bank,
the Trustee under this Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as of
August 17, 1998 ("Indenture") between the Company, Holdings and the Trustee.
The terms of the Notes include those stated in this Indenture and those made
part of this Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to this Indenture and such Act for a statement
of such terms. The Notes are unsecured obligations of the Company limited to
$150,000,000 (of which $110,000,000 will be issued as of August 17, 1998) in
aggregate principal amount.
5. Optional Redemption.
(a) Except as set forth in clause (b) of this Section of this Note,
the Company shall not have the option to redeem the Notes prior to August 15,
2003. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, from time to time, upon not less than 30 nor more than 60 days
notice to the Holders, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the applicable redemption date, if
redeemed during the twelve-month period beginning on August 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.................................... 105.500%
2004.................................... 103.667%
2005.................................... 101.833%
2006 and thereafter..................... 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section of
the Notes, at any time prior to August 15, 2001, the Company may (but shall not
have the obligation to) redeem up to 35% of the aggregate principal amount of
the Notes issued under the Indenture at a redemption price of 111.00% of the
principal amount thereof, in each case plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the Net Cash
Proceeds received by the Company from one or more of Equity Offerings; provided
that at least 65% of the aggregate principal amount of Notes issued under the
Indenture remain outstanding immediately
7
<PAGE>
after the occurrence of such redemption; and provided, further, that such
redemption shall occur within 60 days of the date of the closing of such Equity
Offering.
(c) Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder whose Notes are to be
redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part but only in integral multiples of $1,000, unless all of
the Notes held by a Holder are to be redeemed. On and after the redemption date
interest ceases to accrue on Notes or portions thereof called for redemption
unless the Company defaults in such payments due on the redemption date.
6. Mandatory Redemption.
The Company shall not be required to make mandatory redemption or sinking
fund payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase on a
date (the "Change of Control Payment") no later than 60 Business Days after the
occurrence of the Change of Control. Within 35 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes pursuant to the procedures required by this Indenture and
described in such notice, which offer shall remain open for at least 20 Business
Days following its commencement, but in any event no longer than 30 Business
Days. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any such securities laws or regulations conflict with the
provisions of this paragraph, compliance by the Company or any of the
Guarantors with such laws and regulations shall not in and of itself cause a
breach of its obligations under such covenant.
8
<PAGE>
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions of this covenant, but in any event within 30 days following
a Change of Control, the Company will either repay all outstanding Designated
Senior Indebtedness or obtain the requisite consents, if any, under all
agreements governing outstanding Designated Senior Indebtedness to permit the
repurchase of Notes required by this covenant. The Company will not be required
to purchase any Notes until it has complied with the preceding sentence, but the
Company's failure to make a Change of Control Offer when required or to purchase
tendered Notes when tendered would constitute an Event of Default. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
(b) The Company will not, and will not permit any of its Subsidiaries to,
engage in an Asset Sale in excess of $1,000,000 unless (i) the Company (or such
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets or Equity Interest
sold or other wise disposed of and, in the case of a lease of assets, a lease
providing for rent and other conditions which are no less favorable to the
Company (or the Subsidiary, as the case may be) in any material respect than the
then prevailing market conditions (evidenced in each case by a resolution of the
Board of Directors of such entity set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests sold or otherwise
disposed of, and (ii) at least 75% (100% in the case of lease payments) of the
consideration therefor received by the Company or such Subsidiary is in the form
of cash or Cash Equivalents; provided that the amount of (x) any Senior
Indebtedness of the Company or any Indebtedness of any Subsidiary (as shown on
the Company's or such Subsidiary's most recent balance sheet or in the notes
thereto, but excluding contingent liabilities and trade payables) that is
assumed by the transferee of any such assets and from which the Company or such
Subsidiary are unconditionally released from liability and (y) any notes,
securities or other
9
<PAGE>
obligations received by the Company or any such Subsidiaries from such
transferee that are promptly, but in no event more than 30 days after receipt,
converted by the Company or such Subsidiary into cash (to the extent of the cash
received) shall be deemed to be cash for purposes of this provision and the
receipt of such cash shall be treated as cash received from the Asset Sale for
which such Notes or obligations were received.
The Company or any of its Subsidiaries may apply the Net Proceeds from each
Asset Sale, at its option within 360 days, (a) to permanently reduce any Senior
Indebtedness and any Indebtedness of a Subsidiary (and in the case of any senior
revolving indebtedness of the Company or its Subsidiaries correspondingly
permanently to reduce commitments with respect thereto), (b) to make capital
expenditures, for the acquisition of another business or the acquisition of
other long-term assets, in each case, in the same or a Related Business, or (c)
to reimburse the Company or its Subsidiaries for expenditures made, and costs
incurred, to repair, rebuild, replace or restore property subject to loss,
damage or taking to the extent that the Net Proceeds consist of insurance
proceeds received on account of such loss, damage or taking. Pending the final
application of any such Net Proceeds, the Company may invest such Net Proceeds
in any manner that is not prohibited by this Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5,000,000, the Company will be
required to make an unconditional and irrevocable offer to all Holders of Notes
(an "Asset Sale Offer") and to holders of other Indebtedness of the Company
outstanding ranking on a parity with the Notes with similar provisions requiring
the Company to make a similar offer with proceeds from asset sales, pro rata in
proportion to the respective principal amounts (or accreted values in the case
of Indebtedness issued with an original issue discount) of the Notes and such
other Indebtedness then outstanding, to purchase the maximum principal amount
(or accreted value, as applicable) of Notes and such other Indebtedness, if any,
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount (or accreted value, as
applicable) thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of purchase, in accordance with the procedures set
forth in this Indenture. If the aggregate principal amount (or accreted value,
as applicable) of Notes and such Indebtedness surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis in increments of $1,000 with such Indebtedness.
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
10
<PAGE>
8. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in this Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by this Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a Record Date and
the corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions, this
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of a majority in aggregate principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of this
Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes. Without
the consent of any Holder of a Note, this Indenture or the Notes may be amended
or supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes (including the
addition of any Guarantor) or that does not adversely affect the legal rights
under this Indenture of any such Holder, or to comply with the requirements of
the SEC in order to effect or maintain the qualification of this Indenture under
the Trust Indenture Act.
11. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest or Liquidated Damages, if any, on the
Notes; (ii) default in payment when due of principal of or premium, if any, on
the Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise, (iii) failure
by the Company to comply with Section 4.7 and 4.8 of this Indenture; (iv)
failure by the Company for 60 days after notice to the Company by the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with certain
11
<PAGE>
other agreements in this Indenture or the Notes; (v) default under certain other
agreements relating to Indebtedness of the Company which default results in the
acceleration of such Indebtedness prior to its express maturity; (vi) certain
nonappealable final judgments for the payment of money that remain undischarged
for a period of 60 days; (vii) a declaration that the Guaranty is unenforceable;
or (viii) certain events of bankruptcy or insolvency with respect to the Company
or any of its Significant Subsidiaries. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes may declare all the Notes to be due and
payable immediately by notice in writing to the Company (and to the Trustee if
given by the Holders). Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable without further action or notice.
Holders may not enforce this Indenture or the Notes except as provided in this
Indenture. Subject to certain limitations, Holders of a majority in aggregate
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under this Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes. The Company is required to deliver to the
Trustee annually a statement regarding compliance with this Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
12. Subordination. The Indebtedness evidenced by the Notes and the
payment of principal of, premium, if any, and interest on and Liquidated
Damages, if any, in respect of the Notes will be subordinated in right of
payment to the prior payment in full of Senior Indebtedness as set forth in
Article 10 of the Indenture.
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obliga-
12
<PAGE>
tions of the Company under the Notes or this Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for the issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Notes. In
addition to the rights provided to Holders of Notes under this Indenture,
Holders of Transferred Restricted Notes shall have all the rights set forth in
the Registration Rights Agreement dated as of the date of this Indenture,
between the Company and the parties named on the signature pages thereof (the
"Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
19. Notation of Guarantee. As more fully set forth in the Indenture, each
of Holdings and the Persons constituting Guarantors from time to time, in
accordance with the provisions of the Indenture, unconditionally and jointly and
severally guarantee, in accordance with Section 11.1 of the Indenture, to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, that: (a) the principal of, and premium, if
any, Liquidated Damages, if any, and interest on the Notes will be duly and
punctually paid in full when due, whether at maturity, by acceleration or
otherwise, and interest on overdue principal of, and premium, if any, Liquidated
Damages, if any and (to the extent permitted by law) interest on any interest,
if any, on the Notes and all other obligations of the Company to the Holders or
the Trustee hereunder or under the Notes (including fees, expenses or other)
will be promptly paid in full or performed, all in accordance with the terms
13
<PAGE>
hereof; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration, call for redemption, upon a Change
of Control Offer, upon an Asset Sale Offer or otherwise. Such guarantees are
subordinated in right of payment to the prior payment in full of all Obligations
in respect of Guarantor Senior Indebtedness as set forth in Article 10 of the
Indenture and shall cease to apply, and shall be null and void, with respect to
any Guarantor who, pursuant to Article 11 of the Indenture, is released from its
Guaranty or whose Guaranty otherwise ceases to be applicable pursuant to the
terms of the Indenture.
When a successor assumes all the obligations of its predecessor under the
Notes and the Indenture, the predecessor will be released from those
obligations.
20. Governing Law. THE INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
The Company will furnish to any Holder upon written request and without
charge a copy of this Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Bell Sports, Inc.
6350 San Ignacio Avenue
San Jose, California 95119
Telecopier No.: (408) 574-3436
Attention: Chief Financial Officer
14
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee:
________________________________________________________________________________
15
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.7 or 4.8 of this Indenture, check the box below:
[_] Section 4.7 [_] Section 4.8
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.7 or Section 4.8 of this Indenture, state the amount you
elect to have purchased: $___________
Date: Your Signature:
(Sign exactly as your name appears on the Note)
Tax Identification No.:____________________
Signature Guarantee:
________________________________________________________________________________
16
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE/4/
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
Date of Exchange Amount of decrease in
----------------
Principal Amount of
this Global Note Amount of increase in
----------------
Principal Amount of
this Global Note Principal Amount of this Global Note following such decrease
----------------
(or increase) Signature of
-------------
authorized officer of
Trustee or Note
Custodian
---------
____________________
/4/ This should be included only if the Note is issued in global form.
17
<PAGE>
[LETTERHEAD OF SIDLEY & AUSTIN]
EXHIBIT 5.1
September 30, 1998
Bell Sports Corp.
Bell Sports, Inc.
6350 San Ignacio Avenue
San Jose, California 95119
Re: 11% Series B Senior Subordinated Notes Due 2008
-----------------------------------------------
Dear Ladies and Gentlemen:
We refer to the Registration Statement on Form S-4 (the "Registration
Statement") being filed by Bell Sports, Inc., a California corporation (the
"Company") and Bell Sports Corp., a Delaware corporation (the "Guarantor"), with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the registration of $110,000,000
aggregate principal amount of the Company's 11% Series B Senior Subordinated
Notes due 2008 (the "Debt Securities") for issuance in connection with the offer
to exchange (the "Exchange Offer") up to $110,000,000 aggregate principal amount
of the Debt Securities for a like principal amount of the Company's 11% Series A
Senior Subordinated Notes due 2008. The Debt Securities are to be issued under
the Indenture dated as of August 17, 1998 (the "Indenture") among the Company,
Guarantor and Harris Trust and Savings Bank, as trustee (the "Trustee").
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. We have also examined originals or copies of
such corporate documents or records of the Company and the Guarantor, as we have
considered appropriate for the opinions expressed herein.
As to factual matters material to the opinions expressed herein, we
have, with your permission, relied upon statements and representations and
warranties made by officers and other representatives of the Company, the
Guarantor and others, in each case, without independent investigation or
verification by us of the accuracy of such matters. We have examined originals,
or copies of originals certified to our satisfaction, of such agreements,
<PAGE>
Bell Sports Corp.
September 30, 1998
Page 2
documents, certificates and other statements of government officials and other
instruments, have examined such questions of law and have satisfied ourselves as
to such matters of fact as we have considered relevant and necessary as a basis
for the opinions or statements expressed herein. We have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures, the legal capacity of all natural persons and the conformity
with the original documents of any copies thereof submitted to us for our
examination.
Based on the foregoing, we are of the opinion that:
1. The Company is duly incorporated and validly existing under the
laws of the State of California.
2. The Guarantor is duly incorporated and validly existing under the
laws of the State of Delaware.
3. Each of the Company and the Guarantor has corporate power and
authority to execute and deliver the Indenture and to authorize and issue the
Debt Securities.
4. The Debt Securities will be legally issued and binding
obligations of the Company (except to the extent enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws affecting the enforcement of creditors' rights
generally and by the effect of general principles of equity, regardless of
whether enforceability is considered in a proceeding in equity or at law) when
(i) the Registration Statement, as finally amended, shall have become effective
under the Securities Act and the Indenture shall have become effective under the
Securities Act and the Indenture shall have been qualified under the Trust
Indenture Act of 1939, as amended, (ii) the Company's Board of Directors or a
duly authorized committee thereof shall have duly adopted final resolutions
authorizing the issuance of the Debt Securities as contemplated by the
Registration Statement and the Indenture, and (iii) the Debt Securities shall
have been duly executed and authenticated as provided in the Indenture and such
resolutions and shall have been duly delivered in exchange for the Company's 11%
Series A Senior Subordinated Notes due 2008 pursuant to the Exchange Offer.
We do not find it necessary for the purpose of this opinion to cover,
and accordingly we express no opinion as to, the application of the securities
or blue sky laws of the various states to the issuance of the Debt Securities.
<PAGE>
Bell Sports Corp.
September 30, 1998
Page 3
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement.
Very truly yours,
/s/ Sidley & Austin
<PAGE>
EXHIBIT 10.1
================================================================================
CREDIT AGREEMENT
dated as of
August 17, 1998
among
BELL SPORTS, INC.
as Borrower
BELL SPORTS CORP.
as a Guarantor
The LENDERS Party Hereto
SOCIETE GENERALE
as Administrative Agent, Swingline Lender and Issuing Bank
DLJ CAPITAL FUNDING, INC.
as Syndication Agent
_______________________________________________
SG COWEN
and
DONALDSON, LUFKIN & JENRETTE
Arrangers
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS...................................................... 1
SECTION 1.1. DEFINED TERMS........................................ 1
SECTION 1.2. CLASSIFICATION OF LOANS AND BORROWINGS............... 35
SECTION 1.3. TERMS GENERALLY...................................... 35
SECTION 1.4. ACCOUNTING TERMS; GAAP............................... 36
SECTION 1.5. TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE......... 36
ARTICLE II. THE CREDIT...................................................... 37
SECTION 2.1. REVOLVING COMMITMENTS................................ 37
SECTION 2.2. LOANS AND BORROWINGS................................. 37
SECTION 2.3. REQUESTS FOR BORROWINGS.............................. 38
SECTION 2.4. SWINGLINE LOANS...................................... 39
SECTION 2.5. LETTERS OF CREDIT.................................... 40
SECTION 2.6. FUNDING OF BORROWINGS................................ 44
SECTION 2.7. INTEREST ELECTIONS................................... 45
SECTION 2.8. TERMINATION AND REDUCTION OF COMMITMENTS............. 47
SECTION 2.9. REPAYMENT OF LOANS; EVIDENCE OF DEBT................. 47
SECTION 2.10. PREPAYMENT OF LOANS................................. 48
SECTION 2.11. FEES................................................ 50
SECTION 2.12. INTEREST............................................ 51
SECTION 2.13. ALTERNATE RATE OF INTEREST.......................... 52
SECTION 2.14. YIELD PROTECTION.................................... 53
SECTION 2.15. TAXES............................................... 55
SECTION 2.16. PAYMENTS; PRO RATA TREATMENT; SHARING OF SETOFFS.... 56
SECTION 2.17. REPLACEMENT OF LENDER............................... 58
ARTICLE III. CONDITIONS..................................................... 59
SECTION 3.1. EFFECTIVE DATE....................................... 59
SECTION 3.2. CONDITIONS OF ALL EXTENSIONS OF CREDIT............... 63
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.................................. 64
SECTION 4.1. ORGANIZATION; POWERS................................. 64
SECTION 4.2. AUTHORIZATION; ENFORCEABILITY........................ 64
SECTION 4.3. GOVERNMENTAL APPROVALS; NO CONFLICTS................. 64
SECTION 4.4. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE...... 65
SECTION 4.5. PROPERTIES........................................... 66
SECTION 4.6. LITIGATION AND ENVIRONMENTAL MATTERS................. 67
SECTION 4.7. COMPLIANCE WITH LAWS AND AGREEMENTS.................. 67
SECTION 4.8. INVESTMENT AND HOLDING COMPANY STATUS................ 67
SECTION 4.9. TAXES................................................ 67
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.10. ERISA............................................... 68
SECTION 4.11. REPRESENTATIONS AND WARRANTIES IN TRANSACTION
DOCUMENTS........................................... 68
SECTION 4.12. DISCLOSURE.......................................... 68
SECTION 4.13. SUBSIDIARIES........................................ 68
SECTION 4.14. SOLVENCY............................................ 69
SECTION 4.15. THE COLLATERAL...................................... 69
SECTION 4.16. FEDERAL RESERVE REGULATIONS......................... 71
SECTION 4.17. INSURANCE........................................... 71
SECTION 4.18. YEAR 2000 COMPLIANCE................................ 71
ARTICLE V. AFFIRMATIVE COVENANTS............................................ 71
SECTION 5.1. FINANCIAL STATEMENTS AND OTHER INFORMATION........... 71
SECTION 5.2. NOTICES OF MATERIAL EVENTS........................... 73
SECTION 5.3. REGARDING THE COLLATERAL............................. 74
SECTION 5.4. EXISTENCE; CONDUCT OF BUSINESS....................... 75
SECTION 5.5. PAYMENT OF OBLIGATIONS............................... 75
SECTION 5.6. MAINTENANCE OF PROPERTIES............................ 75
SECTION 5.7. INSURANCE............................................ 75
SECTION 5.8. CASUALTY AND CONDEMNATION............................ 76
SECTION 5.9. BOOKS AND RECORDS; INSPECTION AND AUDIT RIGHTS....... 76
SECTION 5.10. COMPLIANCE WITH LAWS................................ 76
SECTION 5.11. USE OF PROCEEDS..................................... 76
SECTION 5.12. ADDITIONAL BORROWER SUBSIDIARIES.................... 77
SECTION 5.13. FURTHER ASSURANCES.................................. 77
SECTION 5.14. FISCAL YEAR......................................... 79
SECTION 5.15. YEAR 2000 COMPLIANCE................................ 79
SECTION 5.16. CONVERTIBLE DEBT RETIREMENT......................... 79
ARTICLE VI. NEGATIVE COVENANTS.............................................. 79
SECTION 6.1. INDEBTEDNESS......................................... 79
SECTION 6.2. CERTAIN INTERESTS AND LIABILITIES.................... 81
SECTION 6.3. LIENS................................................ 82
SECTION 6.4. FUNDAMENTAL CHANGES.................................. 82
SECTION 6.5. INVESTMENTS; ACQUISITIONS............................ 83
SECTION 6.6. ASSET SALES.......................................... 84
SECTION 6.7. HEDGING AGREEMENTS................................... 85
SECTION 6.8. PAYMENT RESTRICTIONS................................. 85
SECTION 6.9. TRANSACTIONS WITH AFFILIATES......................... 87
SECTION 6.10. RESTRICTIVE AGREEMENTS.............................. 87
SECTION 6.11. AMENDMENT OF CERTAIN DOCUMENTS...................... 88
SECTION 6.12. CAPITAL EXPENDITURES................................ 88
SECTION 6.13. MINIMUM CASH INTEREST COVERAGE RATIO................ 89
SECTION 6.14. MINIMUM FIXED CHARGE COVERAGE RATIO................. 89
SECTION 6.15. MAXIMUM TOTAL LEVERAGE RATIO........................ 91
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 6.16. ADDITIONAL SUBSIDIARIES............................. 92
ARTICLE VII. EVENTS OF DEFAULT.............................................. 92
SECTION 7.1. EVENTS OF DEFAULT.................................... 92
ARTICLE VIII. THE ADMINISTRATIVE AGENT AND OTHER AGENTS.................... 95
SECTION 8.1. APPOINTMENT OF AGENTS................................ 95
SECTION 8.2. SAME RIGHTS AND POWERS............................... 96
SECTION 8.3. NO DUTIES OR OBLIGATIONS; NOT LIABLE................. 96
SECTION 8.4. ENTITLED TO RELY..................................... 96
SECTION 8.5. SUB-AGENTS; RELATED PARTIES.......................... 97
SECTION 8.6. RESIGNATION OF ADMINISTRATIVE AGENT.................. 97
SECTION 8.7. CONCERNING THE COLLATERAL............................ 97
SECTION 8.8. NO RELIANCE.......................................... 98
ARTICLE IX. MISCELLANEOUS................................................... 98
SECTION 9.1. NOTICES.............................................. 98
SECTION 9.2. WAIVERS; AMENDMENTS.................................. 100
SECTION 9.3. EXPENSES; INDEMNITY; DAMAGE WAIVER................... 101
SECTION 9.4. SUCCESSORS AND ASSIGNS............................... 102
SECTION 9.5. SURVIVAL............................................. 105
SECTION 9.6. COUNTERPARTS; INTEGRATION; EFFECTIVENESS............. 105
SECTION 9.7. SEVERABILITY......................................... 106
SECTION 9.8. RIGHT OF SETOFF...................................... 106
SECTION 9.9. GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS...... 106
SECTION 9.10. WAIVER OF JURY TRIAL................................ 107
SECTION 9.11. HEADINGS............................................ 107
SECTION 9.12. CONFIDENTIALITY..................................... 107
SECTION 9.13. INTEREST RATE LIMITATION............................ 108
</TABLE>
iii
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Form of Assignment and Acceptance
Exhibit B-1 Form of Borrower Pledge and Security Agreement
Exhibit B-2 Form of Guarantor Pledge and Security Agreement
Exhibit C Form of Borrowing Base Certificate
Exhibit D Form of Compliance Certificate
Exhibit E Equity Documents
Exhibit F Form of Guaranty, Indemnity and Subordination Agreement
Exhibit G Form of Patent and Trademark Assignment
Exhibit H Form of Perfection Certificate
Exhibit I Form of Perfection Notice
Exhibit J Form of Pricing Certificate
Exhibit K Form of Revolving Loan Note
Exhibit L Form of UCC financing statement
Exhibit M Form of Closing Certificate
Exhibit N-1 Form of Opinion of Ropes & Gray
Exhibit N-2 Form of Opinion of Sidley & Austin
SCHEDULES
Schedule 1.1 Specified Excluded Assets
Schedule 2.1 Lenders, Revolving Commitments and Lending Offices
Schedule 3.1(l) Amendments to Transaction Documents
Schedule 4.3 Governmental Approvals
Schedule 4.5(a) Title Defects
Schedule 4.5(b) Intellectual Property
Schedule 4.5(c) Real Property (owned or leased)
Schedule 4.6(a) Litigation
Schedule 4.6(b) Environmental Matters
Schedule 4.13 Subsidiaries
Schedule 4.15(b) Pledged Collateral
Schedule 4.15(c) Jurisdictions in which Financing Statements Filed
Schedule 4.17 Insurance
Schedule 6.1 Outstanding Indebtedness
Schedule 6.3 Existing Liens
</TABLE>
iv
<PAGE>
EXHIBIT 10.1
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of August 17, 1998, among BELL SPORTS, INC.,
a California corporation (the "Borrower"), BELL SPORTS CORP., a Delaware
corporation ("Holdings"), the LENDERS party hereto, DLJ CAPITAL FUNDING, INC.,
as Syndication Agent, and SOCIETE GENERALE, as Administrative Agent, Swingline
Lender and Issuing Bank.
RECITALS
1. Brentwood Fund and Harvard Private Capital Holdings, Inc.
organized HB Acquisition for the purpose of merging with and into Old Bell
Sports Corp. pursuant to the Merger and Recapitalization Agreement (the "HB
Merger"). Holdings is the surviving corporation in the HB Merger.
2. Prior to the consummation of the HB Merger, American Recreation
Company Holdings, Inc. ("ARH"), a wholly-owned subsidiary of Old Bell Sports
Corp., merged with American Recreation Company, Inc., a wholly-owned subsidiary
of ARH (the "ARH Merger"), and the surviving corporation in the ARH Merger
merged with and into the Borrower (the "Borrower Merger"). The Borrower is the
surviving corporation in the Borrower Merger.
3. The Borrower has requested the Lenders to provide a $60,000,000
revolving credit facility available for Revolving Loans made by the Lenders,
Swingline Loans made by the Swingline Lender and for Letters of Credit issued by
the Issuing Bank, and the Lenders and Issuing Bank are willing to provide such
revolving credit facility, on the terms and subject to the conditions herein set
forth.
ACCORDINGLY, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINED TERMS.
As used in this Agreement, the following terms have the meanings
specified below:
"ABR," when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"ACQUIRED INDEBTEDNESS" means Indebtedness of any Person that becomes
a Borrower Subsidiary after the Effective Date, if such Indebtedness was
<PAGE>
outstanding prior to the time such Person became a Borrower Subsidiary and was
not created in contemplation of or in connection with such Person becoming a
Borrower Subsidiary.
"ADJUSTED CAPITAL EXPENDITURES" means, for any period, Capital
Expenditures for such period adjusted pro forma to eliminate any such Capital
Expenditures that were made in respect of assets of a subsidiary or line of
business subsequently sold in a Pro Forma Event.
"ADJUSTED CASH INTEREST EXPENSE" means, for any period, Cash Interest
Expense for such period adjusted for Pro Forma Debt and Interest Adjustments
that became effective on or before the last day of such period.
"ADJUSTED EBITDA" means, for any period, Consolidated EBITDA for such
period adjusted for Pro Forma EBITDA Adjustments that became effective on or
before the last day of such period.
"ADJUSTED LIBO RATE" means, with respect to any Eurodollar Borrowing
for any day in any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the then Eurodollar Reserve Rate.
"ADJUSTED TOTAL DEBT" means, as of any day in any 12-month period
ending on a Pricing Determination Date, Total Debt on such day adjusted for Pro
Forma Debt and Interest Adjustments that became effective on or before such
Pricing Determination Date.
"ADMINISTRATIVE AGENT" means SG, in its capacity as administrative
agent for the Lenders hereunder, and any successor administrative agent in such
capacity.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified; provided,
that a limited partner in Brentwood Fund or Charlesbank Fund shall not be
deemed, by reason solely of its investment therein, to be an Affiliate of any
member of the Holdings Group.
"AGENT" has the meaning assigned to such term in Section 8.1.
"ALTERNATE BASE RATE" means, for any day in any period, a fluctuating
interest rate per annum equal at all times for each day during such period to
the higher of (a) the rate of interest announced publicly by SG in New York City
from time to time as SG's base rate as in effect for such day for lending within
the United States (it being understood that such base rate is merely a reference
rate for pricing purposes and is not the best or most favorable rate charged by
SG to its customers) or (b) 0.50% per annum above the Federal Funds Rate for
such day.
2
<PAGE>
"APPLICABLE PERCENTAGE" means, with respect to any Lender, the
percentage of the total Revolving Commitments represented by such Lender's
respective Revolving Commitment. If the Revolving Commitments have terminated or
expired, the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"APPLICABLE ABR MARGIN" and "APPLICABLE EURODOLLAR MARGIN" mean, with
respect to any ABR Loan or any Eurodollar Loan, respectively, for any day in any
Pricing Period (as defined below), the applicable rate per annum set forth below
under the caption "ABR Margin" or "Eurodollar Margin," respectively, based upon
the Pricing Ratio determined as of the most recent Pricing Determination Date,
except that (a) if on such Pricing Determination Date the Senior Leverage Ratio
was greater than 2:1, then for each day in such Pricing Period the Applicable
ABR Margin or Applicable Eurodollar Margin shall be the applicable rate per
annum set forth below plus 0.25% per annum, and (b) for each day from the
Effective Date to the six-month anniversary of the Effective Date the Applicable
ABR Margin or Applicable Eurodollar Margin shall be the applicable rate per
annum set forth below in Category 3 plus any increase required under clause (a)
above:
<TABLE>
<CAPTION>
==================================================================
PRICING RATIO: EURODOLLAR ABR Commitment
MARGIN MARGIN Fee Rate
(%p.a.) (%p.a.) (%P.A.)
- ------------------------------------------------------------------
<S> <C> <C> <C>
CATEGORY 1
Equal to or greater than 2.00 1.00 0.50
4.5 to 1
- ------------------------------------------------------------------
CATEGORY 2
Equal to or greater than 1.75 0.75 0.50
4.0 to 1
but less than 4.5 to 1
- ------------------------------------------------------------------
CATEGORY 3
Equal to or greater than 1.50 0.50 0.50
3.5 to 1
but less than 4.0 to 1
- ------------------------------------------------------------------
CATEGORY 4
Equal to or greater than 1.25 0.25 0.50
3.0 to 1
but less than 3.5 to 1
- ------------------------------------------------------------------
CATEGORY 5
Less than 3.0 to 1 1.00 0.00 0.375
==================================================================
</TABLE>
For these purposes, (a) the Pricing Ratio shall be determined as of
each Pricing Determination Date and shall be certified in a Pricing Certificate
delivered to the Administrative Agent within 45 days after such Pricing
Determination Date, (b) the Applicable ABR Margin or Applicable Eurodollar
Margin determined on the basis of the Pricing Ratio certified as of any Pricing
Determination Date in any Pricing Certificate shall be effective for a period (a
"Pricing Period") that commences on the 46th day after such Pricing
Determination Date and ends on the 45th day after the next following
3
<PAGE>
Pricing Determination Date, and (c) if and whenever the Borrower fails to
deliver a Pricing Certificate for any Pricing Period prior to the commencement
of such Pricing Period, then for each day of such Pricing Period until the first
Business Day following the Business Day on which such Pricing Certificate is
delivered to the Administrative Agent, the Applicable ABR Margin and Applicable
Eurodollar Margin shall be the rate per annum set forth above in Category 1
plus, if the Senior Leverage Ratio (determined as of the most recent Pricing
Determination Date) was greater than 2:1, an additional 0.25% per annum.
"ARH MERGER" has the meaning given it in the Recitals hereto.
"ARRANGERS" means SG Cowen and Donaldson, Lufkin & Jenrette.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.4), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"BOARD" means the Board of Governors of the Federal Reserve System of
the United States of America.
"BONDING LIABILITIES" means any and all liabilities of any member of
the Holdings Group on or in respect of any and all appeal bonds or any other
surety bond or third party undertaking relating to any litigation or any claim,
order or judgment therein, including any reimbursement obligation or indemnity
in respect thereof.
"BORROWER" has the meaning set forth in the preamble hereto.
"BORROWER MERGER" has the meaning set forth in the Recitals hereto.
"BORROWER PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security
Agreement substantially in the form of Exhibit B-1, entered into by the Borrower
and the Administrative Agent for the benefit of the holders of Obligations.
"BORROWER SUBSIDIARY" means any subsidiary of the Borrower.
"BORROWING" means (a) Loans of the same Class and Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect or (b) a Swingline Loan.
"BORROWING BASE" means, as of any day, an amount equal to the sum of:
(a) 85% (reduced, if Dilution exceeded 7.5% for the most recently
ended fiscal quarter for which financial reports have then been delivered
pursuant to Section 5.1, by the amount of such excess) of the then Eligible
Domestic Accounts Receivable,
(b) 55% of the then Eligible Domestic Inventory,
4
<PAGE>
(c) the least of (i) $3,000,000, (ii) 55% of the then Eligible In-
Transit Inventory, and (iii) the sum of (A) the aggregate amount of all In-
Transit Inventory Purchase Money Loans that are then outstanding and (after
adding in the number of days for which any In-Transit Inventory Purchase Money
Loan refinanced thereby was outstanding) have not been outstanding for more than
20 days and (B) the aggregate undrawn amount then available for drawing under
Commercial Letters of Credit that meet the requirements set forth in clause
(b)(ii) in the definition of "Eligible In-Transit Inventory," and
(d) the then amount of the Convertible Debt Retirement Allowance.
"BORROWING BASE CERTIFICATE" means a certificate substantially in the
form of Exhibit C or any other form approved by the Administrative Agent, signed
by a Financial Officer of the Borrower.
"BORROWING REQUEST" means a request by the Borrower for a Borrowing in
accordance with Section 2.3.
"BRENTWOOD FUND" means Brentwood Associates Buyout Fund II, L.P., a
Delaware limited partnership.
"BRENTWOOD" means Brentwood Private Equity, L.L.C.
"BUSINESS DAY" means any day that is not (a) a Saturday, Sunday, (b)
any other day on which commercial banks in New York City are authorized or
required by law to remain closed or (c) when used in connection with a
Eurodollar Loan, a day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"CAPITAL EXPENDITURES" means, for any period, any and all expenditures
made by any member of the Holdings Group in such period for assets added to or
reflected in its property, plant and equipment accounts or other similar capital
asset accounts on a balance sheet statement prepared in accordance with GAAP,
whether such asset is purchased for cash or financed as an account payable or by
the incurrence of Indebtedness or otherwise, except any such expenditure that
(a) constitutes the purchase consideration for a Permitted Acquisition or (b) is
made with (or in the amount of) the proceeds of insurance, condemnation awards
(or payment in lieu thereof) or indemnity payments received from third parties
for purposes of replacing or repairing the assets in respect of which such
proceeds, awards or payments were received, so long as such expenditures are
made within 6 months of the occurrence of the damage to or loss of the assets
being repaired or replaced.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of
such Person to pay rent or other amounts under any lease (or other arrangement
conveying the right to use) of real or personal property, or a combination
thereof, which obligations are required to be classified and accounted for as
capital leases on a balance sheet of such Person under GAAP, and the amount of
such obligations shall be the capitalized amount thereof determined in
accordance with GAAP.
5
<PAGE>
"CASH INTEREST COVERAGE RATIO" means, as of any day, the ratio of (i)
Adjusted EBITDA for the 12-month period then ended (taken as a single period) to
(ii) Adjusted Cash Interest Expense for such period.
"CASH INTEREST EXPENSE" means, for any period, Consolidated Interest
Expense for such period minus (a) to the extent taken into account in the
determination of such Consolidated Interest Expense, charges for amortization of
(i) closing fees, documentation costs, underwriters' discounts and commissions
and other similar items paid in connection with the closing of a transaction in
which Indebtedness was incurred, and (ii) other financing fees and financing
costs that were paid in cash and capitalized, without being charged against
income, in any prior period plus (b) interest accrued in such period on the
Convertible Debentures or, if currently payable in cash, on the Holdings
Discount Debentures or any other Indebtedness of Holdings minus (c) cash
interest income of the Borrower earned in such period on any Restricted Funds.
If such period ends on any day prior to the first anniversary of the Effective
Date, Cash Interest Expense shall be determined for the stub period from the
Effective Date to such day and then annualized by multiplying the amount so
determined by a fraction, the numerator of which is 365 and the denominator of
which is the number of days in such stub period.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. (S) 9601 et seq.
"CHANGE IN CONTROL" means the occurrence of any of the following
events:
(a) the failure of the Investors at any time to Control Holdings or
the Borrower or any Borrower Subsidiary,
(b) the failure of an Investor to own beneficially, free and clear of
all Liens, either (i) at any time prior to a Holdings IPO, at least 70% of the
Equity Interests in Holdings, of each class, owned by such Investor on the
Effective Date or (ii) at any time after a Holdings IPO, Equity Interests in
Holdings that, when added to Equity Interests so owned by the other Investor,
constitute (both in economic interests and in voting power for the election of
directors) more than 35% of the aggregate issued and outstanding Equity
Interests in Holdings,
(c) a majority of the directors of Holdings are Persons who were not
elected as directors upon the affirmative vote, or appointed as directors with
the prior consent, of both of the Investors,
(d) any Person or group, except limited partnership funds for which
Charlesbank or Brentwood (or an entity Controlled by Charlesbank or Brentwood)
acts as the sole general partner, acquires (i) direct or indirect Control over
Holdings or the Borrower or (ii) at any time after a Holdings IPO, more than 20%
of the aggregate issued and outstanding Equity Interests in Holdings,
(e) the failure of Holdings to own directly 100% of the outstanding
Equity Interests in the Borrower, free and clear of all Liens (other than Liens
under the Security Documents), or
6
<PAGE>
(f) the occurrence of any event that constitutes a "Change of
Control," as such term is defined in the Senior Subordinated Note Indenture or
the Holdings Discount Debenture Indenture or the Holdings Certificate of
Designation, or, so long as the Convertible Debenture Indenture remains in
effect, any event that constitutes a "Risk Event," as such term is defined
therein.
"CHANGE IN LAW" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.14(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"CHARLESBANK" means Charlesbank Capital Partners, LLC, a Delaware
limited liability company.
"CHARLESBANK FUND" means Charlesbank Bell Sports Holdings, Limited
Partnership, a Delaware limited partnership.
"CLASS," when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL" means any and all property upon which any Lien in favor
of the Administrative Agent is purported to be granted pursuant to any Security
Document.
"COMMERCIAL LETTER OF CREDIT" means a Letter of Credit issued to a
seller of Inventory and available for honor upon presentation of documents
demonstrating shipment of, and transfer of title to, such Inventory.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of Exhibit D or any other form approved by the Administrative Agent, signed by a
Financial Officer of the Borrower.
"CONSOLIDATED EBITDA" means, for any period, (a) Consolidated Net
Income for such period plus (b) without duplication and to the extent deducted
in determining Consolidated Net Income, the sum of (i) Consolidated Interest
Expense for such period, net of interest income for such period, (ii) charges
for income tax expense for such period, (iii) charges for depreciation and
amortization (other than amortization charges counted as Consolidated Interest
Expense) for such period, (iv) non-cash compensation and other non-cash charges
for items that would not reasonably be expected to result in a future cash
outlay, and (v) charges for settlement of the claims asserted in litigation
commenced by Wandel, Thomas or Yarusso for payment of any judgment rendered
therein, minus (c) without duplication and to the extent added to revenues in
determining Consolidated Net Income for such period, all extraordinary and
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nonrecurring gains and all non-cash gains during such period, all as determined
on a consolidated basis with respect to the Borrower and the Borrower
Subsidiaries in accordance with GAAP and plus (d) without duplication and to the
extent deducted in determining Consolidated Net Income for such period, all
extraordinary and nonrecurring losses and restructuring charges during such
period, but not exceeding, in the case of cash losses, cash charges and non-cash
charges for items that would reasonably be expected to result in a future cash
outlay, an aggregate amount of $500,000, all as determined on a consolidated
basis with respect to the Borrower and the Borrower Subsidiaries in accordance
with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, all interest
expense, whether currently incurred or previously incurred and capitalized
(including amortization of debt issuance costs, original issue discount,
interest paid in kind and the interest component in respect of Capital Lease
Obligations), accrued by the Borrower and the Borrower Subsidiaries during such
period, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, net income or loss of
the Borrower and the Borrower Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, excluding (a) the income (if
positive) of any Subsidiary that is not a Wholly-Owned Borrower Subsidiary or
any other Person in which any Person other than a Loan Party has any interest,
except to the extent of the amount of dividends or other distributions actually
paid to the Borrower or a Wholly-Owned Borrower Subsidiary by such Person during
such period, and (b) the income (or loss) of any Person accrued prior to the
date it becomes a Subsidiary or is merged into or consolidated with any member
of the Holdings Group or the date that Person's assets are acquired by any
member of the Holdings Group.
"CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
The terms "Controlling" and "Controlled" have meanings correlative thereto.
"CONVERTIBLE DEBENTURE INDENTURE" means the Indenture dated as of
November 15, 1993 between Old Bell Sports Corp. and Harris Trust and Savings
Bank, as trustee, as in effect on the Effective Date and amended from time to
time thereafter in compliance with Section 6.11.
"CONVERTIBLE DEBENTURES" mean Old Bell Sports Corp.'s outstanding
4 1/4 % Convertible Subordinated Debentures due 2000.
"CONVERTIBLE DEBT RETIREMENT" means the payment, prepayment or
purchase (at no more than the then redemption price) and retirement of
Convertible Debentures.
"CONVERTIBLE DEBT RETIREMENT ALLOWANCE" means, as of any day, the
difference (if a positive number) between:
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(a) the lesser of (A) $25,000,000 and (B) the aggregate amount of all
Convertible Debt Retirement Loans funded, if and as permitted under Section
5.11, on or before such day, and
(b) the sum of:
(i) all Net Cash Proceeds received by Holdings or the Borrower
or any Borrower Subsidiary on or before such day,
(ii) an amount (if a positive number), determined for each
fiscal year of the Borrower, commencing with the fiscal year ending on or
about June 30, 1999, and effective as of the day on which the Borrower's
audited financial statements for such fiscal year are delivered to the
Administrative Agent pursuant to Section 5.1(a), equal to the lesser of (A)
70% of Excess Cash Flow for such fiscal year and (B) Surplus Liquidity
determined as of the last day of such fiscal year,
(iii) the aggregate amount of all voluntary reductions in the
Convertible Debt Retirement Allowance that the Borrower has then elected to
make (each such election being permanent and irrevocable), by giving
written notice to such effect to the Administrative Agent, and
(iv) all Convertible Debt Retirements funded at any time after
the effective date from or in anticipation of any source of cash other than
Restricted Funds or the proceeds of Convertible Debt Retirement Loans.
If such difference is a negative number, the Convertible Debt
Retirement Allowance shall be equal to zero.
"CONVERTIBLE DEBT RETIREMENT LOANS" means up to $25,000,000 in
Revolving Loans the proceeds of which are used solely to fund Convertible Debt
Retirement, if the Borrower notifies the Administrative Agent, in the Borrowing
Request pursuant to which such Revolving Loans are funded, that such Revolving
Loans are drawn solely for such use.
"DATING PROGRAMS" means the establishment of a due date for an Account
that is more than 30 days from the invoice date in accordance with the
Borrower's ordinary practice prior to the Effective Date.
"DEBT TENDER OFFER" means the tender offer by Holdings for up to
$62,500,000 aggregate principal amount of the Convertible Debentures pursuant to
an Offer to Purchase dated as of June 30, 1998, as amended on July 24, 1998.
"DEFAULT" means any event or condition that constitutes an Event of
Default or that upon notice or lapse of time (or both) would become an Event of
Default.
"DILUTION" means, for any period, the ratio (expressed as a
percentage) of (a) all discounts, returns and allowances granted or permitted by
the Borrower and Subsidiary Guarantors in such period in respect of sales of
Inventory, except any discount, return or allowance that was taken into account
by a deduction from the gross
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purchase price in such sale in establishing the original book value of the
Account arising from such sale to (b) the aggregate amount, net of any
discounts, returns and allowances so deducted, of sales of Inventory by the
Borrower and Subsidiary Guarantors in such period.
"DISCLOSED MATTERS" means any matter described in this Agreement or
any Schedule attached hereto.
"DISQUALIFIED STOCK" means, as to any Person, all outstanding Equity
Interests issued by such Person or by any Affiliate of such Person:
(a) in respect of which such Person is, or upon the lapse of any
period of time or occurrence of any event (including consent thereto by any
creditor of such Person) might become, obligated to pay dividends or make
distributions except dividends and distributions that are to be paid or made
solely by issuance of Equity Interests that are issued by Holdings and do not
constitute Disqualified Stock; or
(b) that such Person is, or upon the lapse of any period of time or
occurrence of any event (including consent thereto by any creditor of such
Person) might become, obligated to redeem, purchase or exchange for cash or
Indebtedness or any other form of consideration except:
(i) an undertaking to exchange such Equity Interests solely for
Equity Interests that are issued by Holdings and do not constitute
Disqualified Stock, and
(ii) an undertaking by Holdings to redeem or offer to repurchase
preferred Equity Interests issued by it if (A) such undertaking is
effective only at or after the first anniversary of the Maturity Date or in
the event of a Holdings IPO, (B) by the terms of such undertaking, Holdings
will become obligated to redeem or offer to repurchase such Equity
Interests, and such obligation will be enforceable against Holdings, only
if such redemption or offer to purchase is expressly permitted at the time
under each agreement at any time entered into by Holdings or any Subsidiary
of Holdings pursuant to which any senior secured Indebtedness of Holdings
or any such Subsidiary is or may become outstanding, and (C) by the terms
of such undertaking, if such redemption or offer to purchase is not
permitted under any agreement governing any such Indebtedness of Holdings
or any of its Subsidiaries ("Restrictive Indebtedness"), then (x) Holdings
may or shall use its reasonable efforts to procure the consent of the
holders of each issue of Restrictive Indebtedness to such redemption or
offer to purchase and, if such consent is not granted within a reasonable
time as to any issue of Restrictive Indebtedness, shall use its reasonable
efforts to retire and repay such issue of Restrictive Indebtedness, in full
and in cash, from the cash resources of Holdings and its Subsidiaries or
from the proceeds of the incurrence of new Indebtedness under the terms of
which such consent is granted and (y) until, as to each outstanding issue
of Restrictive Indebtedness, such consent is granted by the holders of such
issue of Restrictive Indebtedness or such issue of Restrictive Indebtedness
is retired and repaid in full and in cash, the obligation of Holdings to
redeem or offer to purchase such
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Equity Interests shall not be enforceable and shall be automatically
suspended and deferred, without any limitation as to time and without any
other consequence whatsoever, except that the right of the holders of such
Equity Interests to seek specific enforcement of the provisions referred to
in clause (x) herein shall not be suspended or deferred or otherwise abated
or impaired.
"DLJ CAPITAL" means DLJ Capital Funding, Inc.
"DOLLARS" or "$" refers to lawful money of the United States of
America.
"DONALDSON, LUFKIN & JENRETTE" means Donaldson, Lufkin & Jenrette
Securities Corporation.
"EFFECTIVE DATE" means the date on which the conditions specified in
Section 3.1 are satisfied (or waived in accordance with Section 9.2).
"ELIGIBLE DOMESTIC ACCOUNTS RECEIVABLE" means, at any time of
determination thereof, any Account due to the Borrower or any Subsidiary
Guarantor as to which (i) each of the following requirements is satisfied and
(ii) the Borrower has not been notified by the Administrative Agent that, in the
reasonable judgment of the Administrative Agent, any of such requirements is not
satisfied:
(a) the Account is a bona fide and fully earned account receivable
for goods sold or services rendered in the ordinary course of business and:
(i) in the case of an Account arising from the sale of goods,
such goods have been shipped or delivered to and not rejected by the
Account Debtor, the Account was created in a sale on an absolute basis
(with or without return rights but not on a consignment or approval basis)
and all other actions necessary to create a binding obligation on the part
of the Account Debtor for such Account have been taken, and
(ii) in the case of an Account relating to the sale of services,
such services have been performed or completed and not rejected by the
Account Debtor and all other actions necessary to create a binding
obligation on the part of the Account Debtor have been taken;
(b) the Account is evidenced by an invoice rendered to the Account
Debtor when the Account arose;
(c) the Borrower or such Subsidiary Guarantor owns and is entitled to
enforce payment of the Account, subject to the Security Documents and free and
clear of all other Liens;
(d) the Administrative Agent holds a legal, valid, binding, perfected
and first and sole security interest in the Account pursuant to the Security
Documents and is entitled, as against the Account Debtor, at any time to collect
and enforce payment thereof;
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(e) the Account is payable in Dollars, except in the case of Accounts
payable in other currencies freely convertible into Dollars in an amount not in
the aggregate exceeding the equivalent of $500,000 at the spot rate of exchange
in effect on the date of determination of the Borrower Base; and the Account is
a legal, valid, binding and enforceable obligation of the Account Debtor and
either (i) the Account Debtor is located within the United States or (ii)
payment of the Account is provided for by a bank letter of credit reasonably
satisfactory to the Administrative Agent;
(f) the Account is not subject to any dispute, setoff, counterclaim or
other claim or defense on the part of the Account Debtor; and no member of the
Holdings Group has any liability to the Account Debtor, except (i) the seller's
warranties and other liabilities in respect of the sale that gave rise to the
Account and (ii) any liability in respect of which the Account Debtor has
agreed, in an instrument enforceable by and reasonably satisfactory to the
Administrative Agent, not to claim or enforce any setoff against any Accounts;
(g) the Account Debtor is not a Governmental Authority, except in the
case of (i) Accounts owed by Governmental Authorities not in the aggregate
exceeding $500,000 and (ii) Accounts as to which the requirements of the Federal
Assignment of Claims Act have been satisfied;
(h) the Account Debtor is not (i) an Affiliate of any member of the
Holdings Group, or (ii) the subject of any reorganization, bankruptcy,
receivership, custodianship or insolvency or any debt moratorium, suspension of
payments, debt payment default or debt restructuring;
(i) the Account was due and payable in full either (x) within 30 days
after the date on which it arose or (y) no later than a date set under Dating
Programs, and the Account is not outstanding more than 90 days past the date on
which it was due;
(j) the Account is not owed by an Account Debtor as to which more than
15% of the aggregate Accounts owed to the Borrower and Borrower Subsidiaries by
such Account Debtor and its Affiliates are more than 90 days past due;
(k) if the aggregate amount of all Accounts owed to the Borrower and
Borrower Subsidiaries by the Account Debtor and its Affiliates exceed 10% of all
Accounts then owed to the Borrower and Borrower Subsidiaries, the excess shall
be excluded from Eligible Domestic Accounts Receivable except as otherwise
agreed by the Administrative Agent;
(l) the Account is not due for licensing royalties or other payments
owed under any license agreement;
(m) the Account Debtor meets the Borrower's ordinary standards of
creditworthiness, the Account has not been referred for collection, and credit
shipments to such Account Debtor have not been suspended; and
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(n) the Account has such other characteristics or meets such other
criteria (including standards of creditworthiness) as the Administrative Agent,
in its reasonable discretion exercised in a manner not inconsistent with the
general practice of commercial finance lenders within the United States, may
specify in writing to the Borrower from time to time.
"ELIGIBLE DOMESTIC INVENTORY" means, at any time of determination
thereof, the book value, at the lesser of cost or market and on a FIFO basis, of
Inventory of the Borrower or any Subsidiary Guarantor that consists of readily
saleable and merchantable finished goods or raw materials acquired and held in
the ordinary course of business and as to which (i) each of the following
requirements is satisfied and (ii) the Borrower has not been notified by the
Administrative Agent that, in the reasonable judgment of the Administrative
Agent, any of such requirements is not satisfied:
(a) the Inventory is in the possession of the Borrower or a Subsidiary
Guarantor at a place of business maintained by it within the United States;
(b) the Borrower or such Subsidiary Guarantor owns the Inventory
subject to the Security Documents and free and clear of all other Liens;
(c) the Administrative Agent holds a legal, valid, binding, perfected
and first and sole security interest in the Inventory pursuant to the Security
Documents;
(d) the Inventory does not consist of (i) items in the custody or
possession of a third party for shipment, storage, processing or manufacture,
(ii) items intended for return to the suppliers thereof, (iii) items belonging
to a third party that have been consigned or delivered to the Borrower or a
Subsidiary Guarantor for any similar purpose or (iv) items held on a sale-on-
approval or sale-or-return basis or subject to any other repurchase or return
agreement;
(e) the Inventory is not obsolete, unsalable, damaged or otherwise
unfit for sale or further processing in the ordinary course of business; and
(f) the Inventory has such other characteristics or meets such other
criteria as the Administrative Agent, in its reasonable discretion exercised in
a manner not inconsistent with the general practice of commercial finance
lenders within the United States, may specify in writing to the Borrower from
time to time.
"ELIGIBLE IN-TRANSIT INVENTORY" means, at any time of determination
thereof, the book value, at the lesser of cost or market, of Inventory (x)
purchased and paid for, or to be purchased and paid for under a Commercial
Letter of Credit, by the Borrower or any Subsidiary Guarantor, (y) not included
in Eligible Domestic Inventory, and (z) consisting of readily saleable and
merchantable finished goods or raw materials acquired and held in the ordinary
course of business as to which (i) each of the following requirements is
satisfied and (ii) the Borrower has not been notified by the Administrative
Agent that, in the reasonable judgment of the Administrative Agent, any of such
requirements is not satisfied:
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(a) the Inventory will constitute Eligible Domestic Inventory at the
time it is delivered into the possession of the Borrower or a Subsidiary
Guarantor at a place of business maintained by it within the United States; and
(b) either:
(i) (A) the Inventory has been delivered to a common carrier,
under shipment Documents naming the Borrower or a Subsidiary Guarantor as
consignee, free from any right of stoppage in transit, for shipment and
delivery to the Borrower or such Subsidiary Guarantor at an Eligible Place
of Delivery, sufficient to permit the Borrower or such Subsidiary Guarantor
to take possession of such Inventory without further pre-condition, (B) the
purchase price of such Inventory has been paid to the seller in full from
the proceeds of an In-Transit Inventory Purchase Money Loan, (C) in the
normal course of carriage and trade such Inventory will be delivered to the
Borrower or such Subsidiary Guarantor at such Eligible Place of Delivery
within 20 days from the date of funding of such Loan, and (D) not more than
20 days have elapsed since the date of funding of such Loan; or
(ii) (A) the purchase price of the Inventory has been or is to
be paid in full by a drawing made under a Commercial Letter of Credit, (B)
the beneficiary of such Commercial Letter of Credit is entitled to make a
drawing thereunder only if it presents to the Issuing Bank documents
sufficient (x) to demonstrate shipment of such Inventory, free from any
right of stoppage in transit, for delivery to the Borrower or a Subsidiary
Guarantor at an Eligible Place of Delivery, (y) to permit the Borrower or
such Subsidiary Guarantor to take possession of such Inventory without
further pre-condition, and (z) to transfer title to such Inventory to the
Borrower or a Subsidiary Guarantor upon honor of such Commercial Letter of
Credit, (C) in the normal course of carriage and trade such Inventory will
be delivered to the Borrower or such Subsidiary Guarantor at such Eligible
Place of Delivery within 20 days from the date of honor of such Commercial
Letter of Credit; and (D) not more than 20 days have passed since the date
of honor of such Commercial Letter of Credit.
"ELIGIBLE PLACE OF DELIVERY" means any place of business of the
Borrower or a Subsidiary Guarantor within the United States located in a
jurisdiction in which (x) the provisions of Section 9-103(1)(c) of the Official
Text of the Uniform Commercial Code are in effect and (y) financing statements
in favor of the Administrative Agent covering Inventory and Documents and
proceeds thereof have been filed in each required filing office and remain
effective against the Borrower and each Subsidiary Guarantor.
"EMPLOYMENT AGREEMENTS" means the Lee Employment Agreement and the
George Employment Agreement.
"ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by or with any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, handling,
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treatment, storage, disposal, Release or threatened Release of any Hazardous
Material or to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise
(including any liability for damages, natural resource damage, costs of
environmental remediation, administrative oversight costs, fines, penalties or
indemnities), of any member of the Holdings Group directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of any
Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"EQUITY DOCUMENTS" means (i) the Amended and Restated Certificate of
Incorporation of Holdings, a copy of which is attached as Exhibit E-1, (ii) the
Articles of Incorporation of the Borrower, a copy of which is attached as
Exhibit E-2, (iii) the By-laws of Holdings, a copy of which is attached as
Exhibit E-3, (iv) the By-Laws of the Borrower, a copy of which is attached as
Exhibit E-4, (v) the Holdings Certificate of Designation, a copy of which is
attached as Exhibit E-5, (vi) the Subscription Agreement dated February 17, 1998
between HB Acquisition and Brentwood Fund and the Subscription Agreement dated
February 17, 1998 between HB Acquisition and Harvard Private Capital Holdings,
Inc., and (vii) the resolutions of the board of directors of each Loan Party
authorizing the Financing Transactions adopted on or prior to the Effective
Date, in each case as in effect on the Effective Date and amended from time to
time thereafter in compliance with Section 6.11.
"EQUITY INTERESTS" means, with respect to any Person, any capital
stock of such Person or membership interests, partnership interests (whether
general or limited) or other equity interests in such Person, regardless of
type, class, preference or designation, and all warrants, options, purchase
rights, conversion or exchange rights, voting rights, calls or claims of any
character with respect thereto, in each case whether outstanding on the
Effective Date or issued or granted at any time thereafter.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with any Loan Party, is (or at any relevant time
was) treated as a single employer under Section 414(b), (c), (m) or (o) of the
Code.
"ERISA EVENT" means (a) any "reportable event," as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan, other
than an event for which the 30-day notice period is waived (except that a
reportable event arising from the disqualification of a Plan or the distress
termination of a Plan under Section 4041(c) of ERISA shall be an ERISA Event
without regard to any waiver of notice provided by the PBGC by regulation or
otherwise); (b) the existence with respect to any Plan of an "accumulated
funding deficiency" (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the
Code or Section 303(d) of ERISA of an application for a waiver of the
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minimum funding standard with respect to any Plan; (d) the receipt by any Loan
Party or any of its ERISA Affiliates from the PBGC or a plan administrator of
any notice relating to an intention by the PBGC to terminate any Plan or Plans
or to appoint a trustee to administer any Plan; (e) the incurrence of any
Withdrawal Liability in a material amount or that has, or would reasonably be
expected to have, a Material Adverse Effect; (f) the cessation of operations at
a facility of any Loan Party or any of its ERISA Affiliates in the circumstances
described in Section 4062(e) of ERISA; (g) fulfillment with respect to any Plan
of the conditions for imposition of a Lien under Section 302(f) of ERISA; (h)
adoption of an amendment to a Plan requiring the provision of security to such
Plan pursuant to Section 307 of ERISA; (i) the receipt by any Loan Party or any
of its ERISA Affiliates of any notice that a Multiemployer Plan with respect to
which any Loan Party or its ERISA Affiliate has a contribution obligation is, or
is expected to be, terminated, insolvent or in reorganization, within the
meaning of Title IV of ERISA; (j) the engagement by any Loan Party or ERISA
Affiliate in a transaction prohibited under Section 406 of ERISA or Section 4975
of the Code that results or would reasonably be expected to result in a
liability that has or would reasonably be expected to have a Material Adverse
Effect; or (k) any proceeding is instituted against a Loan Party of ERISA
Affiliate to enforce Section 515 of ERISA that results or would reasonably be
expected to result in a liability that has or would reasonably be epxected to
have a Material Adverse Effect.
"EURODOLLAR," when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"EURODOLLAR RESERVE RATE" means, at any time, a fraction (expressed as
a decimal), the numerator of which is the number one and the denominator of
which is the number one minus the aggregate (expressed as a decimal) of the
maximum reserve percentages (including any marginal, special, emergency or
supplemental reserves) established by the Board and then in effect as to SG or
any Lender or any other bank that is a member bank of the Federal Reserve System
for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those
imposed pursuant to such Regulation D. For purposes solely of the compensation
required by Section 2.14(e), Eurodollar Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D or any comparable
regulation and without regard to whether any Lender actually obtains or
maintains eurocurrency funding for its Eurodollar Loans. The Eurodollar Reserve
Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
"EVENT OF DEFAULT" has the meaning assigned to such term in Section
7.1.
"EXCESS CASH FLOW" means, for any fiscal year of the Borrower, the
amount (if any and only if a positive number) by which (a) Consolidated EBITDA
for such fiscal year exceeds (b) the sum of (i) Capital Expenditures in such
fiscal year, except Capital Expenditures funded directly or indirectly from any
sale of assets,
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incurrence of Indebtedness or issuance of Equity Interests, (ii) scheduled
principal payments on Indebtedness other than the Obligations due in such fiscal
year, (iii) the lesser of (A) the aggregate amount of all voluntary reductions
in the Revolving Commitments that became effective in such fiscal year pursuant
to Section 2.8(b) and (B) the aggregate amount of all voluntary reductions in
the Convertible Debt Retirement Allowance that the Borrower elected to make, and
that became permanently effective, in such fiscal year, (iv) taxes accrued to be
currently paid in cash in respect of net income for such fiscal year, except
taxes payable by reason of any Transfer of assets to the extent provision for
payment of such taxes is made by a deduction from the cash proceeds of such
Transfer in computing the Net Cash Proceeds thereof, (v) the net increase (or
minus the net decrease) in working capital (current assets, except cash and cash
equivalents, less current liabilities, except the current portion of long-term
debt) over such fiscal year, (vi) Cash Interest Expense for such fiscal year,
(vii) the purchase consideration paid in cash, and not funded directly or
indirectly from any sale of assets, incurrence of Indebtedness or issuance of
Equity Interests, for all Permitted Acquisitions made in such fiscal year,
(viii) cash payments, not exceeding $500,000, made in such fiscal year to
reimburse Holdings for expenses and taxes paid by Holdings in cash in such
fiscal year, and (ix) cash payments made in such fiscal year to settle the
claims asserted in litigation commenced by Wandel, Thomas or Yarusso or to pay
any judgment rendered therein.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED ASSETS" means (a) any right, license or franchise granted by
any Governmental Authority in which it is unlawful to create a Lien, (b) any
leasehold interest in real estate, except the tenant's interest in Fixtures
thereon, (c) any owned real estate, except Fixtures thereon, (d) 35% of the
Equity Interests owned by the Borrower and Subsidiary Guarantors in any Exempted
Foreign Subsidiary that is not a subsidiary of an Exempted Foreign Subsidiary,
(e) any Equity Interest in any Exempted Foreign Subsidiary that is a subsidiary
of an Exempted Foreign Subsidiary, (f) the assets listed on Schedule 1.1, and
(g) any rights (other than rights to the payment of money) under a license
agreement entered into by a Loan Party as licensee after the Effective Date, to
the extent that (and only for as long as) such agreement prohibits the creation
of a security interest in such rights and such Loan Party has made a
commercially reasonable effort to avoid such prohibition or to obtain an
exemption therefrom in respect of the Liens granted under the Security
Documents.
"EXCLUDED TAXES" means, with respect to the Agents, any Lender, the
Issuing Bank or any other recipient of any payment to be made by or on account
of any obligation of the Borrower hereunder, (a) income or franchise taxes
imposed on (or measured by) its net income by the United States of America, or
by the jurisdiction under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which
its applicable lending office is located, (b) in the case of any Lender, any
branch profits taxes imposed by the United States of America or any similar tax
imposed by the jurisdiction in which such Lender's applicable lending office is
located, and (c) in the case of a Foreign Lender (other than an assignee
pursuant to a request by the Borrower under Section 2.17), any withholding tax
that is imposed on amounts payable to such Foreign
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Lender at the time such Foreign Lender becomes a party to this Agreement (or
designates a new lending office) or is attributable to such Foreign Lender's
failure to comply with Section 2.15(e), except to the extent that such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts from the
Borrower with respect to such withholding tax pursuant to Section 2.15(a).
"EXEMPTED FOREIGN SUBSIDIARY" means any Borrower Subsidiary that (a)
is not organized or doing business within the United States, and (b) if it is a
Significant Subsidiary, does not have income which, under the Code, is included
or deemed included with the income of the Borrower or any Borrower Subsidiary
that is not an Exempted Foreign Subsidiary.
"EXISTING CREDIT AGREEMENT" means the Amended and Restated
Multicurrency Credit Agreement dated as of April 28, 1997, as amended, among Old
Bell Sports Corp., the Guarantors party thereto, the Banks party thereto and
Harris Trust and Savings Bank.
"FEDERAL FUNDS RATE" means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1 %) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1 %) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.
"FEE LETTER" means the letter agreement between the Borrower and SG
dated August 17, 1998, relating to certain fees payable to the Administrative
Agent.
"FINANCIAL OFFICER" means, with respect to any Loan Party, the chief
financial officer, treasurer or controller of such Loan Party.
"FINANCING TRANSACTIONS" means the execution, delivery and performance
by each Loan Party of the Loan Documents to which it is to be a party and the
borrowing of Loans and issuance of Letters of Credit on or at any time after the
Effective Date and the use of the proceeds thereof.
"FIXED CHARGE COVERAGE RATIO" means, as of any day, the ratio of (i)
Adjusted EBITDA for the 12-month period then ended (taken as a single period)
minus Adjusted Capital Expenditures for such period, except Capital Expenditures
financed by purchase money Indebtedness, including Capital Lease Obligations, to
(ii) Adjusted Cash Interest Expense for such period.
"FOREIGN LENDER" means any Lender that is organized under the laws of
a jurisdiction other than that in which the Borrower is located. For purposes
of this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
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"GAAP" means generally accepted accounting principles in the United
States of America.
"GEORGE EMPLOYMENT AGREEMENT" means the Amended and Restated
Employment Agreement dated as of February 17, 1998 between Holdings and Mary J.
George.
"GOVERNMENTAL AUTHORITY" means the government of the United States of
America or any other nation, state or realm, or any combination or political
subdivision thereof, whether federal, state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
"GUARANTOR PLEDGE AND SECURITY AGREEMENT" means the Pledge and
Security Agreement substantially in the form of Exhibit B-2, entered into by the
Guarantors and the Administrative Agent for the benefit of the holders of
Obligations.
"GUARANTORS" means Holdings and each Borrower Subsidiary that has
executed a counterpart of the Guaranty, Indemnity and Subordination Agreement.
"GUARANTY" of or "GUARANTEE" by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly (except endorsements for collection or deposit in the ordinary course
of business), and shall include any obligation of the guarantor, direct or
indirect, (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation or to purchase (or to advance
or supply funds for the purchase of) any security for the payment thereof, (b)
to purchase or lease property, securities or services for the purpose of
assuring the owner of such Indebtedness or other obligation of the payment
thereof, (c) to maintain working capital, equity capital or any other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or other obligation or (d) as an
account party in respect of any letter of credit or letter of guaranty issued to
support such Indebtedness or obligation.
"GUARANTY, INDEMNITY AND SUBORDINATION AGREEMENT" means the Guaranty,
Indemnity and Subordination Agreement substantially in the form of Exhibit F,
entered into by the Guarantors for the benefit of the holders of Obligations and
other Beneficiaries described therein.
"HAZARDOUS MATERIALS" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law, including any material listed as a hazardous substance under
Section 101(14) of CERCLA.
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"HB ACQUISITION" means HB Acquisition Corporation, a Delaware
corporation.
"HB MERGER" has the meaning given it in the Recitals hereto.
"HEDGING AGREEMENT" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"HOLDINGS" has the meaning set forth in the preamble hereto.
"HOLDINGS CERTIFICATE OF DESIGNATION" means the certificate of
designation of the powers, preferences, and relative participation, optional and
other special rights pertaining to Holdings' Series A Preferred Stock.
"HOLDINGS DEBENTURE PURCHASE AGREEMENT" means the Debenture Purchase
Agreement dated as of August 17, 1998 between Holdings and the Investors, as in
effect on the Effective Date and amended from time to time thereafter in
compliance with Section 6.11.
"HOLDINGS DISCOUNT DEBENTURE INDENTURE" means an indenture governing
14% Senior Discount Debentures due 2009 issued by Holdings in exchange for the
securities sold under the Holdings Debenture Purchase Agreement on (a) the
identical terms of such securities insofar as they relate to the amount and
maturity of the principal thereof, the obligor thereon, the absence of
guaranties, waivers of recourse to Subsidiaries and rights to substantive
consolidation, the payment of principal and the rate, yield and payment of
interest (including the date of commencement of interest accrual), the absence
of any mandatory prepayment, sinking fund, purchase or redemption, and other
tenor, yield, recourse and payment provisions and (b) covenant restrictions
applicable to Holdings and its Subsidiaries no more restrictive than those set
forth in the Senior Subordinated Note Indenture, and (c) other terms reasonably
satisfactory to the Required Lenders, as such indenture may be originally
approved by the Required Lenders and amended from time to time thereafter in
compliance with Section 6.11.
"HOLDINGS DISCOUNT DEBENTURES" means $29,485,000 in face amount of
Holdings' 14% Senior Discount Debentures due 2009 issued and sold by Holdings
pursuant to the Holdings Debenture Purchase Agreement for cash proceeds, net of
fees and costs, of at least $15,000,000 or issued in exchange for the securities
sold under the Holdings Debenture Purchase Agreement and outstanding under the
Holdings Discount Debenture Indenture.
"HOLDINGS DOCUMENTS" means the Holdings Discount Debentures, the
Holdings Debenture Purchase Agreement, the Holdings Discount Debenture
Indenture, the Employment Agreements, the Management Agreement, the Tax Sharing
Agreement and each agreement executed or delivered pursuant thereto or in
connection therewith.
"HOLDINGS GROUP" means, collectively, Holdings and the Subsidiaries,
including the Borrower and Borrower Subsidiaries.
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"HOLDINGS IPO" means an underwritten initial public offering of
Holdings' common stock pursuant to a registration statement on Form S-1 declared
effective under the Securities Act of 1933, if, prior to or concurrently with
the consummation of the sale of such common stock, the Borrower gives the
Administrative Agent written notice stating that the Convertible Debt Retirement
Allowance is immediately, irrevocably and permanently reduced to zero and
forever eliminated from the Borrowing Base.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services, other than current
accounts payable incurred in the ordinary course of business, (f) all
obligations of such Person or any other Person secured by (or for which the
holder of such obligation has an existing right, contingent or otherwise, to be
secured by) any Lien (except a Permitted Encumbrance) on property then owned or
thereafter to be acquired by such Person, whether or not such Person has assumed
liability for the payment of such obligations, (g) all Guaranties by such Person
of Indebtedness or any other liability of any other Person, (h) all Capital
Lease Obligations of such Person, (i) all obligations of such Person, contingent
or otherwise, in respect of letters of credit (including all LC Exposure),
letters of guaranty or bankers acceptances, (j) all obligations of such Person,
contingent or otherwise, in respect of Hedging Agreements, (k) all obligations
of such Person, contingent or otherwise, under Profit Payment Agreements, (l)
all obligations of such Person, contingent or otherwise, that are Bonding
Liabilities, and (m) all Equity Interests that are, as to such Person,
Disqualified Stock.
"INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.
"INTEREST ELECTION REQUEST" means a request by the Borrower to convert
or continue a Borrowing in accordance with Section 2.7.
"INTEREST PAYMENT DATE" means (a) with respect to any ABR Loan (other
than a Swingline Loan), the last day of each month, (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period, and (c) with respect to any
Swingline Loan, the last day of each month.
"INTEREST PERIOD" means, with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect, except that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day
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and (b) any Interest Period that commences on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period. For these
purposes, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.
"IN-TRANSIT INVENTORY PURCHASE MONEY LOAN" means (a) a Loan the
proceeds of which are used solely to pay the purchase price for Inventory that
will constitute Eligible In-Transit Inventory when such proceeds are so used,
if, in the Borrowing Request for such Loan, the Borrower certifies that the
proceeds of such Loan will be used solely to pay the purchase price for such
Inventory and directs the Administrative Agent to remit such proceeds directly
to the seller of such Inventory in payment of the purchase price therefor, (b) a
Loan the proceeds of which are used solely to reimburse the Issuing Bank for a
draft honored under a Commercial Letter of Credit that meets the requirements
set forth in clause (b)(ii) in the definition of "Eligible In-Transit
Inventory," and (c) a Loan made and used for the purpose of refunding or
refinancing any Loan described in clause (a) or clause (b) above, including each
Revolving Loan made and used to refund or refinance any such Loan that is a
Swingline Loan; and, for purposes of determining the amount of In-Transit
Purchase Money Loans that are outstanding at any time, payments of principal
made on account of Loans shall be deemed applied first to the payment of Loans
that are not In-Transit Purchase Money Loans.
"INVESTMENT" means any purchase or acquisition of any Equity Interest
in any Person, any merger or consolidation with any Person, any purchase of the
assets of a business from any Person, any loan or advance to any Person, any
Guaranty of any Indebtedness or any other liability of any Person, any purchase
or acquisition of any Indebtedness or any other liability of any Person, any
Permitted Acquisition and any other transaction described in or restricted
pursuant to Section 6.5.
"INVESTORS" means Brentwood Fund and Charlesbank Fund.
"ISSUING BANK" means SG, in its capacity as issuer of Letters of
Credit, and any successor in such capacity.
"LC AVAILABILITY PERIOD" means the period from and including the
Effective Date to but excluding the earlier of (a) the date that is 30 days
prior to the Maturity Date and (b) the date of termination of the Revolving
Commitments.
"LC DISBURSEMENT" means a payment made by the Issuing Bank pursuant to
a Letter of Credit.
"LC EXPOSURE" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Lender at any time shall
be its Applicable Percentage of the total LC Exposure at such time.
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"LEE EMPLOYMENT AGREEMENT" means the Amended and Restated Employment
Agreement dated as of February 17, 1998 between Holdings and Terry Lee.
"LENDERS" means the Persons listed on Schedule 2.1 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance. Unless the context otherwise requires, the
term "Lenders" includes the Swingline Lender.
"LETTER OF CREDIT" means any letter of credit issued pursuant to this
Agreement.
"LIBO RATE" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of SG in immediately available funds in
the London interbank market at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period.
"LIEN" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset, (c) in the case of securities, any purchase
option, call or similar right of a third party with respect to such securities,
and (d) the filing of any financing statement, mechanics or materialmen's lien
claim or any similar notice.
"LOAN DOCUMENTS" means this Agreement, each promissory note issued
pursuant to Section 2.9(e), the Letters of Credit, the Guaranty, Indemnity and
Subordination Agreement, the Security Documents and each other certificate,
instrument or agreement executed and delivered by any Loan Party in favor of the
Administrative Agent, Issuing Bank or any Lender pursuant to the provisions
hereof or thereof.
"LOAN PARTIES" means the Borrower and each Guarantor.
"LOANS" means the loans made by the Lenders to the Borrower pursuant
to this Agreement and includes the Revolving Loans and the Swingline Loans.
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"MANAGEMENT AGREEMENT" means the Corporate and Administrative Services
Agreement dated as of August 17, 1998 among Brentwood, Charlesbank, the Borrower
and Holdings, as originally in effect and amended from time to time thereafter
in compliance with Section 6.11.
"MARGIN STOCK" has the meaning assigned to such term in Regulation U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, assets, liabilities or condition (financial or otherwise)
or, except for any determinination of any Material Adverse Effect made on or as
of the Effective Date, the prospects of Holdings and the Subsidiaries, taken as
a whole, or the Borrower and Borrower Subsidiaries, taken as a whole, (b) the
ability of the Borrower to pay the Obligations or perform its agreements under
the Loan Documents, or (c) the validity or enforceability of this Agreement or
the Administrative Agent's Liens granted in the Security Documents or any
material provision of any other Loan Document or any of the material rights or
remedies of the Administrative Agent, the Issuing Bank or any Lender hereunder
or thereunder.
"MATURITY DATE" means August 17, 2003.
"MERGER AGREEMENTS" the Merger and Recapitalization Agreement and the
Agreement and Plan of Merger dated July 24, 1998 between the Borrower and ARH.
"MERGER AND RECAPITALIZATION AGREEMENT" means the Agreement and Plan
of Recapitalization and Merger, dated as of February 17, 1998, as amended by the
First Amendment thereto dated as of April 8, 1998, between HB Acquisition and
Old Bell Sports Corp.
"MERGERS" means the HB Merger, the ARH Merger and the Borrower Merger.
"MISCELLANEOUS UNPLEDGED ASSETS" means, at any time of determination,
(a) Inventory (except Eligible In-Transit Inventory) in transit from one country
to another, if the Administrative Agent's security interest therein cannot
lawfully be granted under the Security Documents or perfected by the filing of a
financing statement under the provisions of Article 9 of the Uniform Commercial
Code, as in effect in any jurisdiction within the United States, on such
Inventory or on negotiable Documents covering such Inventory, and (b) other
assets of the Loan Parties (i) upon which a security interest cannot be created
under the laws of the State of New York and perfected by the filing of a
financing statement under the provisions of Article 9 of the Uniform Commercial
Code, as in effect in any jurisdiction within the United States, and (ii) that
have, in the aggregate for all such assets owned by all Loan Parties, a fair
value not exceeding the sum of (A) $750,000 and (B) the aggregate amount then on
deposit in any and all collection accounts that are automatically cleared on at
least a weekly basis to a concentration account which is maintained, and as to
which a Perfection Notice is in effect, as set forth in Section 5.13(b)
"MOODY'S" means Moody's Investors Service, a division of McGraw-Hill,
Inc.
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"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"NET CASH PROCEEDS" means:
(a) all cash proceeds received by any member of the Holdings Group,
net of underwriting discounts and commissions and issuance costs:
(i) from the issuance and sale of any Equity Interests at any
time after the Effective Date, except the issuance and sale of Equity
Interests in Holdings (A) constituting or applied to fund the purchase
consideration for any Permitted Acquisition, (B) to any Investor or
Affiliate of an Investor, but only so long as the cash proceeds therefrom
do not in an aggregate exceed $5,000,000, or (C) to employees of the
Borrower or any Borrower Subsidiary for aggregate issue proceeds not
exceeding $750,000 in any fiscal year or $2,000,000 cumulatively from the
Effective Date, or
(ii) from the incurrence of any Indebtedness at any time after
the Effective Date, except Indebtedness described in clauses (i) through
(xiv) in Section 6.1, up to the amounts permitted thereunder as of the
Effective Date,
(b) all cash proceeds received by the Borrower or any Borrower
Subsidiary from the Transfer of any assets (except Transfers described in
clauses (i), (ii), (iii) and (v) of Section 6.6, subject to the limitations set
forth therein as of the Effective Date) or from the sale, collection or other
disposition or liquidation of any promissory note or other obligation issued in
consideration of any such Transfer of assets, net of (i) costs of the Transfer
incurred and paid or currently payable in cash by members of the Holdings Group,
(ii) income or gains taxes payable in cash (as opposed to a credit against
losses, loss carryforwards or other tax attributes) by members of the Holdings
Group by reason of the Transfer, and (iii) any such cash proceeds that are
applied to the repayment of any Capital Lease or other Indebtedness secured by
the property sold in such Transfer, and
(c) all other extraordinary cash receipts (such as tax refunds,
pension plan reversions or proceeds of casualty insurance or condemnation awards
not applied to the restoration or replacement of the property that was damaged,
lost or taken) received by any member of the Holdings Group.
"OBLIGATIONS" means all direct or indirect debts, liabilities and
other obligations of the Borrower or any other Loan Party of any and every type
and description at any time arising under or in connection with this Agreement
or any other Loan Document, to the Administrative Agent, the Arrangers, each
other Agent, the Issuing Bank, any Lender, any Person entitled to
indemnification pursuant to Section 9.3(b), or any of their respective Related
Persons or their respective successors, transferees or assigns, whether or not
the right of such Person to payment in respect of such obligations and
liabilities is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
and whether or not such claim is discharged, stayed or otherwise affected by
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any bankruptcy case or insolvency or liquidation proceeding, and shall include
(a) all liabilities of the Borrower for principal of and interest on the Loans,
(b) all liabilities of the Borrower in respect of Letters of Credit, (c) all
liabilities of the Borrower under the Loan Documents for any fees, costs, taxes,
expenses, indemnification and other amounts payable thereunder, (d) all
liabilities under the Guaranty, Indemnity and Subordination Agreement and the
Security Documents, and (e) all other liabilities of the Borrower or any other
Loan Party to any such Person under or in respect of any of the Loan Documents
or the Financing Transactions.
"OFFERING MEMORANDUM" means the preliminary offering memorandum dated
August 10, 1998) relating to the issuance and sale of the Senior Subordinated
Notes.
"OLD BELL SPORTS CORP." means Bell Sports Corp., a Delaware
corporation, as it existed prior to the HB Merger.
"OTHER TAXES" means any and all current or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made under any Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Loan Document.
"PATENT AND TRADEMARK ASSIGNMENT" means the Patent and Trademark
Collateral Assignment substantially in the form of Exhibit G, entered into by
each Loan Party and the Administrative Agent for the benefit of the holders of
Obligations.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"PERFECTION CERTIFICATE" means a certificate substantially in the form
of Exhibit H or any other form approved by the Administrative Agent, signed by a
Financial Officer of the Borrower.
"PERFECTION NOTICE" means a notice substantially in the form of
Exhibit I or any other form approved by the Administrative Agent, addressed to
the depositary bank on any deposit account maintained by a Loan Party, duly
executed on behalf of such Loan Party, delivered to such depositary bank and,
where required by law in order to perfect a security interest in such deposit
account, duly receipted for and agreed to on behalf of the depositary bank.
"PERMITTED ACQUISITION" means the purchase or other acquisition by the
Borrower or a Wholly-Owned Borrower Subsidiary (by merger, consolidation,
purchase of stock, purchase of assets or otherwise) of substantially all the
assets of an on-going business or line of business, if each of the following
requirements is met:
(a) the aggregate consideration paid or promised to be paid (whether
such promise is fixed or contingent and, if contingent, whether or not it is
earned, including all payments made under Profit Payment Agreements and the
maximum amount that remains potentially payable under any and all outstanding
Profit
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Payment Agreements) for any and all such purchases or acquisitions contracted
for or made at any time after the Effective Date does not exceed $15,000,000 at
any time;
(b) the Borrower delivers to the Administrative Agent, at least ten
Business Days prior to the date on which such purchase or other acquisition is
consummated, (i) a description of such business or line of business and the
structure and terms of such purchase or other acquisition, in reasonable detail,
(ii) copies of historical financial reports and certificates relating to such
business or line of business, including (if available) audited annual financial
statements for at least the three preceding years, and (iii) the Borrower's
financial projections for such business or line of business and the other on-
going operations of the Borrower and Borrower Subsidiaries through the end of
the Borrower's fiscal year ending on or about June 30, 2004, accompanied by a
certificate of a Financial Officer of the Borrower stating that such financial
projections are based on reasonable assumptions and the Borrower's operating
plans at the time and demonstrating that, if the results projected therein are
achieved, the Borrower will be in compliance with Sections 6.12, 6.13, 6.14 and
6.15 at all times prior to the Maturity Date;
(c) after giving effect to the consummation of such purchase or other
acquisition and the performance of all agreements made by any member of the
Holdings Group in connection therewith, the assets of such business or line of
business are owned solely by the Borrower or a Wholly-Owned Borrower Subsidiary,
free from any Equity Interest or co-ownership interest held by any other Person
and free from any Profit Payment Agreement except a Permitted Earn-Out
Liability; and
(d) no Default is continuing at the time such purchase or other
acquisition is contracted for or consummated, no Default would result from such
consummation, and each of the representations and warranties in the Loan
Documents, except those that relate specifically to another date, is true and
correct at and after giving effect to such consummation.
"PERMITTED CASH INVESTMENTS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing within 365 days from the date of acquisition thereof;
(b) investments in obligations of state or local governments within
the United States or in commercial paper issued by corporate obligors within the
United States, in each case maturing within 365 days from the date of
acquisition thereof and having, at such date of acquisition, the highest or
second highest credit rating obtainable from S&P or from Moody's;
(c) investments in demand deposits or in certificates of deposit,
banker's acceptances and time deposits maturing within 365 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money market
deposit accounts or repurchase agreements issued or offered by, any Lender or
any domestic
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office of any commercial bank organized under the laws of the United States or,
in the case of any such investment made by an Exempted Foreign Subsidiary, any
country that is a member of the Organization for Economic Cooperation and
Development (or, in each case, any state or political subdivision thereof) that
has a combined capital and surplus and undivided profits of not less than
$500,000,000;
(d) investments in mutual funds that are invested solely in cash or
Permitted Cash Investments; and
(e) investments by a foreign Subsidiary in local currency investments
that are comparable as to type, issuer, tenor and risk.
"PERMITTED EARN-OUT LIABILITY" means a Profit Payment Agreement
entered into solely by, and binding solely upon, Holdings or the Borrower (and
not Guaranteed by any Borrower Subsidiary), promising to pay a seller in a
Permitted Acquisition an amount, up to a stated maximum liability, contingent
upon the future performance of the business or line of business sold to the
Borrower or a Borrower Subsidiary in such Permitted Acquisition, if (a) the
aggregate maximum stated liability under any and all such agreements made in
connection with or in respect of any Permitted Acquisition does not exceed 20%
of the aggregate purchase consideration paid by the Borrower and Borrower
Subsidiaries for such Permitted Acquisition and (b) the terms of such agreements
are reasonably satisfactory to the Required Lenders.
"PERMITTED ENCUMBRANCES" means any of the following, so long as it is
not a Lien securing Indebtedness (other than liabilities constituting
Indebtedness solely because they are secured by a Lien):
(a) Liens imposed by law for taxes, assessments and other
governmental charges that are not yet due or are being contested in compliance
with Section 5.5;
(b) Landlord Liens imposed by law and carriers', warehousemen's,
mechanics', materialmen's, repairmen's and other like Liens imposed by law, in
each case arising in the ordinary course of business and securing obligations
that are not overdue by more than 60 days or are being contested in compliance
with Section 5.5;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, performance bonds and other obligations of a like
nature, in each case made in the ordinary course of business, but not including
any appeal bond or any other surety bond or undertaking relating to any
litigation or any claim, order or judgment therein;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under Section 7.1(l);
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(f) easements, zoning restrictions, minor defects or irregularities
of title, rights-of-way and similar encumbrances on real property imposed by law
or arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property or interfere with the ordinary conduct of business of the Borrower or
any Borrower Subsidiary; and
(g) customs liens in favor of Governmental Authorities.
"PERSON" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, whether or not terminated, and in
respect of which a Loan Party or any ERISA Affiliate is or was (or, if such plan
were terminated, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA.
"PLEDGE AND SECURITY AGREEMENTS" means the Borrower Pledge and
Security Agreement and the Guarantor Pledge and Security Agreement.
"PRICING CERTIFICATE" means a certificate substantially in the form of
Exhibit J or any other form approved by the Administrative Agent, signed by a
Financial Officer of the Borrower.
"PRICING DETERMINATION DATE" means the last day of each fiscal quarter
of the Borrower.
"PRICING RATIO" means, as of any Pricing Determination Date, the ratio
of (a) the average of Adjusted Total Debt determined on the last day of each of
the twelve fiscal months of the Borrower in the 12-month period ended on such
Pricing Determination Date to (b) Adjusted EBITDA for such 12-month period
(taken as a single accounting period).
"PROFIT PAYMENT AGREEMENT" means any agreement to make any payment the
amount of which is, or the terms of payment of which are, in any respect subject
to or contingent upon the revenues, income, cash flow or profits (or the like)
of any Person or business.
"PRO FORMA DEBT AND INTEREST ADJUSTMENT" means:
(a) in respect of any permanent reduction in the outstanding
Indebtedness of the Borrower or any Borrower Subsidiary that includes, in the
case of revolving credit Indebtedness, a correlative permanent reduction in the
amount of Indebtedness permitted to be incurred under the agreement governing
such Indebtedness, (i) pro forma adjustments to Cash Interest Expense to
reflect, for any period prior to the occurrence of such reduction, the
elimination of interest charges that are attributable to the amount of
Indebtedness so reduced, as if such reduction had occurred on the first day of
such period and in conformity with GAAP accounting practice and Regulation S-X
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under the Exchange Act and (ii) pro forma adjustments to Total Debt to reflect,
for any day in such period, the elimination of the amount of Indebtedness so
reduced; and
(b) in respect of any funding of Convertible Debt Retirement Loans,
(i) pro forma adjustments to Cash Interest Expense to reflect, for any period
prior to the occurrence of such reduction, the addition of interest charges on
the amount of such Loans, as if such Loans had been outstanding on and after the
first day of such period and in conformity with GAAP accounting practice and
Regulation S-X under the Exchange Act and (ii) pro forma adjustments to Total
Debt to reflect, for any day in such period, the addition of the amount of such
Loans.
Any Pro Forma Debt and Interest Adjustment described in clause (a)
above shall be permitted effective on the fifth Business Day after the Borrower
delivers to the Administrative Agent a certificate signed by a Financial Officer
stating (x) the amount and date of such reduction, (y) that the Indebtedness so
reduced will not be reborrowed, reincurred or replaced prior to the Maturity
Date (and voluntarily reducing the amount of Indebtedness otherwise committed or
permitted under this Agreement by the amount of such reduction), and (z) the
amount of the interest charges attributable to the amount of Indebtedness so
reduced in each of the four preceding fiscal quarters. Any Pro Forma Debt and
Interest Adjustment described in clause (b) above shall be effective on the
fifth Business Day after the funding date of the Convertible Debt Retirement
Loans therein described.
"PRO FORMA EBITDA ADJUSTMENT" means (a) addbacks in the amount of
$975,515, $1,042,863 $772,794 and $207,600 for the last three fiscal quarters in
the fiscal year ended June 27, 1998 and the first fiscal quarter in the fiscal
year ending on or about June 30, 1999, respectively, reflecting agreed
adjustments made in connection with the HB Merger, and (without duplication) (b)
in respect of any Pro Forma Event, other pro forma adjustments to Consolidated
EBITDA to reflect, for any period prior to the occurrence of such Pro Forma
Event:
(i) in the case of a discontinued or sold business or
operation, the elimination of income items and costs and expenses
associated with the business or operation that was sold or discontinued and
the addition of any increases in costs and expenses resulting from such
discontinuance or sale;
(ii) in the case of any acquired business or operation, the
addition of income items and expense and other charges associated with the
business or operation that was acquired, except charges for nonrecurring
losses or for costs or expenses that will not be continuing costs or
expenses after the consummation of such acquisition, in each case as if
such Pro Forma Event had occurred on the first day of such period and in
conformity with GAAP accounting practice and Regulation S-X under the
Exchange Act; or
(iii) any other adjustments approved by the Required Lenders.
Any Pro Forma EBITDA Adjustment described in clause (i) or clause (ii)
above shall be effective on the fifth Business Day after the Borrower delivers
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to the Administrative Agent a statement of PriceWaterhouseCoopers LLP, or
another firm of certified public accountants of nationally recognized standing,
if the aggregate amount of all Pro Forma EBITDA Adjustments attributable to a
specified Pro Forma Event exceeds 5% of Adjusted EBITDA for the 12 months ended
on the last day of the most recent fiscal quarter for which financial
information has then been delivered to the Administrative Agent, or (if not more
than 5% of such Adjusted EBITDA) a certificate of a Financial Officer of the
Borrower, setting forth (x) the Pro Forma Event giving rise to such Pro Forma
EBITDA Adjustments, (y) the amounts of such Pro Forma Adjustments for each of
the four preceding fiscal quarters, and (z) that such Pro Forma Adjustments are
consistent with GAAP accounting practice and Regulation S-X under the Exchange
Act.
"PRO FORMA EVENT" means (a) the sale or other disposition of all
Equity Interests in a Borrower Subsidiary or of the operating assets of a
material part of the business of the Borrower or a Borrower Subsidiary to a
Person that is not an Investor or a member of the Holdings Group and is not an
Affiliate of an Investor or member of the Holdings Group, (b) the permanent
discontinuance of a line of business or closure of an operating facility, (c)
permanent cost reductions resulting from contractually committed reductions in
operating costs, and (d) any other event (including any acquisition of the
assets or Equity Interests in an operating business permitted under this
Agreement) approved as a Pro Forma Event by the Required Lenders.
"PROXY STATEMENT" means Old Bell Sports Corp.'s proxy statement
relating to the HB Merger dated July 1, 1998.
"REGISTER" has the meaning set forth in Section 9.4(c).
"REGULATION T" means Regulation T of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"REGULATION U" means Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"REGULATION X" means Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"RELATED PARTIES" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees,
attorneys, agents and advisors of such Person and such Person's Affiliates.
"REQUIRED LENDERS" means, at any time, Lenders having Total Exposures
and unused Revolving Commitments representing more than 50% of the sum of the
Total Exposures and unused Revolving Commitments at such time.
"RESTRICTED FUNDS" means a deposit of funds with the depositary bank
or financial intermediary under the Restricted Funds Deposit Agreement in an
amount equal to the difference between (a) the principal amount of all
Convertible Debentures that remain outstanding after giving effect to the
purchase of Convertible Debenture
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tendered for purchase pursuant to the Debt Tender Offer and retired upon such
purchase, and (b) $25,000,000.
"RESTRICTED FUNDS DEPOSIT AGREEMENT" means a Deposit Agreement on
terms and conditions and in form and substance satisfactory to the Required
Lenders, duly executed by Holdings, the Borrower and a depositary bank or
financial intermediary satisfactory to the Required Lenders.
"RESTRICTED PAYMENT" means (a) any payment or distribution, direct or
indirect, on account or in respect of any Equity Interest in any Loan Party or
any of the Senior Subordinated Notes, Holdings Discount Debentures or
Convertible Debentures or other Subordinated Indebtedness, (b) any redemption,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any Equity Interest in any Loan Party or any
subsidiary of any Loan Party or any of the Senior Subordinated Notes, Holdings
Discount Debentures or Convertible Debentures or other Subordinated
Indebtedness, or (c) any payment or reimbursement, direct or indirect, on
account of any consulting fees, management fees, director fees, expenses, taxes,
indemnification obligations or other costs incurred or payable by or on behalf
of Holdings, the Borrower or any Subsidiary to or for the benefit of the holder
of any Equity Interest in Holdings or any Affiliate of any such holder.
"REVOLVING AVAILABILITY PERIOD" means the period from and including
the Effective Date to but excluding the earlier of (a) the Maturity Date and (b)
the date of termination of the Revolving Commitments.
"REVOLVING COMMITMENT" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans and to acquire participations
in Letters of Credit and Swingline Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Total Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.8 or Section 7.1 or any other provision of this Agreement and (b)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.4. The initial amount of each Lender's Revolving
Commitment is set forth on Schedule 2.1, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Revolving Commitment, as
applicable (and the initial aggregate amount of the Lenders' Revolving
Commitments is $60,000,000).
"REVOLVING LOAN" means a Loan made pursuant to Section 2.1.
"S&P" means Standard & Poor's Corporation.
"SECURITY DOCUMENTS" means the Pledge and Security Agreements, the
Patent and Trademark Assignment and each other collateral assignment, security
agreement or other instrument or document executed and delivered pursuant to
Section 5.12 or Section 5.13 to secure any of the Obligations.
"SENIOR LEVERAGE RATIO" means, as of any day, the ratio of (a) the
difference between (i) Total Debt on such day and (ii) the Senior Subordinated
Notes and other Subordinated Indebtedness of the Borrower outstanding on such
day to
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(b) Adjusted EBITDA for the 12-month period then ended (taken as a single
accounting period).
"SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture dated as of
August 17, 1998, between the Borrower and Harris Trust and Savings Bank, as
Trustee, as in effect on the Effective Date and amended from time to time
thereafter in compliance with Section 6.11.
"SENIOR SUBORDINATED NOTES" means the Borrower's 11% Senior
Subordinated Notes due 2008 issued and outstanding under the Senior Subordinated
Note Indenture.
"SG" means Societe Generale, a bank organized under the laws of the
Republic of France.
"SG COWEN" means SG Cowen Securities Corporation.
"SIGNIFICANT SUBSIDIARY" means, in respect of any Person, each
subsidiary having assets or revenues that, when consolidated with the assets and
income of all subsidiaries of such subsidiary, constitute more than 10% of the
consolidated assets or consolidated revenues of such Person and its
subsidiaries.
"SUBORDINATED DEBT ISSUANCE DOCUMENTS" means the Senior Subordinated
Note Indenture, the Senior Subordinated Notes and the Purchase Agreement dated
as of August 10, 1998 and Registration Rights Agreement dated as of August 17,
1998 entered into by the Borrower and Holdings in connection with the issuance
and sale thereof, as in effect on the Effective Date and amended from time to
time thereafter in compliance with Section 6.11.
"SUBORDINATED INDEBTEDNESS" means, as to any Person, any Indebtedness
of such Person the payment of which is subordinated, by the terms of the
instrument, indenture or agreement evidencing or governing such Indebtedness, to
the payment of any other Indebtedness or liability of such Person.
"SUBSIDIARY" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity of which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power or, in the case
of a partnership, more than 50% of the general partnership interests are, as of
such date, owned, controlled or held, or that is, as of such date, otherwise
Controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"SUBSIDIARY" means any subsidiary of Holdings and the Borrower.
"SUBSIDIARY GUARANTORS" means each existing and hereafter acquired
direct and indirect Borrower Subsidiary, except an Exempted Foreign Subsidiary.
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"SURPLUS LIQUIDITY" means, as of any day, the excess, if any, of (a)
the sum of (i) all cash on hand, cash collections, cash in bank and Permitted
Cash Investments held by any member of the Holdings Group on such day, except
Restricted Funds, (ii) the difference between (A) the Revolving Commitments or
the Borrowing Base (whichever is less) on such day and (B) the Total Exposure on
such day, (iii) any extraordinary liquidity reserves (such as intentionally
delayed payments or intentionally prepaid expenses not arising in the ordinary
course of business), and (iv) any other cash equivalents or cash resources then
immediately available to any member of the Holdings Group at its option, over
(b) $10,000,000.
"SWINGLINE EXPOSURE" means, at any time, the aggregate principal
amount of all Swingline Loans outstanding at such time. The Swingline Exposure
of any Lender at any time shall be its Applicable Percentage of the total
Swingline Exposure at such time.
"SWINGLINE LENDER" means SG, in its capacity as lender of Swingline
Loans hereunder.
"SWINGLINE LOAN" means a Loan made pursuant to Section 2.4.
"SYNDICATION AGENT" means DLJ Capital in its capacity as syndication
agent for the Lenders hereunder.
"TAXES" means any and all current or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"TAX SHARING AGREEMENT" means an agreement relating to the payment of
taxes imposed on Holdings by reason of the inclusion of the Borrower and
Borrower Subsidiaries in a consolidated return when due directly to the taxing
authority and only if and to the extent payment would have been due from and
then payable by the Borrower and Borrower Subsidiaries, all on terms reasonably
satisfactory to the Administrative Agent.
"TOTAL DEBT" means, as of any day, sum of (a) the amount of all
Indebtedness of the Borrower and Borrower Subsidiaries outstanding on such day
that is required under GAAP to be carried as a liability on their consolidated
balance sheet and (b) the amount of all reserves in respect of any other
Indebtedness of the Borrower and Borrower Subsidiaries outstanding on such day
that are required under GAAP to be set forth on their consolidated balance
sheet.
"TOTAL EXPOSURE" means, with respect to any Lender at any time, the
sum of the outstanding principal amount of such Lender's Revolving Loans and its
LC Exposure and Swingline Exposure at such time.
"TOTAL LEVERAGE RATIO" means, as of any day, the ratio of (a) Total
Debt on such day to (b) Adjusted EBITDA for the 12-month period then ended
(taken as a single accounting period).
"TRANSACTIONS" means the Financing Transactions, the authorization and
consummation of the Mergers and the payment or delivery of the merger
consideration
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therefor, the authorization, issuance and sale of the Senior Subordinated Notes
and the use of the proceeds thereof, the authorization and execution of the Debt
Tender Offer and the funding and consummation of the purchase thereunder, the
authorization, issuance and sale of the Holdings Discount Debentures pursuant to
the Holdings Debenture Purchase Agreement or the Holdings Discount Debenture
Indenture and the use of the proceeds thereof, and the execution and
consummation of the transactions contemplated by the Holdings Documents.
"TRANSACTION DOCUMENTS" means the Merger Agreements, the Equity
Documents, the Subordinated Debt Issuance Documents, the Holdings Documents, the
Loan Documents and each agreement executed or delivered pursuant thereto or in
connection therewith.
"TRANSFER" has the meaning set forth in Section 6.6.
"TYPE," when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"WHOLLY-OWNED," when used in reference to any subsidiary of any
Person, means that all outstanding Equity Interests in such subsidiary (except
any directors' qualifying shares, in the smallest required number) are
beneficially owned solely by such Person or one or more other Wholly-Owned
subsidiaries of such Person.
"WITHDRAWAL LIABILITY" means liability of any Loan Party or any of its
ERISA Affiliates with respect to a Multiemployer Plan as a result of a complete
or partial withdrawal of such Loan Party or any of its ERISA Affiliates from
such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of
Title IV of ERISA.
"YEAR 2000 COMPLIANT" means the ability of the software and other
processing capabilities of each member of the Holdings Group correctly to
interpret and manipulate all data, in whatever form (including printed form,
screen displays, financial records and loan-related data), so as to avoid errors
in processing that may otherwise occur because of the inability of the software
or other processing capabilities to recognize accurately the year 2000 or
subsequent dates.
SECTION 1.2. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of
this Agreement, Loans may be classified and referred to by Class (e.g., a
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
Borrowing").
SECTION 1.3. TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation." The word "will"
shall be construed to
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have the same meaning and effect as the word "shall." Unless the context
requires otherwise (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors,
transferees and assigns, (c) the words "herein," "hereof" and "hereunder," and
words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (d) all references herein
to Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, whether real, personal or mixed and of every type and description.
SECTION 1.4. ACCOUNTING TERMS; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time. If the
Borrower notifies the Administrative Agent that the Borrower requests an
amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision or if the Administrative Agent notifies the Borrower
that the Required Lenders request an amendment to any provision hereof for such
purpose (in each case regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof), then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change became effective until such notice is withdrawn or such
provision is amended in accordance herewith.
SECTION 1.5. TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE. When
capitalized, the following terms used in this Agreement or the Security
Documents have the meanings given to them in the Uniform Commercial Code, as in
effect in the State of New York on the date of this Agreement:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Account Debtor Commodity Goods Securities Intermediary
Intermediary
Accounts Documents Instruments Security
Certificated Equipment Inventory Security Certificate
Security
Chattel Paper Financial Asset Investment Property Security Entitlement
Commodity Fixtures Purchase Money Uncertificated Security
Account Security Interest
Commodity General Intangibles Securities Account
Contract
</TABLE>
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ARTICLE II.
THE CREDIT
SECTION 2.1. REVOLVING COMMITMENTS. Subject to the terms and
conditions set forth herein, each Lender severally (and not jointly) agrees to
make Revolving Loans to the Borrower from time to time during the Revolving
Availability Period in an aggregate principal amount that will not result in
such Lender's Total Exposure at any time exceeding the lesser of (i) the amount
of such Lender's Revolving Commitment in effect at such time and (ii) such
Lender's ratable share, based on the Lenders' respective Revolving Commitments,
of the Borrowing Base at such time. Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow and prepay
Revolving Loans. Amounts repaid under the Revolving Credit Facility may be
reborrowed during the Revolving Availability Period up to the amount then
available as set forth in this Section 2.1, if, at the time of reborrowing, the
conditions set forth in Section 3.2 are met.
SECTION 2.2 LOANS AND BORROWINGS.
(a) RATABLE AND SEVERAL. Each Loan (other than a Swingline Loan)
shall be made as part of a Borrowing consisting of Loans of the same Class and
Type made by the Lenders ratably in accordance with their respective Commitments
of the applicable Class. The failure of any Lender to make any Loan required to
be made by it shall not relieve any other Lender of its obligations hereunder.
The Revolving Commitments are several and no Lender shall be responsible for any
other Lender's failure to make Loans as required.
(b) TYPE. Subject to Sections 2.7(f), 2.7(g) and 2.13, each
Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans
as the Borrower may request in accordance herewith. Each Swingline Loan shall
be an ABR Loan. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan. The exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.
(c) BORROWING AMOUNT. At the commencement of each Interest Period
for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount
that is an integral multiple of $100,000 and not less than $500,000. At the
time that each ABR Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $100,000 and not less than $500,000,
except that an ABR Borrowing may be in an aggregate amount that is equal to the
entire unused balance of the total Revolving Commitments or that is required to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.5(e). Each Swingline Loan shall be in an amount that is an integral multiple
of $50,000 and not less than $100,000. Borrowings of more than one Type and
Class may be outstanding at the same time, but there shall not at any time be
more than a total of eight Eurodollar Borrowings outstanding.
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(d) LIMITATION. Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to elect to convert
or continue, any Borrowing if the Interest Period requested with respect thereto
would end after the Maturity Date.
SECTION 2.3. REQUESTS FOR BORROWINGS. To request a Revolving
Borrowing, the Borrower shall notify the Administrative Agent of such request by
telephone (a) in the case of a Eurodollar Borrowing, not later than 1:00 p.m.,
New York City time, three Business Days before the date of the proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 1:00 p.m., New
York City time, one Business Day before the date of the proposed Borrowing. Each
such telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.2:
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) subject to Section 2.2, whether such Borrowing is to be an
ABR Borrowing or a Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period;"
(v) whether such Revolving Borrowing is requested to fund an
In-Transit Inventory Purchase Money Loan and, if so, the amount thereof and
the other certification and direction required as set forth in the
definition of "In-Transit Inventory Purchase Money Loan;" and
(vi) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.6.
If no election as to the Type of Borrowing is specified, then the
requested Borrowing shall be an ABR Borrowing. If no Interest Period is
specified with respect to any requested Eurodollar Borrowing, then the Borrower
shall be deemed to have selected an Interest Period of one month's duration.
Promptly following receipt of a Borrowing Request in accordance with this
Section 2.3, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.4. SWINGLINE LOANS.
(a) FUNDING OF SWINGLINE LOANS. Subject to the terms and conditions
set forth herein, the Swingline Lender agrees to make Swingline Loans to the
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Borrower from time to time during the Revolving Availability Period, in an
aggregate principal amount at any time outstanding that will not result in (i)
the aggregate principal amount of outstanding Swingline Loans exceeding
$5,000,000 or (ii) the sum of the Total Exposures exceeding the lesser of (A)
the total Revolving Commitments in effect at such time and (B) the Borrowing
Base at such time. The Swingline Lender shall not be required to make a
Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing
limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, prepay and reborrow Swingline Loans.
(b) REQUEST FOR SWINGLINE LOAN. To request a Swingline Loan, the
Borrower shall notify the Administrative Agent of such request by telephone
(confirmed by telecopy), not later than 12:00 noon, New York City time, on the
day of a proposed Swingline Loan. Each such notice shall be irrevocable and
shall specify the requested date (which shall be a Business Day) and amount of
the requested Swingline Loan. The Administrative Agent will promptly advise the
Swingline Lender of any such notice received from the Borrower. The Swingline
Lender shall make such Swingline Loan available to the Borrower by means of a
credit to the general deposit account of the Borrower with SG in New York City
(or, in the case of a Swingline Loan made to finance the reimbursement of an LC
Disbursement as provided in Section 2.5(e), by remittance to the Issuing Bank)
by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
If a Swingline Loan is requested to fund an In-Transit Inventory Purchase Money
Loan, such request shall state the amount thereof and include the other
certification and direction required as set forth in the definition thereof.
(c) PURCHASE OF PARTICIPATIONS BY LENDERS. Upon demand by the
Swingline Lender, by written notice given to the Administrative Agent not later
than 11:00 a.m., New York City time, on any Business Day, each Lender severally
(and not jointly) will purchase on such Business Day, for a cash purchase price
equal to its Applicable Percentage of 100% of the amount outstanding,
participations in all or a portion of the Swingline Loans outstanding. Such
notice shall specify the aggregate amount of Swingline Loans in which Lenders
will participate. Promptly upon receipt of such notice, the Administrative
Agent will give notice thereof to each Lender, specifying in such notice such
Lender's Applicable Percentage of such Swingline Loans. Each Lender hereby
absolutely and unconditionally agrees, severally (and not jointly) and upon
receipt of notice as provided above, to pay to the Administrative Agent, for the
account of the Swingline Lender, such Lender's Applicable Percentage of such
Swingline Loans. Each Lender acknowledges and agrees that its obligation to
acquire participations in Swingline Loans pursuant to this Section 2.4(c) is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of a Default, the failure
of the Borrower to satisfy the conditions set forth in Section 3.2 or the
reduction or termination of the Revolving Commitments, and that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever. Each Lender shall comply with its obligation under this Section
2.4(c) by wire transfer of immediately available funds, in the same manner as
provided in Section 2.6 with respect to Loans made by such Lender (and Section
2.6 shall apply, mutatis mutandis, to the payment obligations of the Lenders),
and the Administrative Agent shall promptly pay to the Swingline Lender the
amounts so received by it from the Lenders. The Administrative Agent shall
notify the Borrower of any participations in any Swingline Loan acquired
pursuant to this Section 2.4(c), and
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thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent, and any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Lenders that
have made their payments pursuant to this Section 2.4(c) and to the Swingline
Lender, as their interests may appear. The purchase of participations in a
Swingline Loan pursuant to this Section 2.4(c) shall not relieve the Borrower of
any default in the payment thereof.
SECTION 2.5. LETTERS OF CREDIT.
(a) ISSUANCE OF LETTERS OF CREDIT. Subject to the terms and
conditions set forth herein, the Borrower may request the issuance of Letters of
Credit for its own account or for the account of any Wholly-Owned Borrower
Subsidiary, in a form reasonably acceptable to the Issuing Bank, at any time and
from time to time during the LC Availability Period. In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by the Borrower to, or entered into by the Borrower with, the Issuing
Bank relating to any Letter of Credit, the terms and conditions of this
Agreement shall control.
(b) REQUEST FOR LETTER OF CREDIT. To request the issuance of a
Letter of Credit (or the amendment, renewal or extension of an outstanding
Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by
electronic communication, if arrangements for doing so have been approved by the
Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in
advance of the requested date of issuance, amendment, renewal or extension) a
notice requesting the issuance of a Letter of Credit, or identifying the Letter
of Credit to be amended, renewed or extended, and specifying the date of
issuance, amendment, renewal or extension (which shall be a Business Day), the
date on which such Letter of Credit is to expire (which shall comply with
Section 2.5(c)), the amount of such Letter of Credit, the name and address of
the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit. If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application on
the Issuing Bank's standard form in connection with any request for a Letter of
Credit. A Letter of Credit shall be issued, amended, renewed or extended only
if (and upon issuance, amendment, renewal or extension of each Letter of Credit
the Borrower shall be deemed to represent and warrant that), after giving effect
to such issuance, amendment, renewal or extension (i) the LC Exposure shall not
exceed $15,000,000 and (ii) the aggregate Total Exposures shall not exceed the
lesser of (A) the aggregate Revolving Commitments in effect at such time and (B)
the Borrowing Base at such time.
(c) EXPIRY DATE. Each Letter of Credit shall expire at or prior to
the close of business on the earlier of (i) the date one year after the date of
the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date.
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(d) ACQUISITION OF PARTICIPATION BY LENDERS. By the issuance of a
Letter of Credit (or an amendment to a Letter of Credit increasing the amount
thereof) and without any further action on the part of the Issuing Bank, the
Administrative Agent or the Lenders, the Issuing Bank hereby grants to each
Lender, and each Lender hereby severally (and not jointly) acquires from the
Issuing Bank, a participation in such Letter of Credit equal to such Lender's
Applicable Percentage of the aggregate amount available to be drawn under such
Letter of Credit. In consideration and in furtherance of the foregoing, each
Lender hereby absolutely and unconditionally agrees to pay to the Issuing Bank,
such Lender's Applicable Percentage of each LC Disbursement made by the Issuing
Bank and not reimbursed by the Borrower on the date due as provided in Section
2.5(e) and of any reimbursement payment required to be refunded to the Borrower
for any reason. Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to this Section 2.5(d) in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit, the occurrence and continuance of a Default, the failure of
the Borrower to satisfy any condition in Section 3.2 or the reduction or
termination of the Revolving Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever.
(e) BORROWER'S REIMBURSEMENT OBLIGATION; FUNDING OF PARTICIPATIONS.
If the Issuing Bank makes any LC Disbursement in respect of a Letter of Credit,
the Borrower shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than 2:00
p.m., New York City time, on the date that such LC Disbursement is made, if the
Borrower receives notice of such LC Disbursement prior to 11:00 a.m., New York
City time, on such date and otherwise on the Business Day on which the Borrower
receives such notice. The Borrower hereby requests that such payment be financed
with an ABR Revolving Borrowing or a Swingline Loan in an equivalent amount and,
if the conditions to borrowing set forth herein are then satisfied, such payment
shall be so financed on notice from the Issuing Bank without necessity of a
further Borrowing Request and, to the extent so financed, the Borrower's
obligation to make such payment shall be discharged and replaced by the
resulting ABR Revolving Borrowing or Swingline Loan. If the Borrower fails to
make such payment when due, the Administrative Agent shall notify each Lender of
the applicable LC Disbursement, the payment then due from the Borrower in
respect thereof and such Lender's Applicable Percentage thereof. Promptly
following receipt of such notice, each Lender severally (and not jointly) agrees
to pay to the Administrative Agent its Applicable Percentage of the payment then
due from the Borrower, in the same manner as provided in Section 2.6 with
respect to Loans made by such Lender (and Section 2.6 shall apply, mutatis
mutandis, to the payment obligations of the Lenders), and the Administrative
Agent shall promptly pay to the Issuing Bank the amounts so received by it from
the Lenders. Promptly following receipt by the Administrative Agent of any
payment from the Borrower pursuant to this Section 2.5(e), the Administrative
Agent shall distribute such payment to such Lenders and the Issuing Bank as
their interests may appear. Any payment made by a Lender pursuant to this
Section 2.5(e) to reimburse the Issuing Bank for any LC Disbursement (other than
the funding of ABR Revolving Loans or a Swingline Loan as contemplated above)
shall constitute the payment of the purchase price for a participation pursuant
to Section 2.5(d)
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and, accordingly, shall not constitute a Loan and shall not relieve the Borrower
of its obligation to reimburse such LC Disbursement.
(f) REIMBURSEMENT OBLIGATION ABSOLUTE, ETC. The Borrower's
obligation to reimburse LC Disbursements as provided in Section 2.5(e) shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section 2.5(f), constitute a legal or equitable discharge
of or defense against, or provide a right of setoff against, the Borrower's
obligations hereunder. None of the Administrative Agent, the Issuing Bank, the
Lenders or any of their Related Parties shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission
or delivery of any draft, notice or other communication under or relating to any
Letter of Credit (including any document required to make a drawing thereunder),
any error in interpretation of technical terms or any consequence arising from
causes beyond the control of the Issuing Bank. The Issuing Bank shall not,
however, be excused from liability to the Borrower otherwise enforceable against
the Issuing Bank to the extent of any direct damages (as opposed to special,
indirect, consequential or punitive damages, claims in respect of which are
hereby forever waived by the Borrower) suffered by the Borrower that are caused
by the Issuing Bank's failure to exercise care when determining whether drafts
and other documents presented under a Letter of Credit comply with the terms
thereof but only if, in making such determination, the Issuing Bank acted in a
manner that constitutes gross negligence or willful misconduct on the part of
the Issuing Bank, as finally determined by a court of competent jurisdiction.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented that appear on their
face to be in compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) NOTICE OF DRAWING. Whenever it honors any demand for payment
under a Letter of Credit and makes an LC Disbursement thereunder, the Issuing
Bank shall promptly notify the Administrative Agent and the Borrower by
telephone (confirmed by telecopy). No failure to give, or delay in giving, such
notice shall relieve the Borrower of its obligation to reimburse the Issuing
Bank with respect to any such LC Disbursement or relieve any Lender of its
obligation to purchase a participation therein as set forth in this Section 2.5
or shall otherwise put the Issuing Bank under any resulting liability to any
Person or any resulting diminution of its rights as against any Person.
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(h) INTEREST ON REIMBURSEMENT OBLIGATION. If the Issuing Bank makes
any LC Disbursement, then, unless the Borrower reimburses the Issuing Bank for
such LC Disbursement in full on the date such LC Disbursement is made, the
unpaid amount thereof shall bear interest, for each day from and including the
date such LC Disbursement is made to but excluding the date that the Borrower
reimburses such LC Disbursement, at the rate per annum (including the Applicable
ABR Margin) then applicable to ABR Revolving Loans, except that if the Borrower
fails to reimburse such LC Disbursement when due pursuant to Section 2.5(e),
then Section 2.12(c) shall apply. Interest accrued pursuant to this Section
2.5(h) shall be for the account of the Issuing Bank and, after the date of
payment by any Lender pursuant to Section 2.5(d) for the purchase of a
participation, for the account of such Lender to the extent of such
participation.
(i) REPLACEMENT OF ISSUING BANK. The Issuing Bank may be replaced at
any time by written agreement among the Borrower, the Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent
shall notify the Lenders of any such replacement of the Issuing Bank. At the
time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 2.11(c). From and after the effective date of any such replacement, (i)
the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall continue to have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.
(j) CASH COLLATERAL. If at any time when an Event of Default has
occurred and is continuing the Borrower receives notice from the Administrative
Agent or the Required Lenders (or, if the maturity of the Loans has been
accelerated, Lenders with LC Exposure representing greater than 50% of the total
LC Exposure) demanding the deposit of cash collateral pursuant to this Section
2.5(j), then on the Business Day on which the Borrower receives such notice the
Borrower shall deposit in an account with SG, in the name of the Administrative
Agent and for the benefit of the Lenders, an amount in cash in Dollars equal to
103% of the LC Exposure as of such date plus any and all accrued and unpaid
interest thereon, except that the obligation to deposit such cash collateral
shall become effective immediately, and such deposit shall become immediately
due and payable, without demand or other notice of any kind, upon the occurrence
of any Event of Default with respect to the Borrower described in Section 7.1(i)
or Section 7.1(j).
(k) TERMS OF CASH COLLATERAL DEPOSIT. Each cash collateral deposit
made pursuant to any provision of this Agreement shall be held by SG for the
sole account of the Administrative Agent as collateral for the payment of the
Obligations. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the reasonable
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discretion of the Administrative Agent in Permitted Cash Investments at the
request of the Borrower and at the Borrower's risk and expense, such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall be applied by the
Administrative Agent to reimburse the Issuing Bank for LC Disbursements for
which it has not been reimbursed and, to the extent not so applied, shall be
held for the satisfaction of the reimbursement obligations of the Borrower for
the LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of Lenders with LC Exposure representing
greater than 50% of the total LC Exposure), be applied to satisfy any other
Obligations. The Borrower shall be entitled to any surplus of any such cash
collateral deposit that may remain unapplied after the Revolving Commitments
have been terminated, all Letters of Credit have expired or been discharged, and
all Loans, reimbursement obligations, fees, expenses, taxes, indemnities and
other Obligations then outstanding have been paid in full in cash.
SECTION 2.6. FUNDING OF BORROWINGS.
(a) TRANSFER OF FUNDS. Each Lender shall make each Loan to be made
by it hereunder on the proposed date thereof by wire transfer of immediately
available funds by 1:00 p.m., New York City time, to the account of the
Administrative Agent most recently designated by the Administrative Agent for
such purpose by notice to the Lenders, except that Swingline Loans shall be made
as provided in Section 2.4. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with SG in New York City and
designated by the Borrower in the applicable Borrowing Request, except that ABR
Revolving Loans made to finance the reimbursement of an LC Disbursement as
provided in Section 2.5(e) shall be remitted by the Administrative Agent to the
Issuing Bank.
(b) FUNDING RELIANCE. Unless the Administrative Agent shall have
received notice from a Lender prior to the proposed date of any Borrowing that
such Lender will not make available to the Administrative Agent such Lender's
share of such Borrowing, the Administrative Agent may assume that such Lender
has made such share available on such date in accordance with Section 2.6(a) and
may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Rate and a rate
determined by the Administrative Agent in accordance with banking industry rules
on interbank compensation or (ii) in the case of the Borrower, the interest rate
applicable to ABR Loans. If such Lender pays such amount to the Administrative
Agent, then such amount shall constitute such Lender's Loan included in such
Borrowing.
SECTION 2.7. INTEREST ELECTIONS.
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(a) CONVERSION AND CONTINUATION. Each Revolving Borrowing initially
shall be of the Type specified in the applicable Borrowing Request and, in the
case of a Eurodollar Borrowing, shall have an initial Interest Period as
specified in such Borrowing Request. Thereafter, the Borrower may elect to
convert such Borrowing to a different Type or to continue such Borrowing and, in
the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as
provided in this Section 2.7. The Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each such
portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing. This Section 2.7 shall not apply to Swingline
Borrowings, which may not be converted or continued.
(b) NOTICE OF CONVERSION OR CONTINUATION. To make an election
pursuant to this Section 2.7, the Borrower shall notify the Administrative Agent
of such election by telephone by the time that a Borrowing Request would be
required under Section 2.3 if the Borrower were requesting a Revolving Borrowing
of the Type resulting from such election to be made on the effective date of
such election. Each such telephonic Interest Election Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request in a form approved
by the Administrative Agent and signed by the Borrower.
(c) CONTENTS OF NOTICE. Each telephonic and written Interest
Election Request shall specify the following information in compliance with
Section 2.2:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to each
resulting Borrowing (in which case the information to be specified pursuant
to Section 2.7(c)(iii) and 2.7(c)(iv) shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing
or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period."
If any such Interest Election Request requests a Eurodollar Borrowing
but does not specify an Interest Period, then the Borrower shall be deemed to
have selected an Interest Period of one month's duration.
(d) NOTICE TO LENDERS. Promptly following receipt of an Interest
Election Request, the Administrative Agent shall advise each Lender of the
details thereof and of such Lender's portion of each resulting Borrowing.
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(e) CONVERSION TO ABR BORROWING. If the Borrower fails to deliver a
timely Interest Election Request with respect to a Eurodollar Borrowing prior to
the end of the Interest Period applicable thereto, then, unless such Borrowing
is repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to an ABR Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing, then so long as
an Event of Default is continuing (i) no outstanding Borrowing may be converted
to or continued as a Eurodollar Borrowing and (ii) unless repaid, each
Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto.
(f) EURODOLLAR FUNDING NOT AVAILABLE. If with respect to any
Interest Period Lenders constituting the Required Lenders advise the
Administrative Agent prior to the first day of the relevant Eurodollar Interest
Period that funding is not available to such Lenders in the London interbank
market in Dollars, then the Administrative Agent shall forthwith give notice
thereof to the Borrower, whereupon (until the Administrative Agent notifies the
Borrower that the circumstances giving rise to such suspension no longer exist)
the right of the Borrower to elect to have Loans bear interest as Eurodollar
Borrowings shall be suspended, and each outstanding Eurodollar Borrowing shall
be converted into a ABR Borrowing on the last day of the then current Interest
Period therefor, notwithstanding any prior election by the Borrower to the
contrary.
(g) ILLEGALITY. If at any time any Lender determines (which
determination shall, if made in good faith, be final and conclusive and binding
upon all parties) that the funding or continuation of, or conversion into, a
Eurodollar Borrowing has become unlawful or impermissible by compliance by such
Lender in good faith with any law, governmental rule, regulation or order of any
central bank or other Governmental Authority or quasi-governmental authority
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful or would result in costs or penalties), then, and in
any such event, such Lender may give notice of that determination, in writing,
to the Borrower and the Administrative Agent, and the Administrative Agent shall
promptly transmit the notice to each other Lender. When such notice is given by
a Lender, (a) the Borrower's right to request from such Lender, and such
Lender's obligation (if any) to make, Eurodollar Rate Loans shall be immediately
suspended, and such Lender shall make an ABR Loan as part of any requested
Borrowing or continuation of or conversion into Eurodollar Rate Loans and (b) if
the affected Eurodollar Rate Loan or Loans are then outstanding, the Borrower
shall immediately, or if permitted by applicable law, no later than the date
permitted thereby, upon at least one Business Day's written notice to the
Administrative Agent and the affected Lender, convert each such Loan of such
affected Lender into an ABR Loan. If, at any time after a Lender gives notice
under this Section 2.7(g), such Lender determines that it may lawfully make
Eurodollar Rate Loans of the type referred to in such notice, such Lender shall
promptly give notice of that determination, in writing, to the Borrower and the
Administrative Agent, and the Administrative Agent shall promptly transmit the
notice to each other Lender. The Borrower's right to request from such Lender,
and such Lender's obligation, if any, to make, Eurodollar Rate Loans of such
type shall then be restored.
SECTION 2.8. TERMINATION AND REDUCTION OF COMMITMENTS.
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(a) MANDATORY TERMINATION AT MATURITY AND UPON A CHANGE IN CONTROL.
Unless previously terminated, the Revolving Commitments shall terminate (i) on
the Maturity Date and (ii) on the date written notice of demand for prepayment
is given by the Required Lenders pursuant to Section 2.10(a) upon the occurrence
of a Change in Control.
(b) OPTIONAL TERMINATION OR REDUCTION. The Borrower may at any time
terminate, or from time to time reduce, the Revolving Commitments, but (i) each
reduction of the Revolving Commitments shall be in an amount that is an integral
multiple of $500,000 and not less than $1,000,000, (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if and to the extent that, after
giving effect to such termination or reduction and any concurrent prepayment of
the Revolving Loans in accordance with Section 2.10, the sum of the Total
Exposures would exceed the total Revolving Commitments, and (iii) the Borrower
shall not terminate or reduce the Revolving Commitments if and to the extent
that, after giving effect to such termination or reduction and any concurrent
discharge of Letters of Credit and the Borrower's liabilities with respect to LC
Disbursements that has been approved in writing by the Issuing Bank in its sole
discretion, the LC Exposure would exceed the total Revolving Commitments.
(c) NOTICE. The Borrower shall notify the Administrative Agent
whenever any reduction or termination of the Revolving Commitments is to become
effective pursuant to Section 2.8(b). Such notice shall be given at least one
Business Day prior to the effective date of such termination or reduction,
specifying such termination or the amount and source of such reduction and the
effective date thereof. Promptly following receipt of any such notice, the
Administrative Agent shall advise the Lenders of the contents thereof. Each
notice delivered by the Borrower pursuant to this Section 2.8(c) shall be
irrevocable.
(d) PERMANENT AND RATABLE. Any termination and each reduction of the
Revolving Commitments shall be permanent. Each reduction of the Revolving
Commitments shall be made ratably among the Lenders in accordance with their
respective Revolving Commitments.
(e) DEPOSIT OF CASH COLLATERAL. If on any date the LC Exposure
exceeds the Revolving Commitments in effect on such date, the Borrower shall on
such date deposit cash collateral in an amount equal to 103% of such excess on
the terms set forth in Section 2.5(k).
SECTION 2.9. REPAYMENT OF LOANS; EVIDENCE OF DEBT.
(a) PROMISE TO PAY. The Borrower hereby unconditionally promises to
pay (i) to the Administrative Agent for the account of each Lender the then
unpaid principal amount of each Revolving Loan of such Lender on the Maturity
Date and (ii) to the Swingline Lender the then unpaid principal amount of each
Swingline Loan on the earlier of the Maturity Date and on or before the seventh
day after such Swingline Loan is made. In addition, the Borrower shall repay
all outstanding Swingline Loans on each date that a Revolving Borrowing is made.
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(b) LENDER'S LOAN ACCOUNT. Each Lender shall maintain in accordance
with its usual practice an account or accounts evidencing the indebtedness of
the Borrower to such Lender resulting from each Loan made by such Lender,
including the amounts of principal and interest payable and paid to such Lender
from time to time hereunder.
(c) ADMINISTRATIVE AGENT'S RECORDS. The Administrative Agent shall
maintain records in which it shall record (i) the amount of each Loan made
hereunder, the Class and Type thereof and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder and (iii) the
amount of any sum received by the Administrative Agent hereunder for the account
of the Lenders and each Lender's share thereof.
(d) PRIMA FACIE EVIDENCE. The entries made in the accounts
maintained pursuant to Section 2.9(b) and Section 2.9(c) shall be prima facie
evidence of the existence and amounts of the obligations recorded therein, but
the failure of any Lender or the Administrative Agent to maintain such accounts
or any error therein shall not in any manner affect the obligation of the
Borrower to repay the Loans, and to pay interest on the Loans, in accordance
with the terms of this Agreement.
(e) ISSUANCE OF NOTE. Any Lender may request that Loans of any Class
made by it be evidenced by a promissory note. In such event, the Borrower shall
prepare, execute and deliver to such Lender a promissory note payable to the
order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) in substantially the form of Exhibit K. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.4) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).
SECTION 2.10. PREPAYMENT OF LOANS.
(a) UPON A CHANGE IN CONTROL. Upon written demand by the Required
Lenders, if such demand is made after the occurrence of any Change in Control
and prior to the 60th day following the date on which the Borrower gives the
Administrative Agent and Lenders written notice of the occurrence of such Change
in Control and if such demand has not previously been waived in writing by the
Required Lenders, the Borrower shall, on the first Business Day after such
demand, prepay in full all outstanding Revolving Borrowings and all outstanding
Swingline Loans and deposit cash collateral in an amount equal to 103% of the
then LC Exposure on the terms set forth in Section 2.5(k).
(b) TOTAL EXPOSURE IN EXCESS OF COMMITMENTS OR BORROWING BASE. If at
any time the aggregate Total Exposures exceed the lesser of (i) the then amount
of the Revolving Commitments or (ii) the then amount of the Borrowing Base, the
Borrower shall, on the first Business Day after demand by the Administrative
Agent, the Issuing Bank or any Lender, repay Revolving Loans or Swingline Loans
(or, if no Loans
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are outstanding, deposit cash collateral as set forth in Section 2.5(k)) in an
amount equal to such excess.
(c) FROM NET CASH PROCEEDS. If the Borrower receives any Net Cash
Proceeds at any time when any Loans are outstanding, the Borrower shall
forthwith apply such excess Net Cash Proceeds to the repayment of such Loans,
except that, after first applying such excess Net Cash Proceeds to repay
outstanding ABR Borrowings and to repay any outstanding Eurodollar Borrowings as
to which the Borrower will not incur any breakage costs under Section 2.14(e),
the Borrower may deposit any remaining amount of such excess Net Cash Proceeds
as cash collateral on the terms set forth in Section 2.5(k), with irrevocable
directions to the Administrative Agent to apply such deposits to the payment of
other outstanding Eurodollar Borrowings on the last day of the Interest Period
therefor. The Revolving Commitments shall not be reduced by any such payments.
(d) AT THE BORROWER'S OPTION. The Borrower shall have the right at
any time and from time to time voluntarily to prepay any outstanding Loans in
whole or in part without premium or penalty, in a minimum amount of $500,000 or
multiples of $100,000 in excess thereof, in the case of Revolving Loans, and a
minimum amount of $100,000 or multiples of $50,000 in excess thereof, in the
case of Swingline Loans.
(e) UPON TERMINATION OR REDUCTION OF THE COMMITMENTS. If the
Revolving Commitments are terminated, the Borrower shall, on the effective date
of such termination, repay or prepay, in full and in cash, the principal of and
all interest accured on all outstanding Revolving Borrowings and all outstanding
Swingline Loans and deposit cash collateral in an amount equal to 103% of the
then LC Exposure on the terms set forth in Section 2.5(k). If upon any partial
reduction of the Revolving Commitments the aggregate Total Exposure would exceed
the aggregate Revolving Commitments after giving effect to such reduction, the
Borrower shall, on the effective date of such reduction, prepay Revolving
Borrowings or Swingline Loans (or a combination thereof) in an amount sufficient
to eliminate such excess and if after giving effect to the repayment of all
Revolving Borrowings and Swingline Loans any such excess remains outstanding,
deposit cash collateral in an amount equal to 103% of such remaining excess on
the terms set forth in Section 2.5(k).
(f) SELECTION OF BORROWINGS TO BE PREPAID. Prior to any optional or
mandatory prepayment of Borrowings hereunder, the Borrower shall select the
Borrowing or Borrowings to be prepaid and shall specify such selection in the
notice of such prepayment pursuant to Section 2.10(e), but, in any event, each
prepayment of Borrowings shall be applied to prepay Swingline Loans and then ABR
Borrowings, before any other Borrowings.
(g) NOTICE OF PREPAYMENT. The Borrower shall notify the
Administrative Agent (and, in the case of prepayment of a Swingline Loan, the
Swingline Lender) by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later
than 1:00 p.m., New York City time, two Business Days before the date of
prepayment, (ii) in the case of prepayment of an ABR Borrowing, not later than
1:00 p.m., New York City time, one Business Day before the date of prepayment or
(iii) in the case of prepayment of a
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Swingline Loan, not later than 1:00 p.m., New York City time, on the date of
prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date, the principal amount of each Borrowing or portion thereof to be
prepaid and, in the case of a mandatory prepayment, a reasonably detailed
calculation of the amount of such prepayment. Promptly following receipt of any
such notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.2, except as necessary to apply fully the required amount of a
mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to
the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.12.
SECTION 2.11. FEES.
(a) FEE LETTER. The Borrower agrees to pay to the Administrative
Agent, for its own account or for account of the Arrangers as set forth in the
Fee Letter, the fees set forth in the Fee Letter, when and as payable as therein
set forth.
(b) COMMITMENT FEES. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the rate of 0.50% per annum (or for any Pricing Period in which
pricing category 5 set forth in the definition of "Applicable ABR Margin" is
applicable to Loans outstanding in such Pricing Period, 0.375% per annum) from
day to day for the period from and including the date of this Agreement to but
excluding the date on which the Revolving Commitments have been terminated
applied (i) in the case of any Lender other than the Swingline Lender, to the
difference between the Revolving Commitment of such Lender on such day and the
Revolving Loans and LC Exposure of such Lender on such day and (ii) in the case
of the Swingline Lender, to the difference between the Revolving Commitment of
the Swingline Lender on such day and the Revolving Loans, LC Exposure and
Swingline Loans of the Swingline Lender on such day. Accrued commitment fees
shall be payable in arrears on the last day of each month and on the date on
which the Revolving Commitments terminate. All commitment fees shall be
computed on the basis of a year of 365 (or, in a leap year, 366) days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) LETTER OF CREDIT PARTICIPATION AND FRONTING FEES. The Borrower
agrees to pay to the Administrative Agent for the account of each Lender a
participation fee with respect to such Lender's participations in Letters of
Credit:
(i) in the case of each Letter of Credit other than a
Commercial Letter of Credit, accruing at a rate equal to the Applicable
Eurodollar Margin (as in effect from day to day as such participation fee
accrues) on the day to day amount of such Lender's LC Exposure (excluding
any portion thereof attributable to unreimbursed LC Disbursements) for each
day during the period from and including the date of this Agreement to but
excluding the later of (A) the date on which such Lender's Revolving
Commitment terminates and (B) the date on which such Lender ceases to have
any LC
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Exposure, payable monthly in arrears on the last day of each month and
distributable to the Lenders when received by the Administrative Agent, and
(ii) in the case of each Commercial Letter of Credit, equal to
the greater of $300 or 0.25% of the maximum amount available for drawing
under such Commercial Letter of Credit, whether or not drawn, earned upon
issuance of such Commercial Letter of Credit, payable at the honor,
expiration, surrender or other discharge thereof, and distributable to the
Lenders, if received by the Administrative Agent, monthly in arrears.
The Borrower also agrees to pay to the Issuing Bank, solely for the
Issuing Bank's own account, (x) a fronting fee equal to the greater of $500 or
0.125% of the maximum amount available for drawing under each Letter of Credit,
payable on the date such Letter of Credit is issued, extended, renewed or
increased, and (y) the Issuing Bank's standard fees with respect to the
issuance, amendment, renewal or extension of any Letter of Credit or processing
of drawings thereunder, payable when due under the Issuing Bank's practice for
such fees and, in any event within 10 days after demand. All participation fees
and fronting fees shall be computed on the basis of a year of 365 (or, in a leap
year, 366) days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(d) FEES DUE AND NONREFUNDABLE. All fees payable hereunder shall be
paid on the dates due, in immediately available funds, to the Administrative
Agent (or to the Issuing Bank, in the case of fees payable to it) for
distribution, in the case of commitment fees and participation fees, to the
Lenders entitled thereto. Fees paid shall not be refundable under any
circumstances, except in case of a demonstrable error in the calculation
thereof.
SECTION 2.12. INTEREST.
(a) EURODOLLAR BORROWINGS. The Loans comprising each Eurodollar
Borrowing shall bear interest for each day of each Interest Period selected by
the Borrower for such Borrowing in conformity with the provisions of this
Agreement at the Adjusted LIBO Rate determined for such Interest Period plus the
Applicable Eurodollar Margin determined for such day.
(b) ABR BORROWINGS AND OTHER OBLIGATIONS. The Loans comprising each
ABR Borrowing (including each Swingline Loan) and, except to the extent interest
accrues thereon as set forth in Section 2.12(a), all other Loans, reimbursement
liabilities for LC Disbursements and other Obligations at any time outstanding
(other than interest) shall bear interest for each day at the Alternate Base
Rate in effect for such day plus the Applicable ABR Margin determined for such
day.
(c) INTEREST AFTER CERTAIN EVENTS OF DEFAULT. Notwithstanding the
provisions of Section 2.12(a) and Section 2.12(b), upon the occurrence of any
Event of Default described in Section 7(i) or Section 7(j), without notice or
demand, and, in addition, whenever any other Event of Default consisting of the
failure to pay when due any Obligation (whether on account of the principal of
or interest on any Loans, any reimbursement liability for an LC Disbursement,
any fee, expense reimbursement,
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indemnity or otherwise) has occurred and is continuing, any and all outstanding
Loans, reimbursement liabilities for LC Disbursements and all other Obligations
(in each case whether or not then due and payable) shall bear interest, after as
well as before judgment, at a rate per annum equal to (i) in the case of any
Eurodollar Borrowing for which the Interest Period has not then expired, 2 % per
annum plus the rate (including the Applicable Eurodollar Margin) otherwise
applicable to such Eurodollar Borrowing as provided in Section 2.12(a) or (ii)
in the case of any other Loan, reimbursement liability or other Obligation then
outstanding, 2 % per annum plus the rate (including the Applicable ABR Margin)
then applicable to ABR Borrowings as provided in Section 2.12(b).
(d) PAYMENT OF INTEREST. Accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and upon
termination of the Revolving Commitments, except that, in any event, (i)
interest accrued pursuant to Section 2.12(c) shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment of
an ABR Revolving Loan prior to the end of the Revolving Availability Period),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
(e) COMPUTATION OF INTEREST. All interest hereunder shall be
computed on the basis of a year of 360 days, except that interest computed by
reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on SG's base rate shall be computed on the basis of a year of 365 days (or
366 days in a leap year), and in each case shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by
the Administrative Agent, and such determination shall be conclusive absent
demonstrable error.
SECTION 2.13. ALTERNATE RATE OF INTEREST. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(i) the Administrative Agent determines (which determination
shall be conclusive absent demonstrable error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate for such
Interest Period, or
(ii) the Administrative Agent is advised by Lenders constituting
the Required Lenders that the Adjusted LIBO Rate for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (or Lender)
of making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period,
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (A) any Interest
Election Request that requests
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the conversion of any Borrowing to, or continuation of any Borrowing as, a
Eurodollar Borrowing shall be ineffective and (B) if any Borrowing Request
requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR
Borrowing.
SECTION 2.14. YIELD PROTECTION.
(a) INCREASED COSTS. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender or any holding company of any
Lender (except any such reserve requirement reflected in the Adjusted LIBO
Rate) or the Issuing Bank, or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or Eurodollar
Loans made by such Lender or any Letter of Credit or participation therein,
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) CAPITAL COSTS. If any Lender or the Issuing Bank determines that
any Change in Law regarding capital requirements increases or would have the
effect of increasing the amount or cost of capital required or expected to be
maintained by such Lender or any corporation controlling such Lender or Issuing
Bank, or reduces or would have the effect of reducing the rate of return on such
capital, and such Lender or Issuing Bank reasonably determines that the amount
or cost of such capital is increased, or the rate of return thereon is reduced,
by or based upon the existence or funding of such Lender's or Issuing Bank's
commitment to make loans and issue or participate in letters of credit under
this Agreement and other commitments of this type, to a level below that which
such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding
company would have achieved but for such Change in Law (taking into
consideration such Lender's or the Issuing Bank's policies and the policies of
such Lender's or the Issuing Bank's holding company with respect to capital
adequacy), then, within ten Business Days after demand by such Lender or Issuing
Bank, the Borrower shall pay to such Lender or Issuing Bank, from time to time
as specified by such Lender or Issuing Bank, additional amounts sufficient to
compensate such Lender or Issuing Bank in the light of such circumstances, to
the extent that such Lender or Issuing Bank in good faith determines such
increase in capital, or reduction in the rate of return, to be allocable to the
existence or funding of its commitment.
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(c) PROOF OF COSTS. A certificate of a Lender or the Issuing Bank
setting forth in reasonable detail the amount or amounts necessary to compensate
such Lender or the Issuing Bank or its holding company, as the case may be, as
specified in Section 2.14(a) or Section 2.14(b) shall be delivered to the
Borrower and shall be conclusive absent demonstrable error. The Borrower shall
pay such Lender or the Issuing Bank, as the case may be, the amount shown as due
on any such certificate within 10 Business Days after receipt thereof.
(d) LOOK-BACK LIMIT. The Borrower shall not be required to
compensate a Lender or the Issuing Bank pursuant to this Section 2.14 for any
increased costs or reductions incurred more than 90 days prior to the date that
such Lender or the Issuing Bank, as the case may be, notifies the Borrower of
the Change in Law giving rise to such increased costs or reductions and of such
Lender's or the Issuing Bank's intention to claim compensation therefor, except
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 90-day period referred to above shall be extended to
include the period of retroactive effect thereof. Subject to the foregoing, no
failure or delay on the part of any Lender or the Issuing Bank to demand
compensation pursuant to this Section 2.14 shall constitute a waiver of such
Lender's or the Issuing Bank's right to demand such compensation.
(e) BREAKAGE COSTS. In the event of (i) the payment of any principal
of any Eurodollar Loan other than on the last day of an Interest Period
applicable thereto (including as a result of an Event of Default), (ii) the
conversion of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto, (iii) the failure to borrow, convert, continue or
prepay any Revolving Loan on the date specified in any notice delivered pursuant
hereto, or (iv) the assignment of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto as a result of a request by the
Borrower pursuant to Section 2.17, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (A) the amount of interest that would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (B) the amount of
interest that would accrue on such principal amount for such period at the
interest rate that such Lender would bid, were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
banks in the Eurodollar market. A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section 2.14 shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 Business Days after receipt thereof.
SECTION 2.15. TAXES.
(a) PAYMENTS FREE FROM TAXES. Any and all payments by or on account
of any obligation of the Borrower hereunder or under any other Loan Document
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shall be made free and clear of and without deduction for any Indemnified Taxes
or Other Taxes. If, nevertheless, the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.15) the Administrative Agent, Lender or Issuing Bank (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) PAYMENT OF OTHER TAXES. In addition, the Borrower shall pay any
Other Taxes to the relevant Governmental Authority in accordance with applicable
law.
(c) TAX INDEMNITY. The Borrower shall indemnify the Administrative
Agent, each Lender and the Issuing Bank, within 10 Business Days after written
demand therefor, for the full amount of any Indemnified Taxes or Other Taxes
paid by the Administrative Agent, such Lender or the Issuing Bank, as the case
may be, on or with respect to any payment by or on account of any obligation of
the Borrower hereunder or under any other Loan Document (including Indemnified
Taxes or Other Taxes imposed or asserted on or attributable to amounts payable
under this Section 2.15) and any penalties, interest and reasonable expenses
arising therefrom or with respect thereto. A certificate as to the amount of
such payment or liability delivered to the Borrower by a Lender or the Issuing
Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender
or the Issuing Bank, shall be conclusive absent manifest error.
(d) DELIVERY OF RECEIPT. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority,
the Borrower shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of
such payment reasonably satisfactory to the Administrative Agent.
(e) FOREIGN LENDER CERTIFICATION. Any Foreign Lender shall deliver
to the Borrower and the Administrative Agent two copies of either United States
Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Foreign
Lender's claiming exemption from U.S. Federal withholding tax under Section
871(h) or 881(c) of the Code with respect to payments of "portfolio interest," a
Form W-8, or any subsequent versions thereof or successors thereto (and, if such
Foreign Lender delivers a Form W-8, a certificate representing that such Foreign
Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-
percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of
the Borrower and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Foreign Lender claiming complete exemption from or reduced
rate of, U.S. Federal withholding tax on payments by the Borrower under this
Agreement and the other Loan Documents. Such forms shall be delivered by each
Foreign Lender on or before the date it becomes a party to this Agreement (or,
in the case of a Transferee that is a participation holder on or before the
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date such participation holder becomes a Transferee hereunder) and on or before
the date, if any, such Foreign Lender changes its applicable lending office by
designating a different lending office (a "New Lending Office"). In addition,
each Foreign Lender shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Foreign Lender.
Notwithstanding any other provision of this Section 2.15(e), a Foreign Lender
shall not be required to deliver any form pursuant to the preceding sentence of
this Section 2.15(e) that such Foreign Lender becomes legally unable to deliver
at any time after it becomes a Lender.
(f) EFFECT OF FAILURE TO COMPLY. The Borrower shall not be required
to indemnify any Foreign Lender or to pay any additional amounts to any Foreign
Lender in respect of U.S. Federal withholding tax pursuant to Section 2.15(a) or
Section 2.15(c) to the extent that the obligation to pay such additional amounts
would not have arisen but for a failure by such Foreign Lender to comply with
the provisions of Section 2.15(e). Should a Lender become subject to Taxes
because of its failure to deliver a form required hereunder, Borrower shall, at
Lender's expense, take such steps as such Lender shall reasonably request to
assist such Lender to recover such Taxes.
(g) REFUNDS. If the Administrative Agent, a Lender or the Issuing
Bank is entitled to claim a refund from a Governmental Authority in respect of
Indemnified Taxes or Other Taxes that have been paid and as to which it has been
indemnified by the Borrower, and if it shall receive continuing advance-payment
indemnity from the Borrower for all cost and expense thereof, then upon the
written request of the Borrower it shall use reasonable efforts to assert and
prosecute such refund claim through counsel selected by it, at the risk, cost
and expense of the Borrower and without liability as to the manner in which the
claim is prosecuted or for the results thereof, and (if no Default is then
continuing) pay over to the Borrower any payment received by it from such
Governmental Authority on account of such refund claim.
SECTION 2.16. PAYMENTS; PRO RATA TREATMENT; SHARING OF SETOFFS.
(a) PLACE, TIME AND MANNER OF PAYMENT. The Borrower shall make each
payment required to be made by it hereunder or under any other Loan Document
(whether of principal, interest, fees or reimbursement of LC Disbursements, or
of amounts payable under Section 2.14 or Section 2.15 or otherwise) prior to
1:00 p.m., New York City time, on the date when due, in immediately available
funds, without setoff or counterclaim. Any amounts received after such time on
any date may, in the discretion of the Administrative Agent, be deemed to have
been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent
at the offices of SG at in the City of New York, except payments to be made
directly to the Issuing Bank or Swingline Lender as expressly provided herein
and except that payments pursuant to Sections 2.14, 2.15, and 9.3 shall be made
directly to the Persons entitled thereto and payments pursuant to other Loan
Documents shall be made to the Persons specified therein. The Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt thereof.
If any payment under any Loan Document shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the
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case of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments under each Loan Document shall be made in
dollars.
(b) APPLICATION OF PAYMENTS. If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, unreimbursed LC Disbursements, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then
due hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.
(c) DISPROPORTIONATE PAYMENTS. If any Lender shall, by exercising
any right of setoff or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Revolving Loans or participations in
LC Disbursements or Swingline Loans resulting in such Lender receiving payment
of a greater proportion of the aggregate amount of its Revolving Loans and
participations in LC Disbursements and Swingline Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans and participations in LC Disbursements and
Swingline Loans of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective
Revolving Loans and participations in LC Disbursements and Swingline Loans. If
any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest. The
provisions of this Section 2.16(c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Borrower Subsidiary or Affiliate thereof (as to which the
provisions of this Section 2.16(c) shall apply). The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under applicable
law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower rights of setoff and counterclaim
with respect to such participation as fully as if such Lender were a direct
creditor of the Borrower in the amount of such participation.
(d) PAYMENT RELIANCE. Unless the Administrative Agent shall have
received notice from the Borrower prior to the date on which any payment is due
to the Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative Agent
may assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders or
the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so
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distributed to such Lender or Issuing Bank with interest thereon, for each day
from and including the date such amount is distributed to it to but excluding
the date of payment to the Administrative Agent, at the greater of the Federal
Funds Rate and a rate determined by the Administrative Agent in accordance with
banking industry rules on interbank compensation.
(e) LENDER'S FAILURE TO FUND. If any Lender shall fail to make any
payment required to be made by it pursuant to Section 2.4(c), 2.5(d), 2.5(e),
2.6(b), 2.16(d) or 9.3(c), then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Lender to satisfy
such Lender's obligations under such Sections until all such unsatisfied
obligations are fully paid.
SECTION 2.17. REPLACEMENT OF LENDER. If any Lender gives notice of
illegality pursuant to Section 2.7(g) or requests compensation under Section
2.14 (other than pursuant to Section 2.14(e)), or if the Borrower is required to
pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.15, then the Borrower may, at its
sole expense and effort, upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in
accordance with and subject to the restrictions contained in Section 9.4), all
its interests, rights and obligations under this Agreement to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment), but (in each case) only if (i) the Borrower has
received the prior written consent of the Administrative Agent, the Issuing Bank
and Swingline Lender, which consent shall not unreasonably be withheld, (ii)
such Lender has received payment of an amount equal to the outstanding principal
of its Revolving Loans and participations in LC Disbursements and Swingline
Loans, accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.14 or payments required to be made pursuant to
Section 2.15, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
ARTICLE III.
CONDITIONS
SECTION 3.1. EFFECTIVE DATE. The obligations of the Lenders to make
the initial Loans and of the Issuing Bank to issue the initial Letters of Credit
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.2):
(a) THIS AGREEMENT. The Administrative Agent shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the Administrative
Agent (which may
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include telecopy transmission of a signed signature page of this Agreement) that
such party has signed a counterpart of this Agreement.
(b) GUARANTY, INDEMNITY AND SUBORDINATION AGREEMENT. The
Administrative Agent shall have received counterparts of the Guaranty, Indemnity
and Subordination Agreement signed on behalf of each Guarantor.
(c) SECURITY DOCUMENTS; COLLATERAL. The Administrative Agent shall
have received counterparts of the Borrower Pledge and Security Agreement signed
on behalf of the Borrower and the Guarantor Pledge and Security Agreement signed
on behalf of each Guarantor, and:
(i) the Administrative Agent shall have received delivery, in
pledge, of (A) stock certificates representing all outstanding Equity
Interest in the Borrower and each present and future Borrower Subsidiary
owned by or on behalf of any Loan Party as of the Effective Date after
giving effect to the Transactions, except Excluded Assets and except Equity
Interests in Foreign Subsidiaries, and (B) all Instruments and all other
Certificated Securities constituting Collateral, together (in each case)
with stock powers and instruments of transfer, endorsed in blank;
(ii) the Administrative Agent shall have received (A) the Patent
and Trademark Assignment signed and acknowledged on behalf of each Loan
Party and in form sufficient for filing in the United States Patent and
Trademark Office, and (B) Uniform Commercial Code financing statements in
substantially the form of Exhibit L and in such other form as any Agent or
Lender may request, signed on behalf of each Loan Party and in form
sufficient for filing in the filing offices listed on Schedule 4.15(c); and
(iii) the Administrative Agent shall have received a completed
Perfection Certificate dated the Effective Date and signed by an executive
officer or Financial Officer of the Borrower, together with all attachments
contemplated thereby, including (A) the results of a search for Uniform
Commercial Code (or equivalent) filings made with respect to the Loan
Parties in the jurisdictions listed on Schedule 4.15(c) and (B) copies of
the financing statements (or similar documents) disclosed by such search
and evidence reasonably satisfactory to the Administrative Agent that the
Liens indicated by such financing statements (or similar documents) are
permitted by Section 6.3 or have been released.
(d) CLOSING CERTIFICATE. The Administrative Agent shall have
received a certificate substantially in the form of Exhibit M, dated the
Effective Date and signed by the President, a Vice President or a Financial
Officer of the Borrower, confirming compliance with the conditions set forth in
this Article III and confirming the other matters set forth in Exhibit M.
(e) CORPORATE MATTERS. The Administrative Agent shall have received
such documents and certificates as any Agent or Lender may reasonably request
relating to the organization, existence and good standing of each Loan Party,
the
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authorization of the Transactions, the incumbency and authority of each Person
executing any Transaction Document on behalf of any Loan Party and any other
legal matters relating to the Loan Parties, the Transaction Documents or the
Transactions, all in form and substance satisfactory to the Administrative Agent
and its counsel.
(f) OPINION OF COUNSEL TO THE LOAN PARTIES. The Administrative Agent
shall have received a favorable written opinion (addressed to the Administrative
Agent, Issuing Bank and Lenders and dated the Effective Date) of Ropes & Gray
and Sidley & Austin, counsel for the Loan Parties, substantially in the form of
Exhibits N-1 and N-2, respectively, and covering such other matters relating to
the Loan Parties, the Transaction Documents or the Transactions as the
Administrative Agent or the Required Lenders may reasonably request. The
Borrower and Holdings hereby request such counsel to deliver such opinions.
(g) FACILITY FEES AND COSTS. The Administrative Agent shall have
received all fees and other amounts due and payable on or prior to the Effective
Date, including all fees due under the Fee Letter and, to the extent invoiced,
reimbursement or payment of all reasonable and documented out-of-pocket expenses
required to be reimbursed or paid by any Loan Party under any Loan Document.
(h) FINANCIAL REPORTS. The Lenders shall have received Holdings'
financial statements for the fiscal year ended June 27, 1998 certified without
qualification by PriceWaterhouseCoopers LLP and pro forma balance sheet
statements, presented in a form consistent with the financial statements
heretofore furnished, for Holdings, and Holdings and its Subsidiaries on a
consolidated basis, the Borrower, and the Borrower and its Subsidiaries on a
consolidated basis, giving effect to the closing of the Transactions as if
closed on June 27, 1998.
(i) TRANSACTION DISBURSEMENTS. The Administrative Agent shall have
received a schedule of funds transfers related to the consummation of the
Transaction and the payment of all fees, costs and expenses (including
underwriting discounts and commissions and M&A advisory fees and all fees, costs
and expenses under the Transaction Documents) payable or otherwise borne by any
member of the Holdings Group in connection with the Transactions, shall be
reasonably satisfied as to the aggregate amount, sources of funding for, and
payment of such fees, costs and expenses.
(j) FINANCIAL PROJECTIONS. The Lenders shall have received financial
projections for Holdings Group on a consolidated basis for fiscal years 1999
through 2003, showing no material negative variances from the projections
previously provided to the Administrative Agent and Arrangers that would
reasonably be expected to have a Material Adverse Effect.
(k) BOARD AND SHAREHOLDER APPROVAL, CONSUMMATION OF THE MERGERS. The
directors and shareholders of each constituent corporation in the Mergers shall
have duly authorized and approved the Mergers, the Mergers shall have been
consummated in conformity with the Merger Agreements and in compliance with all
applicable laws and contracts, and the Administrative Agent shall have received
a
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certificate of the Chief Executive Officer and Chief Financial Officer of the
Borrower and Holdings, so stating.
(l) TRANSACTION DOCUMENTS. The Administrative Agent shall have
received copies, certified as true, correct and complete by a Financial Officer
of the Borrower, of all Transaction Documents, other than the Loan Documents.
Except as set forth on Schedule 3.1(l), (i) such Transaction Documents shall not
have been in any respect modified or amended; (ii) no breach of any provision of
any of such Transaction Documents shall have occurred, and (iii) no condition
set forth in any of such Transaction Documents relating to the obligation of any
party thereto or the consummation of the transactions contemplated thereby shall
have been waived.
(m) MERGER AND DEBT RETIREMENT FUNDING. Holdings shall have received
net cash proceeds of at least $45,000,000 from the issuance and sale of Equity
Interests in Holdings pursuant to the Equity Documents and at least $15,000,000
from the issuance and sale of Holdings Discount Debentures issued and sold by
Holdings pursuant to the Holdings Debenture Purchase Agreement, and the Borrower
shall have received gross cash proceeds of at least $110,000,000 from the
issuance and sale of the Senior Subordinated Notes pursuant to the Subordinated
Debt Issuance Documents, and such proceeds, together with at least $40,000,000
in cash held by Holdings on the Effective Date, shall have been applied in
compliance with all applicable laws and contracts (i) to fund payment in full of
the merger consideration payable under the Merger and Recapitalization
Agreement, (ii) to fund Convertible Debt Retirement pursuant to the Debt Tender
Offer or a deposit of Restricted Funds in an amount sufficent to retire or
redeem all but $23,800,000 in principal amount of outstanding Convertible
Debentures, with any remaining amount applied to the payment of fees and
expenses related to the Transactions for which any member of the Holdings Group
is liable.
(n) REPAYMENT AND TERMINATION OF THE EXISTING CREDIT AGREEMENT. All
commitments to extend credit under the Existing Credit Agreement shall have been
terminated and all loans thereunder shall have been repaid in full, together
with interest thereon, any and all letters of credit issued under the Existing
Credit Agreement shall have expired or been discharged and all other amounts
owing pursuant to the Existing Credit Agreement shall have been repaid in full
and the Existing Credit Agreement shall have been terminated and be of no
further force or effect, except for contingent indemnity obligations that may
thereafter accrue thereunder, and all Liens granted pursuant to the Existing
Credit Agreement or securing any obligations arising thereunder (including any
such contingent indemnity obligations) and all financing statements, pledges and
controls perfecting or protecting any such Liens shall have been released,
terminated and discharged; and the Administrative Agent shall have received
evidence in form, scope and substance satisfactory to it as to the matters set
forth in this Section 3.1(n).
(o) UNDRAWN AVAILABILITY. After giving effect to any Loans or
Letters of Credit requested on the Effective Date and the disbursement of funds
to pay all fees and expenses relating to the Transactions for which any member
of the Holdings Group, the aggregate Total Exposure on the Effective Date shall
not exceed $10,000,000.
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(p) NO LEGAL PROCEEDINGS. Except as set forth in Schedule 4.6, there
shall be no litigation or administrative proceeding pending or threatened that,
in the opinion of the Required Lenders, would reasonably be expected to have a
Material Adverse Effect or to restrain, prevent or impose burdensome conditions,
or to otherwise adversely affect the ability of the parties to consummate the
Transactions.
(q) LEGAL MATTERS. The consummation of the Transactions, including
the authorization, execution and funding thereof and all actions incidental
thereto, and the other transactions contemplated hereby shall not (a) violate
any applicable law, statute, rule or regulation or (b) conflict with, or result
in a default or event of default under, any material agreement of any member of
the Holdings Group (including the Transaction Documents); all consents and
approvals required to be obtained from any Governmental Authority or, if
material, any other Person in connection with the Transactions shall have been
obtained, all applicable waiting periods and appeal periods shall have expired,
in each case without the imposition of any burdensome conditions and there shall
be no action by any Governmental Authority, actual or threatened, that would
reasonably be expected to restrain, prevent or impose burdensome conditions on
the Transactions; and the Administrative Agent shall have received one or more
legal opinions to such effect, addressed to the Administrative Agent, Issuing
Bank and Lenders and reasonably satisfactory to the Administrative Agent, from
counsel to the Loan Parties reasonably satisfactory to the Administrative Agent.
(r) SOLVENCY. The Administrative Agent shall have received a
certificate from the Chief Financial officer of each of the Loan Parties, to the
effect that, after giving effect to the Transactions, such Loan Party will not
be insolvent, will not be rendered insolvent, will not have insufficient capital
with which to engage in its businesses and will not have incurred debts that are
not within its ability to pay as they mature; and such reports and certificate
shall be reasonably satisfactory to the Administrative Agent and shall permit
the Administrative Agent, Issuing Bank and Lenders to rely thereon.
(s) DUE DILIGENCE. SG shall have received a copy of all written due
diligence reports delivered to the Investors, including a copy of the final form
of the Coopers & Lybrand LLP due diligence report.
(t) INSURANCE. The Administrative Agent shall have received (i) a
letter from an insurance broker of recognized standing satisfactory to the
Administrative Agent, stating that the insurance coverage described in Schedule
4.17 is duly contracted for and in full force and effect, and (ii) certificates
naming Administrative Agent as an additional insured and loss payee and agreeing
to give the Administrative Agent prior notice of cancellation, to the extent
required under Section 5.7.
(u) NO MATERIAL ADVERSE EFFECT. No event shall have been become
known to the Administrative Agent or Lenders, or shall have occurred since June
27, 1998, that has or would reasonably be expected to have a Material Adverse
Effect.
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(v) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Loan Party set forth in each of the Loan Documents shall be
true and correct in all material respects.
(w) NO DEFAULT. No event shall have occurred at any time after the
date hereof that constitutes a Default or would have constituted a Default if
this Agreement had been effective at the time.
The Administrative Agent shall notify the Borrower and the Lenders of
the Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans and
of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.2) at or prior to 3:00 p.m., New York City time, on
September 1, 1998.
SECTION 3.2. CONDITIONS OF ALL EXTENSIONS OF CREDIT. The obligation
of each Lender to make a Loan on the occasion of any Borrowing, and of the
Issuing Bank to issue, amend, renew or extend any Letter of Credit, is further
subject to the satisfaction of the following conditions:
(a) RENEWAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of each Loan Party set forth in each of the Loan Documents shall
be true and correct in all material respects on and as of the date of such
Borrowing or the date of issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, as though made on and as of such date, other
than any such representations or warranties that by their terms refer to a date
other than the date of such Borrowing, issuance, amendment, renewal or
extension, in which case such representations and warranties shall be true and
correct as of such other date.
(b) NO DEFAULT. At the time of and immediately after giving effect
to such Borrowing or the issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, no Default shall have occurred and be
continuing.
(c) NO MATERIAL ADVERSE EFFECT. No event shall have occurred that
has had, or would reasonably be expected to have, a Material Adverse Effect.
(d) REQUEST. The Administrative Agent shall have received a timely
Borrowing Request in conformity with the provisions of this Agreement,
certifying that (i) each of the foregoing conditions is satisfied as of the date
of such Borrowing Request and will be satisfied as of the date of such Borrowing
or the date of issuance, amendment, renewal or extension of such Letter of
Credit, as applicable and (ii) after giving effect to such Borrowing, issuance,
amendment, renewal or extension, the aggregate Total Exposures will not exceed
the Borrowing Base determined as of the date of such Borrowing, issuance,
amendment, renewal or extension.
Each Borrowing and each issuance, amendment, renewal or extension of a
Letter of Credit shall be constitute a representation and warranty by the
Borrower and Holdings that on the date thereof the conditions set forth in this
Section 3.2 were satisfied.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Each of the Borrower and Holdings represents and warrants to the
Agent, Lenders and Issuing Bank that:
SECTION 4.1. ORGANIZATION; POWERS. Each member of the Holdings Group
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority to carry
on its business as now conducted and, except where the failure to do so,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.
SECTION 4.2. AUTHORIZATION; ENFORCEABILITY. The Transactions entered
into or to be entered into by each Loan Party (or its predecessor) are within
such Loan Party's (and its predecessor's) corporate powers and have been duly
authorized by all necessary corporate and, if required, stockholder action. This
Agreement and each other Transaction Document has been duly executed and
delivered by each Loan Party that is identified therein as a signatory party
thereto and constitutes, and each other Loan Document in which any Loan Party is
identified as a signatory party, when executed and delivered by such Loan Party,
will constitute, a legal, valid and binding obligation of such Loan Party,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
SECTION 4.3. GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except those listed on Schedule
4.3, which have been duly obtained or made and are in full force and effect, and
except filings necessary to perfect Liens created under the Loan Documents, (b)
do not and will not violate any applicable law or regulation or the charter, by-
laws or other organizational documents of any member of the Holdings Group (or
its predecessor) or any order of any Governmental Authority, (c) do not and will
not violate or result in a default under any indenture, agreement or other
instrument governing any material Indebtedness of, or any other material
agreement binding upon, any member of the Holdings Group (or its predecessor) or
its assets, or give rise to a right thereunder to require any payment to be made
by any member of the Holdings Group, and (d) do not and will not result in the
creation or imposition of any Lien on any asset of any member of the Holdings
Group, except Liens created under the Loan Documents.
SECTION 4.4. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.
(a) FINANCIAL STATEMENTS. The Borrower has furnished to the Lenders
the consolidated financial statements for the fiscal years ended on June 29,
1996, June 28, 1997, and June 27, 1998 of the Old Bell Sports Corp. and its
subsidiaries
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(as such term is defined in the Merger Agreement), audited by
PriceWaterhouseCoopers LLP, pro forma financial statements giving effect to the
Transactions, and projections relating to the future financial performance of
the Holdings Group. Such consolidated financial statements are free of material
misstatement and present fairly, in all material respects, the assets and
liabilities of Old Bell Sports Corp. as of the dates thereof and the results of
operations and cash flows of Old Bell Sports Corp. for the periods then ended in
conformity with GAAP. Such pro forma statements were prepared in conformity with
GAAP, including GAAP requirements as to pro forma adjustments. Such financial
projections are based on reasonable assumptions and represented, as of the dates
thereof, the good faith projection of management of the Borrower as to the
future financial performance of the Borrower, subject to the uncertainties
inherent in projections.
(b) PROXY STATEMENT AND OFFERING MEMORANDUM. The factual statements
made in the Proxy Statement and the Offering Memorandum are true and correct as
of the time of preparation thereof and as of the date hereof in all material
respects.
(c) PRO FORMA BALANCE SHEETS. The Borrower has furnished to the
Lenders the pro forma consolidated balance sheets of Holdings and of the
Borrower as of June 27, 1998, prepared giving effect to the Transactions as if
the Transactions had occurred on such date. In all material respects, such pro
forma consolidated balance sheets (i) were prepared in good faith based on the
same assumptions used to prepare the pro forma financial statements included in
the Offering Memorandum (which assumptions were, at the time of preparation of
the Offering Memorandum, and are, as of the date hereof, believed by Holdings
and the Borrower to be reasonable), (ii) were based on information available to
Holdings and the Borrower after due inquiry at the date thereof, and (iii)
accurately reflect all adjustments necessary to give effect to the Transactions.
(d) INDEBTEDNESS. Neither Holdings nor the Borrower nor any Borrower
Subsidiary has any outstanding Indebtedness other than Indebtedness permitted
under Section 6.1.
(e) DISQUALIFIED STOCK. No member of the Holdings Group has any
outstanding Disqualified Stock.
(f) LIENS. None of the property or assets of any member of the
Holdings Group is subject to any Lien except Liens permitted to be incurred, and
to remain outstanding, under Section 6.3.
(g) NO CONTINGENT LIABILITIES, UNUSUAL COMMITMENTS OR UNREALIZED
LOSSES. Except as disclosed in the financial statements referred to above or
the notes thereto and except for the Disclosed Matters, after giving effect to
the Transactions, no member of the Holdings Group has, as of the Effective Date,
any material contingent liabilities, unusual long-term commitments or unrealized
losses.
(h) FINANCIAL STATEMENTS. Each financial statement delivered by any
member of the Holdings Group at any time after the Effective Date pursuant to
Section 5.1 presents fairly, in all material respects, the assets and
liabilities of the Person
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or consolidated group that is the subject thereof as of the date thereof and the
results of operations and cash flows of such Person or group for the period
therein described ended on such date, in conformity with GAAP but subject
(except in the case of audited year-end financial statements) to year-end
adjustments and the absence of footnote disclosure.
(i) NO MATERIAL ADVERSE EFFECT. Since June 27, 1998, no event has
occurred that has had, or would reasonably be expected to have, a Material
Adverse Effect.
SECTION 4.5. PROPERTIES.
(a) TITLE. Except as disclosed in Schedule 4.5(a), each member of
the Holdings Group has good title to all its property material to its business
and, at the date of any of its financial statements delivered to the
Administrative Agent or Lenders, had good title to all property accounted for
therein, except (in each case) for minor defects in title that do not interfere
with its ability to conduct its business as currently conducted or to utilize
such property for its intended purpose.
(b) INTELLECTUAL PROPERTY. Each member of the Holdings Group owns,
or is licensed to use, all trademarks, trade names, copyrights, patents and
other intellectual property material to its business, and the use thereof by the
Holdings Group does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect. Schedule 4.5(b)
sets forth (i) all interests in any such property that are registered in the
name of any Loan Party or any agent or nominee acting for any member of the
Holdings Group and the registration data as to all such property so registered,
(ii) all material unregistered interests of any Loan Party in any such property,
and (iii) the term of and parties to all license agreements relating to any
license for such property received or granted by any member of the Holdings
Group.
(c) REAL PROPERTY. Schedule 4.5(c) sets forth the address of each
real property that is owned or leased by the Holdings Group as of the Effective
Date after giving effect to the Transactions.
(d) THE BORROWER AND HOLDINGS. The Borrower is a Wholly-Owned
Subsidiary of Holdings. Holdings owns no assets other than the common stock of
the Borrower and other immaterial assets that constitute and are counted as
Miscellaneous Unpledged Assets, and Holdings conducts no business or activities
other than the ownership of such common stock and activities incidental thereto.
Holdings does not hold any Investment in the Borrower or any Subsidiary or any
other Person, except Investments in common stock of the Borrower.
SECTION 4.6. LITIGATION AND ENVIRONMENTAL MATTERS.
(a) NO LEGAL PROCEEDINGS. Except for Disclosed Matters set forth in
Schedule 4.6(a), there are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of any
Loan Party, threatened against or affecting any member of the Holdings Group (i)
as to which there is a reasonable possibility of an adverse determination and
that, if adversely determined,
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would reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect or (ii) that relate in any respect to any of the
Transaction Documents or Transactions.
(b) ENVIRONMENTAL MATTERS. Except for Disclosed Matters set forth in
Schedule 4.6(b) and except with respect to any other matters that, individually
or in the aggregate, would not reasonably be expected to result in a Material
Adverse Effect, no member of the Holdings Group (i) has failed to comply with
any Environmental Law or to obtain, maintain or comply with any permit, license
or other approval required under any Environmental Law, (ii) has become subject
to any Environmental Liability, or (iii) has received written notice of any
claim with respect to any Environmental Liability.
(c) DISCLOSED MATTERS. Since the date of this Agreement, there has
been no change in the status of the Disclosed Matters that, individually or in
the aggregate, has resulted in, or would reasonably be expected to result in, a
Material Adverse Effect.
SECTION 4.7. COMPLIANCE WITH LAWS AND AGREEMENTS. Each member of the
Holdings Group is in compliance with all laws, regulations and orders of any
Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where
the failure to do so, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect. No Default has occurred and is
continuing.
SECTION 4.8. INVESTMENT AND HOLDING COMPANY STATUS. No member of the
Holdings Group is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 or (b) a "holding company"
as defined in, or subject to regulation under, the Public Utility Holding
Company Act of 1935.
SECTION 4.9. TAXES. Each member of the Holdings Group has timely
filed or caused to be filed all material Tax returns and reports required to
have been filed and has paid or caused to be paid all material Taxes required to
have been paid by it, except Taxes that are being contested in good faith by
appropriate actions and for which such member has set aside on its books
adequate reserves.
SECTION 4.10. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, would reasonably be expected to
result in a Material Adverse Effect. The "amount of unfunded benefit
liabilities," as defined in Section 4001(18) of ERISA, as of the last day of the
most recent plan year does not exceed $1,000,000 in the aggregate for all Plans.
No member of the Holdings Group provides any post-retirement health or life
benefits to its employees other than those required by Section 4980B of the
Code.
SECTION 4.11. REPRESENTATIONS AND WARRANTIES IN TRANSACTION
DOCUMENTS. The representations and warranties set forth in Article III and
Article IV of the Merger and Recapitalization Agreement and all other factual
statements,
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representations and warranties by any member of the Holdings Group (or its
predecessor) or by the Investors set forth in any of the Merger Agreements,
Subordinated Debt Issuance Documents or Holdings Documents are true and correct
in all material respects as of the time such representations and warranties were
made and, unless such representations and warranty expressly indicates that it
is being made as of any other specific date, as of the Effective Date.
SECTION 4.12. DISCLOSURE. The Borrower and Holdings have disclosed to
the Administrative Agent and the Lenders all agreements, instruments and
corporate or other restrictions to which any member of the Holdings Group is
subject, and all other matters known to any of them, that (in the case of all of
the foregoing) individually or in the aggregate would reasonably be expected to
result in a Material Adverse Effect. Neither the Loan Documents nor the Proxy
Statement nor the Offering Memorandum nor, when taken as a whole, any of the
other reports, financial statements, certificates or other information furnished
by or on behalf of any member of the Holdings Group (or its predecessor) or any
Investor to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or any other Loan Document or delivered hereunder
or thereunder contains any material misstatement of fact or omits to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that, with
respect to projected financial information, the Borrower and Holdings represent
only that such information was prepared in good faith based upon assumptions
believed to be reasonable at the time.
SECTION 4.13. SUBSIDIARIES. Holdings does not have any subsidiaries
other than the Borrower and the Borrower Subsidiaries. Schedule 4.13 (as from
time to time supplemented by the Borrower) sets forth all outstanding Equity
Interests in each member of the Holdings Group and the registered holder and
beneficial owner thereof.
SECTION 4.14. SOLVENCY. Immediately upon the consummation of the
Transactions on the Effective Date, immediately following the making of each
Loan made on the Effective Date and after giving effect to the application of
the proceeds of such Loans, and immediately upon the making of each Loan and the
issuance, amendment, extension or renewal of each Letter of Credit at any time
on or after the Effective Date, and, in the case of each Guarantor, after giving
effect to the liability incurred by it under the Guaranty, Indemnity and
Subordination Agreement (subject to the limitation of liability set forth in
Section 2.5 thereof) and the rights granted to such Guarantor thereunder, (a)
the fair value of the assets of each Loan Party, at a fair valuation, exceed its
probable liability on its debts and liabilities, senior, subordinated,
contingent or otherwise; (b) the present fair saleable value of the property of
each Loan Party is greater than the amount that will be required to pay its
liability on its debts and other liabilities, senior, subordinated, contingent
or otherwise, as such debts and other liabilities become absolute and matured;
(c) each Loan Party is able to pay its debts and liabilities, senior,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (d) no Loan Party has unreasonably small capital with
which to conduct the business in which it is engaged as such business is
conducted and proposed to be conducted.
SECTION 4.15. THE COLLATERAL.
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(a) PLEDGE AND SECURITY AGREEMENTS. The Pledge and Security
Agreements are effective to create in favor of the Administrative Agent, for the
ratable benefit of the holders of Obligations, a legal, valid and enforceable
security interest in any and all present and future interests held or at any
time acquired by any Loan Party in any of the property therein described as
collateral.
(b) PLEDGED COLLATERAL. All Securities in which any Loan Party owns
any interest (other than Permitted Cash Investments) are Certificated
Securities. All such Certificated Securities, except Excluded Assets, and all
Instruments constituting Collateral have been delivered to the Administrative
Agent in pledge as security for the Obligations. The Administrative Agent's
security interest therein constitutes a fully perfected first priority and sole
Lien on, and security interest in, all right, title and interest of each Loan
Party therein free from any adverse claim and prior and superior in right to any
other Person. Schedule 4.15(b) sets forth all Certificated Securities and
Instruments that have been delivered to, and are held in pledge by, the
Administrative Agent.
(c) FINANCING STATEMENTS. Duly completed and executed financing
statements covering all of the Collateral will have been duly filed in proper
form sufficient for filing within 10 days from the Effective Date, and
thereafter will remain effectively on file, in each filing office in each
jurisdiction in which the filing of a financing statement is required or
permitted in order to perfect the Administrative Agent's security interest in
any and all of the Collateral, and such financing statements are sufficient to
perfect the Administrative Agent's security interest to the extent such security
interest can be perfected by filing a financing statement in any jurisdiction.
Schedule 4.15(c) sets forth all filing offices in each jurisdiction which a
financing statement is required to be filed, in order to perfect the
Administrative Agent's security interest in any and all of the Collateral, and
all filing offices in which financing statements have been duly filed in proper
form sufficient for filing, and remain effectively on file, in each such
jurisdiction. The Security Documents constitute a valid, enforceable and fully
perfected Lien on, and security interest in, any and all of the property of the
Loan Parties except the Excluded Assets and any Miscellaneous Unpledged Assets,
and such Lien and security interest is prior and superior in right to any Lien
held by any other Person, except any Lien that both (i) is expressly permitted
by Section 6.3 and (ii) either (A) is permitted under clause (iii) or clause
(iv) in Section 6.3 or (B) is imposed by law and is entitled, as a matter of
law, to priority over a security interest that was duly perfected before such
Lien attached.
(d) PATENT AND TRADEMARKS. The Patent and Trademark Assignment (and
each supplement thereto reflecting the addition of any Loan Party or the
addition of property acquired by a Loan Party after the Effective Date) is in
form sufficient for filing, will have been duly filed in the United States
Patent and Trademark Office within 10 days from the Effective Date and, after
giving effect to the financing statements referred to in Section 4.15(c),
constitutes a fully perfected Lien on, and security interest in, all right,
title and interest of the Loan Parties in all property described therein in
which any Loan Party has any interest as to which a security interest may be
perfected or any transfer may be recorded by filing, recording or registration
in the United States Patent and Trademark Office, in each case prior and
superior in right to any other Person.
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(e) AMENDMENT OF SCHEDULES. The Borrower may at any time
unilaterally amend Schedule 4.15(b) or Schedule 4.15(c) to reflect any
transaction permitted under this Agreement, by giving written notice thereof to
the Administrative Agent and the Lenders. To be effective, such notice must
state conspicuously that it constitutes an amendment to certain factual matters
relating to the Collateral set forth in Section 4.15 of this Agreement.
SECTION 4.16. FEDERAL RESERVE REGULATIONS.
(a) NOT IN MARGIN CREDIT BUSINESS. No member of the Holdings Group
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of buying or carrying Margin Stock.
(b) PROCEEDS NOT USED. No part of the proceeds of any Loan or any
Letter of Credit will be used, whether directly or indirectly, and whether
immediately, incidentally or ultimately, in any circumstance or for any purpose
that constitutes or entails a violation of, or that is inconsistent with, the
provisions of the Regulations of the Board, including Regulation T, Regulation U
or Regulation X.
(c) ASSETS. Less than 25 % of the assets of Holdings Group on a
consolidated basis consist of Margin Stock.
(d) SUBORDINATED INDEBTEDNESS. All Obligations constitute, and are
hereby designated as, "Senior Indebtedness" entitled to the benefits of
subordination provisions of the Senior Subordinated Note Indenture and the
Convertible Debenture Indenture.
SECTION 4.17. INSURANCE. Schedule 4.17 sets forth accurately and
completely all insurance coverage presently in effect for the benefit of any
member of the Holdings Group. Such insurance is duly contracted for by the
insurers identified in Schedule 4.17. No member of the Holdings Group has
received notice of any cancellation or reduction in coverage, or of the
insurer's intent to effectuate any cancellation or reduction in coverage, as to
any such insurance.
SECTION 4.18. YEAR 2000 COMPLIANCE. Holdings and the Borrower have
adopted a plan for the review and any necessary adjustments of the software and
other processing capabilities of Holdings and its Subsidiaries pursuant to which
they in good faith expect to be Year 2000 Compliant no later than September 30,
1999. The costs to the Holdings Group of such review and adjustments and the
reasonably foreseeable consequences of becoming Year 2000 Compliant (including
reprogramming errors and the failure of systems or equipment) would not
reasonably be expected to result in a Default or a Material Adverse Effect.
ARTICLE V.
AFFIRMATIVE COVENANTS
Until the Revolving Commitments have expired or been terminated, all
Letters of Credit have expired or otherwise been discharged and the principal of
and
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interest on all Loans and reimbursement liabilities for LC Disbursements and all
other Obligations then due and payable have been paid in full and in cash, each
of the Borrower and Holdings covenants and agrees with the Administrative Agent:
SECTION 5.1. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower
and Holdings will furnish to the Administrative Agent:
(a) YEAR-END STATEMENTS. Commencing with the fiscal year ending on or
about June 30, 1999, within 90 days after the end of each fiscal year of
Holdings and the Borrower, each of their consolidated balance sheets and related
statements of operations, stockholders' equity and cash flows as of the end of
and for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, all (i) audited (in the case of such consolidated
statements) and reported on by independent public accountants of recognized
national standing (without a "going concern" or like qualification or exception
and without any qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of Holdings
and its consolidated Subsidiaries and the Borrower and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied and (ii) accompanied by a certificate of a Financial Officer of the
Borrower setting forth, and showing the component calculations for determining,
Excess Cash Flow for such fiscal year and Surplus Liquidity as of the last day
of such fiscal year;
(b) QUARTERLY STATEMENTS. Commencing with the fiscal quarter ending
on or about September 30, 1998, within 45 days after the end of each of the
first three fiscal quarters in each fiscal year of Holdings and the Borrower,
each of their consolidated balance sheets and related statements of operations
and cash flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year and the figures set
forth in the annual operating plan delivered for the current year pursuant to
Section 5.1(f), all in a form reasonably satisfactory to the Administrative
Agent and certified by a Financial Officer of the Borrower as presenting fairly
in all material respects the financial condition and results of operations of
Holdings and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnote disclosure;
(c) MONTHLY STATEMENTS. Within 30 days after the end of each fiscal
month, consolidated summary balance sheets for Holdings and for the Borrower and
related summary statements of operations as of the end of and for such fiscal
month and the then elapsed portion of the fiscal year, setting forth in each
case in comparative form the figures for the corresponding period or periods of
(or, in the case of the balance sheet, as of the end of) the previous fiscal
year and the figures set forth in the annual operating plan delivered for the
current year pursuant to Section 5.1(f), all in a form reasonably satisfactory
to the Administrative Agent and certified by a Financial Officer of the Borrower
as presenting in all material respects the financial condition and results of
operations of Holdings and its consolidated Subsidiaries on a consolidated basis
in
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accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnote disclosure;
(d) CERTIFICATE AS TO DEFAULTS. Concurrently with any delivery of
financial statements under Section 5.1(a) or Section 5.1(b), a certificate of a
Financial Officer of the Borrower (in the form of a Compliance Certificate or in
such other form as may reasonably be requested from time to time by the
Administrative Agent or Required Lenders) (i) certifying as to whether a Default
has occurred and, if a Default has occurred, specifying the details thereof and
any action taken or proposed to be taken with respect thereto, (ii) setting
forth reasonably detailed calculations demonstrating compliance with Sections
6.1, 6.3, 6.5, 6.6, 6.8, 6.12, 6.13, 6.14 and 6.15 and the other information
requested in the Compliance Certificate, including an item by item description
of all Pro Forma Adjustments reflected therein, and (iii) stating whether any
change in GAAP or in the application thereof has occurred since the date of the
audited financial statements referred to in Section 4.4(a) and, if any such
change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate;
(e) ACCOUNTANT'S STATEMENT. Concurrently with any delivery of
financial statements under Section 5.1(a), a certificate of the accounting firm
that reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial statements of
any Default (which certificate may be limited to the extent required by
accounting rules or guidelines);
(f) ANNUAL OPERATING PLAN. Within 90 days from the commencement of
the fiscal year of Holdings and the Borrower that commenced on June 28, 1998 and
within 30 days after the commencement of each such fiscal year thereafter, a
consolidated operating budget for such fiscal year on a month-by-month basis
(including projected consolidated balance sheets and related statements of
projected operations and cash flow as of the end of and for such fiscal year) in
a form reasonably satisfactory to the Administrative Agent; and, promptly when
available, any significant revisions of such budget or projections;
(g) BORROWING BASE REPORTS. Within 20 days following the end of each
month and within 20 days after request therefor by the Administrative Agent or
any Lender, a certificate of a Financial Officer of the Borrower setting forth
(in such detail and with such back-up as may reasonably be requested by the
Administrative Agent or Required Lenders) the Borrowing Base as of the last day
of such month or as of the date of such request;
(h) SEC REPORTS. Promptly after the same become publicly available,
copies of all periodic and other reports, proxy statements and other materials
filed by any member of the Holdings Group with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, as the
case may be;
(i) ACCOUNTANT'S REPORTS. Promptly upon receipt thereof, copies of
all reports submitted to Holdings or the Borrower by independent certified
public accountants in connection with each annual, interim or special audit of
the books of the
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Borrower or any of its Subsidiaries made by such accountants, including any
management letter commenting on the Borrower's internal controls submitted by
such accountants to management in connection with their annual audit,
accompanied by a letter from Holdings and the Borrower to such accountants
authorizing and directing them to discuss any and all matters therein set forth
with the Administrative Agent or any Lender; and
(j) OTHER INFORMATION. Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of any member of the Holdings Group, or compliance with the terms of
any Loan Document, as any Agent or Lender may reasonably request.
SECTION 5.2. NOTICES OF MATERIAL EVENTS. The Borrower and Holdings
will furnish to the Administrative Agent, within three Business days after an
officer or member of management of any member of the Holdings Group acquires
knowledge thereof, prompt written notice of the following:
(a) DEFAULT. The occurrence of any Default;
(b) LEGAL PROCEEDINGS. The receipt by any member of the Holdings
Group of any asserted or threatened written claim or the commencement of, or any
materially adverse development in, any action, suit or proceeding by or before
any arbitrator or Governmental Authority against or affecting any member of the
Holdings Group or any Affiliate thereof that, if adversely determined, would
reasonably be expected to result in (i) a judgment more than $1,000,000 in
excess of admitted insurance coverages or (ii) a Material Adverse Effect;
(c) ERISA EVENTS. The occurrence of any ERISA Event that, alone or
together with any other ERISA Events that have occurred, would reasonably be
expected to result in a Material Adverse Effect, or the provision by the
administrator of any Plan of a notice of intent to terminate such Plan pursuant
to Section 4041(a)(2) of ERISA; and
(d) MATERIAL ADVERSE EFFECT. Any other event that results in, or
would reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section 5.2 shall be accompanied by a
statement of a Financial Officer or other executive officer of Holdings and the
Borrower setting forth the details of the event or development requiring such
notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.3. REGARDING THE COLLATERAL.
(a) CHANGES IN FACTUAL INFORMATION. The Borrower and Holdings will
furnish to the Administrative Agent prompt written notice of any change (i) in
any Loan Party's corporate name or in any trade name used to identify it in the
conduct of its business or in the ownership of its properties, (ii) in the
location of any Loan Party's chief executive office, its principal place of
business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which
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Collateral owned by it is located (including the establishment of any such new
office or facility), (iii) in any Loan Party's identity or corporate structure,
(iv) resulting in any tangible Collateral being located in any jurisdiction in
which a financing statement must be, but has not been, filed in order to perfect
the Administrative Agent's liens, (v) in respect of any patents, trademarks or
applications therefor owned by or licensed to any Loan Party, or (vi) in any
Loan Party's federal taxpayer identification number. The Borrower and Holdings
will not effect or permit any change referred to in the preceding sentence
unless all filings have been made under the Uniform Commercial Code or otherwise
that are required in order for the Administrative Agent to continue at all times
following such change to have a valid, legal and perfected security interest in
the Collateral.
(b) ANNUAL PERFECTION CERTIFICATE. Each year, at the time of
delivery of annual financial statements with respect to the preceding fiscal
year pursuant to Section 5.1(a), the Borrower shall deliver to the
Administrative Agent a Perfection Certificate duly executed by a Financial
Officer of the Borrower and Holdings setting forth the information required
pursuant to the Perfection Certificate or confirming that there has been no
change in such information since the date of the Perfection Certificate
delivered on the Effective Date or the date of the most recent certificate
delivered pursuant to this Section 5.3(b).
SECTION 5.4. EXISTENCE; CONDUCT OF BUSINESS. The Borrower and
Holdings will, and will cause each of the Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
the legal existence and corporate good standing of the Borrower and Holdings
and, except as permitted under Section 6.6 and except where the failure to do so
would not reasonably be expected to result in a Material Adverse Effect, the
legal existence and corporate good standing of each Borrower Subsidiary and the
rights, licenses, permits, privileges, franchises, patents, copyrights,
trademarks and trade names material to the conduct of the business of the
Borrower and the Borrower Subsidiaries.
SECTION 5.5. PAYMENT OF OBLIGATIONS. The Borrower and Holdings will,
and will cause each of the Subsidiaries to, pay its Indebtedness and other
obligations in a material amount, before the same shall become delinquent or in
default, and pay or discharge, before the same shall become delinquent, all
taxes, assessments and governmental charges levied or imposed upon it or its
income, profits or property and all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon its property, except
(in each case) where (a) the validity or amount thereof is being contested in
good faith by appropriate actions, (b) it has set aside on its books adequate
reserves with respect thereto in accordance with GAAP, (c) such contest
effectively suspends collection of the contested obligation and no Lien arises
or is created to secure such obligation (except a Lien created by law to secure
an ad valorem tax or the claim of a mechanic or materialman claim if the
enforcement of such Lien is suspended or stayed) and (d) the failure to make
payment pending such contest would not reasonably be expected to result in a
Material Adverse Effect.
SECTION 5.6. MAINTENANCE OF PROPERTIES. The Borrower and Holdings
will, and will cause each of the Subsidiaries to, keep and maintain all property
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material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted.
SECTION 5.7. INSURANCE.
(a) MAINTENANCE OF INSURANCE. The Borrower and Holdings will, and
will cause each of the Subsidiaries to, maintain insurance with respect to their
properties, businesses and potential liabilities with financially sound and
reputable insurers against such casualties and contingencies, of such types, in
such amounts and with such coverages as are in effect on the Effective Date,
including the coverages described in Schedule 4.17, augmented as necessary to
ensure coverage that is or becomes consistent with prudent industry practice.
(b) PROPERTY AND BUSINESS INTERRUPTION COVERAGE. All proceeds of
insurance insuring against risks of damage to or loss of any property of any
Loan Party or business interruption coverage shall be payable to the
Administrative Agent, as sole loss payee as security for the Obligations, and
shall constitute Net Cash Proceeds.
(c) NOTICE OF CANCELLATION. The Borrower and Holdings will cause
each insurer to agree to give the Administrative Agent at least 30 days' prior
written notice of any cancellation of any property, business interruption or
product liability insurance.
SECTION 5.8. CASUALTY AND CONDEMNATION. The Borrower and Holdings
will furnish to the Administrative Agent and the Lenders prompt written notice
of any casualty or other insured damage to any material portion of any
Collateral or the commencement of any action or proceeding for the taking of any
material portion of the Collateral or any part thereof or interest therein under
power of eminent domain or by condemnation or similar proceeding.
SECTION 5.9. BOOKS AND RECORDS; INSPECTION AND AUDIT RIGHTS. The
Borrower and Holdings will, and will cause each of the Subsidiaries to, (i) keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities, and (ii) permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, to audit or
verify the Collateral, and to discuss its affairs, finances and condition with
its officers and independent accountants, all at such reasonable times and as
often as reasonably requested. Except when a Default has occurred and is
continuing, reimbursement under Section 9.3 for costs incurred by the
Administrative Agent in connection therewith shall not be demanded by the
Administrative Agent in respect of more than one such visit, inspection and
discussion in any one fiscal year and may not be demanded by any other Lender.
SECTION 5.10. COMPLIANCE WITH LAWS. The Borrower and Holdings will,
and will cause each of the Subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
would not reasonably be expected to result in a Material Adverse Effect.
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SECTION 5.11. USE OF PROCEEDS. The Borrower and Holdings will not, and
will not permit any Subsidiary to, use any proceeds of Loans or Letters of
Credit directly or indirectly (a) to pay the merger consideration under the
Merger and Recapitalization Agreement, (b) to fund any payment pursuant to the
Debt Tender Offer or any deposit of Restricted Funds, (c) to fund payment of
more than $10,000,000 in fees and expenses relating to the Transactions, (d) for
Convertible Debt Retirement (i) at any time prior to the date on which the
Borrower has performed its obligations under Section 5.13(e), (ii) if and so
long as any amounts remain on deposit under the Restricted Funds Account
Agreement, (iii) from the proceeds of Revolving Loans in excess of the
Convertible Debt Retirement Allowance determined on the day of funding of such
Revolving Loans or (iv) from the proceeds of Swingline Loans, or (e) for any
purpose that entails a violation of Regulation T, Regulation U or Regulation X.
Subject to the foregoing, the proceeds of credit extended to the Borrower
hereunder may be used to fund the business operations of the Borrower and
Borrower Subsidiaries in the ordinary course of business for lawful corporate
purposes that are permitted under this Agreement.
SECTION 5.12. ADDITIONAL BORROWER SUBSIDIARIES. If at any time after
the Effective Date any Person becomes a Borrower Subsidiary or Borrower
Subsidiary that is any Exempted Foreign Subsidiary ceases to be an Exempted
Foreign Subsidiary, the Borrower and Holdings will, within ten days after such
Borrower Subsidiary is formed or acquired, (a) notify the Administrative Agent
and the Lenders thereof, (b) cause such Borrower Subsidiary to execute and
deliver, and endorse and deliver to the Administrative Agent in pledge, a
promissory note in an amount equal to all Investments in such Borrower
Subsidiary made or maintained, or contemplated to be made or maintained, by any
member of the Holdings Group, except Investments in the common equity capital of
such Borrower Subsidiary, (c) cause such Borrower Subsidiary (except Exempted
Foreign Subsidiaries) to become a party to the Guaranty, Indemnity and
Subordination Agreement and each applicable Security Document and take such
actions to create and perfect Liens on such Borrower Subsidiary's assets to
secure its liability under the Guaranty, Indemnity and Subordination Agreement
as the Administrative Agent or the Required Lenders may reasonably request, and
(d) cause all Security Certificates representing Equity Interests in such
Borrower Subsidiary, except Excluded Assets, to be transferred and delivered to
the Administrative Agent in pledge pursuant to the applicable Pledge and
Security Agreement and cause the Administrative Agent's security interest in all
uncertificated Equity Interests, if any, in such Borrower Subsidiary, except
Excluded Assets, to be duly perfected by control and by filing.
SECTION 5.13. FURTHER ASSURANCES.
(a) UPON REQUEST. The Borrower and Holdings will, and will cause
each other Loan Party to, from time to time upon the request of the
Administrative Agent or the Required Lenders through the Administrative Agent,
at the expense of the Loan Parties, execute, deliver and acknowledge all
instruments, assignments, security agreements, financing statements or other
documents and take all other actions as the Administrative Agent or such
Required Lenders may reasonably deem necessary or appropriate to create,
perfect, ensure the priority of, protect or (if an Event of Default is
continuing at the time) lawfully enforce a Lien in favor of the Administrative
Agent for the ratable benefit of the holders of the Obligations upon any
property (whether now
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owned or hereafter acquired, whether tangible or intangible, whether real,
personal or mixed, and wherever located) in which any member of the Holding
Group has or may have any interest, except Excluded Assets and Miscellaneous
Unpledged Assets.
(b) CASH IN BANK. Except as to Miscellaneous Unpledged Assets, the
Borrower and Holdings will, and will cause each other Loan Party to, (i)
maintain any and all of its other bank deposits and bank deposit accounts at a
bank selected by it that either (A) is located in a state under the laws of
which a security interest in bank deposits and deposit accounts may be created
under the Uniform Commercial Code and perfected by the giving of a notice to the
depositary bank and the receipt of any required consent thereto from the
depositary bank, without any requirement that the holder of such security
interest maintain dominion or control over such bank deposits and deposit
accounts, or (B) has entered into a restricted account agreements with respect
to such deposits and accounts on terms generally consistent with the practice of
commercial finance lenders within the United States for agreements of such type;
(ii) give notice of the existence of the Administrative Agent's security
interest in each such deposit account and any and all present and future
deposits therein, by delivering a perfection notice to the depositary bank and
obtaining any and all required consents and agreements from the depositary bank
or as otherwise required under such laws to perfect the Administrative Agent's
security interest therein, at or within 30 days after the opening of such
deposit account, and (iii) grant and permit no other Lien on any such bank
deposits or deposit accounts.
(c) PERMITTED CASH INVESTMENTS. Except as to Miscellaneous Unpledged
Assets, the Borrower and Holdings will, and will cause each other Loan Party to,
maintain any and all Permitted Cash Investments in such manner as may be
required to ensure that the Administrative Agent at all times holds a duly
perfected first and sole security interest therein as security for the
Obligations.
(d) UNPLEDGED ASSETS. If at any time the Administrative Agent does
not hold a duly created, enforceable and perfected Lien as security for the
Obligations upon any property or assets of any Loan Party other than Excluded
Assets and Miscellaneous Unpledged Assets, the Borrower and Holdings will notify
the Administrative Agent and the Lenders thereof and will take such action as
may be necessary to cause all assets of each Loan Party (except Excluded Assets
and Miscellaneous Unpledged Assets) to be subjected to a duly created,
enforceable and perfected Lien in favor of the Administrative Agent as security
for the Obligations and will take, and cause each other Loan Party to take, such
actions as shall be necessary or reasonably requested by the Administrative
Agent or Required Lenders to grant and perfect such Liens, including actions
described in Section 5.13(a), all at the expense of the Loan Parties.
(e) STOCK OF FOREIGN SUBSIDIARIES. Within 60 days after the
Effective Date, the Borrower will deliver to the Administrative Agent, in
pledge, security certificates representing, or proof of registration of transfer
in pledge of, all Equity Interests in Subsidiaries incorporated in any
jurisdiction other than the United States or a State thereof, except to the
extent such Equity Interests are Excluded Assets, together with an opinion of
counsel reasonably satisfactory to the Administrative Agent (i) setting forth
the actions necessary under the laws of such jurisdiction to create and
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Perfect a lawful and enforceable security interest in such Equity Interests,
(ii) stating that such actions have been taken, and (iii) stating that neither
such laws nor such actions require the Administrative Agent to qualify to do
business or pay taxes in such jurisdiction or will result in the imposition of
any duty or liability upon the Administrative Agent, except the duty to release
the pledge upon satisfaction of the obligations secured thereby and other duties
comparable to those imposed upon a secured party under the Uniform Commercial
Code, as in effect in the State of New York.
SECTION 5.14. FISCAL YEAR. The Borrower and Holdings will, and will
cause each Subsidiary to, maintain a fiscal year that ends on or about June 30
and consists of four fiscal quarters comprised of four-, four- and five-week
fiscal months.
SECTION 5.15. YEAR 2000 COMPLIANCE. The Borrower and Holdings will be,
and will cause each Subsidiary to be, Year 2000 Compliant no later than December
31, 1999.
SECTION 5.16. CONVERTIBLE DEBT RETIREMENT. If and whenever any member
of the Holdings Group or any of their Affiliates redeem, purchase or otherwise
acquire or hold any Convertible Debentures, the Borrower and Holdings will cause
such Convertible Debentures to be retired and discharged in such manner that,
pursuant to the Convertible Debenture Indenture, they cannot thereafter be
resold or reissued.
ARTICLE VI.
NEGATIVE COVENANTS
Until the Revolving Commitments have expired or been terminated, all
Letters of Credit have expired or otherwise been discharged and the principal of
and interest on all Loans and reimbursement liabilities for LC Disbursements and
all other Obligations then due and payable have been paid in full and in cash,
each of the Borrower and Holdings covenants and agrees with the Administrative
Agent, Issuing Bank and Lenders that:
SECTION 6.1. INDEBTEDNESS. The Borrower and Holdings will not, and
will not permit any Subsidiary to, create, incur, assume or permit to exist any
Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) Indebtedness of the Borrower under the Senior Subordinated
Notes and Holdings' subordinated guarantee thereof outstanding on the terms
set forth in the Senior Subordinated Note Indenture in an aggregate
principal amount not exceeding $110,000,000;
(iii) Indebtedness of Holdings under the Convertible Debentures
outstanding on the terms set forth in the Convertible Debenture Indenture
in an aggregate principal amount not exceeding the sum of $25,000,000 plus
the then amount of the Restricted Funds;
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(iv) Indebtedness of Holdings under the Holdings Discount
Debentures outstanding on the terms set forth in the Holdings Debenture
Purchase Agreement or the Holdings Discount Debenture Indenture in an
aggregate face amount of $29,485,000;
(v) Indebtedness of any Borrower Subsidiary to the Borrower
and Indebtedness of the Borrower to any Wholly-Owned Borrower Subsidiary,
in each instance if (A) evidenced by a promissory note held by the
Administrative Agent in pledge pursuant to the Pledge and Security
Agreements and (B) any such Indebtedness of the Borrower is subordinated in
right of payment to the Obligations on the terms set forth in the Guaranty,
Indemnity and Subordination Agreement;
(vi) Indebtedness under Hedging Agreements permitted under
Section 6.7;
(vii) Indebtedness outstanding on the Effective Date and listed
on Schedule 6.1;
(viii) Capital Lease Obligations and equipment purchase money
financings (and refinancings thereof) incurred after the Effective Date in
an aggregate principal amount not exceeding $2,500,000 at any time
outstanding;
(ix) Indebtedness of Exempted Foreign Subsidiaries in an
aggregate principal amount not exceeding $7,000,000 (or its equivalent at
the spot market rate for the relevant currency at the time of
determination) at any time outstanding;
(x) Bonding Liabilities of the Borrower in an aggregate amount
(determined on the basis of the maximum possible liability therefor,
whether or not contingent or remote) not exceeding $15,000,000 at any time
outstanding;
(xi) unsecured Subordinated Indebtedness incurred by Holdings
or the Borrower and not Guaranteed by any Borrower Subsidiary, if:
(A) either (1) such Subordinated Indebtedness constitutes
a Permitted Earn-Out Liability or (2) no principal payment or
prepayment, sinking fund reserve payment, or mandatory purchase offer
or redemption is due or can become required in respect of such
Subordinated Indebtedness other than by Holdings (x) on or after the
first anniversary of the Maturity Date or (y) in case of a Change of
Control,
(B) such Subordinated Indebtedness is subordinated to the
payment of the Obligations, including Holdings' Guaranty thereof,
pursuant to definitive subordination provisions that are either (1)
substantially identical to those set forth in the Senior Subordinated
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Note Indenture (including provisions excusing the obligor from any
mandatory repurchase or redemption obligation unless the repurchase or
redemption is permitted at the time under this Agreement and other
agreements governing certain designated senior indebtedness but not
including provisions excepting distributions of junior securities) or
(2) otherwise approved by the Required Lenders; and such Subordinated
Indebtedness is otherwise issued on terms (including as to interest
rate, call rights, prepayment premiums, representations, warranties,
covenants, redemption and repurchase obligations, and events of
default) reasonably satisfactory to the Required Lenders,
(C) if such Subordinated Indebtedness is incurred by
Holdings, the securities evidencing such Indebtedness or the proceeds
of the issuance and sale thereof are transferred by Holdings to the
Borrower as a contribution to the common equity capital of the
Borrower, and
(D) the proceeds of the issuance and sale of such
Subordinated Indebtedness are used by the Borrower solely to pay the
purchase consideration for a Permitted Acquisition;
(xii) Indebtedness of Holdings to the Investors arising from the
issuance and sale of securities having substantially the same terms as the
Holdings Discount Debentures, but subordinated as set forth in clause
(xi)(B) in this Section 6.1, if the proceeds thereof are (A) delivered by
Holdings to the Borrower as a contribution to the Borrower's common equity
capital and (B) applied to settle claims or satisfy judgments described in
clause (ii) in Section 7.1(l);
(xiii) Indebtedness of Holdings to the Borrower arising solely
from, and consisting solely of, the funding of a distribution to Holdings
permitted under Section 6.8(a); and
(xiv) other Indebtedness of the Borrower in an aggregate
principal amount not exceeding $2,000,000 at any time outstanding.
SECTION 6.2. CERTAIN INTERESTS AND LIABILITIES.
(a) DISQUALIFIED STOCK. The Borrower and Holdings will not, and will
not permit any Subsidiary to, issue or have outstanding any Disqualified Stock.
(b) SUBSIDIARIES. The Borrower and Holdings will not own any
interest in any subsidiary except (i) ownership by Holdings of 100% of the
issued and outstanding common stock of the Borrower, and (ii) ownership by the
Borrower, directly or through Wholly-Owned Borrower Subsidiaries, of Wholly-
Owned Borrower Subsidiaries.
(c) HOLDINGS PREFERRED STOCK. Holdings will not offer or agree to
redeem, purchase or exchange any preferred stock issued by Holdings, including
preferred stock outstanding under the Holdings Certificate of Designation, and
will not
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permit any Subsidiary to do so. The redemption of any such preferred stock and
the purchase of, or exchange for, any such preferred stock (including any
redemption, purchase or exchange that Holdings would otherwise, but for the
provisions of this Agreement, be permitted or required to offer or make pursuant
to the provisions of the Holdings Certificate of Designation) are hereby
expressly prohibited. Notwithstanding the foregoing, Holdings may issue common
stock or new preferred stock that is not Disqualified Stock in exchange for, or
redemption of, previously outstanding Holdings preferred stock.
(d) SUBORDINATED DEBT. The Borrower and Holdings will not, and will
not permit any Subsidiary to, issue or incur or have outstanding any
Indebtedness that by its terms is subordinated to the payment of any other
Indebtedness, liability or obligation, unless such such Indebtedness is
subordinated to the payment of the Obligations on the same terms.
SECTION 6.3. LIENS. The Borrower and Holdings will not, and will not
permit any Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect of
any thereof, except:
(i) Liens created under the Loan Documents;
(ii) Permitted Encumbrances;
(iii) any Lien on any property or asset of any Loan Party
existing on the date hereof and listed on Schedule 6.3, but only so long as
(i) such Lien is not enforceable against any other property or asset and
(ii) such Lien secures only those obligations that it secures on the date
hereof;
(iv) purchase money security interests in equipment and the
interest of a lessor under a Capital Lease Obligation granted or arising
after the Effective Date, and Liens upon the property subject to such
purchase money security interest or lease securing solely Indebtedness
incurred in the refinancing thereof, so long as the aggregate principal
amount of all Indebtedness secured by any and all such purchase money
security interests, leases and Liens does not exceed $2,500,000 at any time
outstanding; and
(v) Liens on assets of Exempted Foreign Subsidiaries securing
Indebtedness permitted under clause (ix) in Section 6.1.
SECTION 6.4. FUNDAMENTAL CHANGES.
(a) MERGER; CONSOLIDATION; LIQUIDATION; DISSOLUTION. The Borrower
and Holdings will not, and will not permit any Subsidiary to, merge into or
consolidate with any other Person, or permit any other Person to merge into or
consolidate with it, or liquidate or dissolve, except that, if at the time
thereof and after giving effect thereto no Default shall have occurred and be
continuing, (i) any Wholly-Owned Borrower Subsidiary may merge into the Borrower
in a transaction in which the Borrower is the surviving corporation, (ii) any
Wholly-Owned Borrower Subsidiary may
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merge into or consolidate with any other Wholly-Owned Borrower Subsidiary or
into or with any other Person in a Permitted Acquisition, if the surviving
entity is a Wholly-Owned Borrower Subsidiary and (unless it is an Exempted
Foreign Subsidiary) a Loan Party, and (iii) any Borrower Subsidiary may
liquidate or dissolve if the Borrower determines in good faith that such
liquidation or dissolution is in the best interests of the Borrower and is not
materially disadvantageous to the Lenders.
(b) LINES OF BUSINESS. The Borrower and Holdings will not, and will
not permit any of the Borrower Subsidiaries to, engage to any material extent in
any business other than manufacturing, marketing and distributing bicycle
helmets, auto racing helmets and accessories and businesses that are, in the
reasonable judgment of Holdings' board of directors, reasonably related thereto.
(c) ACTIVITIES OF HOLDINGS. Holdings will not own any assets other
than all outstanding common stock of the Borrower or conduct any business or
activity other than activities reasonably incidental to the ownership of such
common stock.
SECTION 6.5. INVESTMENTS; ACQUISITIONS. The Borrower and Holdings
will not, and will not permit any Subsidiary to, purchase, hold or acquire
(including pursuant to any merger with any Person that was not a Wholly-Owned
Subsidiary prior to such merger) any Equity Interest in, Indebtedness of, or
other securities (including any option, warrant or other right to acquire any of
the foregoing) issued by, or make or permit to exist any loans or advances to,
or Guarantee any obligations of, or make or permit to exist any investment or
any other interest in, any other Person, or purchase or otherwise acquire (in
one transaction or a series of transactions) the operating assets of any
business or line of business or any other assets of any other Person other than
Inventory purchased in the ordinary course of business and Capital Expenditures
made in conformity with Section 6.12, except:
(i) the Mergers;
(ii) Permitted Cash Investments;
(iii) Investments by Holdings in all outstanding common stock of
the Borrower, if all such outstanding common stock is represented by
Security Certificates held by the Administrative Agent in pledge pursuant
to the Holdings Pledge and Security Agreement; and Investments by the
Borrower or a Wholly-Owned Borrower Subsidiary in common stock of, or a
promissory note issued by, any Borrower Subsidiary, if (A) such Borrower
Subsidiary is a Wholly-Owned Subsidiary, (B) such Borrower Subsidiary, if
it is not an Exempted Foreign Subsidiary, has become party to the Guaranty,
Indemnity and Subordination Agreement and the Security Documents and (C)
the Administrative Agent holds a perfected sole security interest in such
Investments pursuant to the Borrower Pledge and Security Agreement, unless
such Investments are Excluded Assets;
(iv) Investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
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(v) Hedging Agreements permitted under Section 6.7;
(vi) Permitted Acquisitions;
(vii) loans to officers and employees of the Borrower or a
Borrower Subsidiary, in an aggregate amount not exceeding $1,200,000 at any
one time outstanding;
(viii) promissory notes received (A) in any Transfer permitted
under clause (v) in Section 6.6, so long as the aggregate principal amount
of such promissory notes does not exceed 25% of the aggregate purchase
consideration for such Transfer, or (b) as part or all of the purchase
consideration in the sale of the Borrower's manufacturing facility at
Rantoul, Illinois;
(ix) Guaranties, constituting the liability solely of Holdings
and outstanding on the Effective Date, of Indebtedness of Exempted Foreign
Subsidiaries permitted under clause (ix) in Section 6.1;
(x) Loans by the Borrower to Holdings arising solely from, and
consisting solely of, the funding of a distribution to Holdings permitted
under Section 6.8(a); and
(xi) other Investments in an aggregate amount not to exceed
$500,000 at any time outstanding.
SECTION 6.6. ASSET SALES. The Borrower and Holdings will not, and
will not permit any Subsidiary to, sell, transfer, exchange, lease, license or
otherwise dispose of (collectively, "Transfer") any property or asset, or issue
or permit to remain outstanding any Equity Interest in any Subsidiary other than
common stock of the Borrower owned by Holdings and common stock of any Borrower
Subsidiary owned by the Borrower or another Borrower Subsidiary, except:
(i) sales of inventory, used or surplus equipment and
Permitted Cash Investments in the ordinary course of business; and
trademark licenses in the ordinary course of business;
(ii) Transfers to the Borrower or a Borrower Subsidiary that is
a Wholly-Owned Subsidiary and that has become a party to the Guaranty,
Indemnity and Subordination Agreement and the Security Documents;
(iii) the sale of the Borrower's manufacturing facility at
Rantoul, Illinois;
(iv) the sale of the Borrower's manufacturing facility at York,
Pennsylvania as part of a sale-and-leaseback transaction in which (A) such
sale is made for cash constituting Net Cash Proceeds, (B) such facility is
leased back to the Borrower for a term of years and (C) the Borrower
delivers to the Administrative Agent a certificate of a Financial Officer
of the Borrower demonstrating compliance with the covenants in Sections
6.13, 6.14 and 6.15 on
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a pro forma basis, after giving effect to such sale-and-leaseback and the
application of the cash proceeds thereof as if they had been consummated at
the beginning of the most recent 12-month period for which financial
reports sufficient to determine compliance with such covenants are then
available; and
(v) other Transfers of assets having a fair value of (A) less
than $500,000, in the case of any and all such Transfers made in any fiscal
year and (B) less than $2,000,000, in the case of any and all such
Transfers made at any time after the Effective Date.
SECTION 6.7. HEDGING AGREEMENTS. The Borrower and Holdings will not,
and will not permit any of the Subsidiaries to, enter into any Hedging
Agreement, other than Hedging Agreements entered into in the ordinary course of
business to hedge or mitigate risks to which the Borrower or any Borrower
Subsidiary is exposed in the conduct of its business or the management of its
liabilities .
SECTION 6.8. PAYMENT RESTRICTIONS.
(a) RESTRICTED PAYMENTS. The Borrower and Holdings will not, and
will not permit any Subsidiary to, declare or make any Restricted Payment or
directly or indirectly agree to pay or make, or be or become liable in respect
of any obligation (contingent or otherwise) to make, any Restricted Payment,
except that:
(i) Dividends with respect to capital stock payable solely in
additional shares of such capital stock; and exchange of preferred stock
issued by an issuer solely for (or conversion of such preferred stock
solely into) common stock, or other preferred stock that is not
Disqualified Stock, issued by the same issuer;
(ii) a Wholly-Owned Borrower Subsidiary may declare and pay
dividends to the Borrower or to a Wholly-Owned Borrower Subsidiary;
(iii) the Borrower may pay regularly scheduled interest payments
as and when due in respect of the Senior Subordinated Notes, if such
payment is permitted at such time to be made under the subordination
provisions of the Senior Subordinated Note Indenture;
(iv) Holdings may pay regularly scheduled interest payments as
and when due in respect of the Convertible Debentures or in respect of any
other outstanding Subordinated Indebtedness of Holdings, if such payment is
permitted at such time to be made under the subordination provisions set
forth in the Convertible Debenture Indenture or in the indenture or
agreement governing such other Subordinated Indebtedness; and, if such
payment is so permitted on the date it is due and no Default is then
continuing or would result, the Borrower on such date may make a cash
distribution or loan to Holdings for the purpose of funding such payment;
(v) Holdings may pay the Convertible Debentures when due at
maturity and may pay when due any other principal payment that Holdings is
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obligated to make in respect of any other outstanding Subordinated
Indebtedness of Holdings, if such payment is permitted at such time to be
made under the subordination provisions set forth in the Convertible
Debenture Indenture or in the indenture or agreement governing such other
Subordinated Indebtedness; and, if such payment is so permitted on the date
it is due and no Default is continuing at the time or would result, (A)
Holdings may purchase or redeem (at no more than the then redemption price)
Convertible Debentures prior to their maturity and (B) on the date any such
payment or the purchase or redemption price in any such purchase or
redemption is due, the Borrower may make a cash distribution or loan to
Holdings (in the case of any such payment, purchase or redemption in
respect of Convertible Debentures, first from the Restricted Funds and,
after the Restricted Funds have been depleted, from any other funds held by
or available to the Borrower) for the purpose of funding such payment,
purchase or redemption;
(vi) if no Default in the payment of any Obligations or any
other Indebtedness is continuing, the Borrower and Borrower Subsidiaries
may pay (A) management fees when due under the Management Agreement, in an
amount not exceeding, for any fiscal year, 1% of the amount of capital
invested by the Investors in Holdings, counted at cost, that is then still
held and beneficially owned by them, (B) investment banking fees to the
Investors due upon consummation of a Permitted Acquisition, not in the
aggregate exceeding 1.5% of the purchase consideration in such Permitted
Acquisition, and (C) expense and tax reimbursements to Holdings, for costs
actually paid out by Holdings in cash, in an amount not exceeding $500,000
in any one fiscal year of the Borrower; and
(vii) if no Default is continuing or would result, (A) Holdings
may repurchase Equity Interests in Holdings beneficially owned by any
individual who acquired such Equity Interests after the Effective Date and
who once was, but no longer is, an employee of the Borrower or a Borrower
Subsidiary, so long as the aggregate amount expended by Holdings for any
and all such repurchases does not exceed (x) $750,000 in any one fiscal
year of the Borrower or (y) $2,000,000 cumulatively from the Effective
Date, and (B) on the date the purchase price for any such repurchase is
due, the Borrower may make a cash distribution to Holdings for the purpose
of paying such purchase price.
(b) PAYMENTS ON ACCOUNT OF INDEBTEDNESS. The Borrower and Holdings
will not, and will not permit any Subsidiary to, make or agree to pay or make,
directly or indirectly, any payment or other distribution (whether in cash
securities or other property) of or in respect of principal of or interest on
any Indebtedness, or any payment or other distribution (whether in cash,
securities or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or
termination of any Indebtedness, except (i) payments on account of Obligations,
(ii) payments permitted under Section 6.8(a), and (iii) any payments on account
of any Indebtedness that is not Subordinated Indebtedness when and as such
payment was due pursuant to the mandatory payment provisions applicable
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to such Indebtedness at the time it was incurred or any extension thereof
thereafter granted by the holder of such Indebtedness.
(c) RESTRICTED FUNDS. Unless prior to the fifth Business Day
following the Effective Date Holdings has purchased and retired all but no more
than $25,000,000 in principal amount of outstanding Convertible Debentures
pursuant to the Debt Tender Offer, the Borrower and Holdings will (i) cause the
Restricted Funds Account Agreement to be executed and delivered by the parties
thereto and cause funds of the Borrower in an amount equal to the Restricted
Funds to be delivered to the depositary bank or financial intermediary
thereunder, no later than the fifth Business Day after the Effective Date, (ii)
ensure that any and all Restricted Funds so delivered to such depositary bank or
financial intermediary are (A) owned solely by the Borrower, (B) invested by
such depositary bank or financial intermediary, if at all, solely in Permitted
Cash Investments at the sole risk of the Borrower, and (C) subject at all times
to an enforceable and perfected first and sole security interest in favor of the
Administrative Agent as security for the Obligations duly acknowledged by such
depositary bank or financial intermediary pursuant to the Restricted Funds
Deposit Agreement, unless and until such funds are either (x) distributed by the
Borrower to Holdings in a distribution permitted under Section 6.8(a)(v) and
applied to any payment, purchase or redemption then due as therein set forth or
(y) transferred to the Administrative Agent in satisfaction of the
Administrative Agent's security interest therein.
SECTION 6.9. TRANSACTIONS WITH AFFILIATES. The Borrower and Holdings
will not, and will not permit any Subsidiary to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of their respective Affiliates, except (a) transactions that do not involve
Holdings and are at prices and on terms and conditions not less favorable to the
Borrower or such Subsidiary than could be obtained on an arm's-length basis from
unrelated third parties, (b) transactions between or among the Borrower and
Borrower Subsidiaries that are Wholly-Owned Subsidiaries and are party to the
Guaranty, Indemnity and Subordination Agreement and the Security Documents, (c)
payments permitted under Section 6.8(a)(vi), and (d) payments directly to taxing
authorities of tax payments required to be made under the Tax Sharing Agreement.
SECTION 6.10. RESTRICTIVE AGREEMENTS.
The Borrower and Holdings will not and will not permit any Subsidiary
to, directly or indirectly, enter into, incur or permit to exist any agreement
or other arrangement that prohibits, restricts or imposes any condition upon (a)
the ability of any member of Holdings Group to create, incur or permit to exist
any Lien upon any of its property or assets or (b) the ability of any Subsidiary
to pay dividends or other distributions with respect to any shares of its
capital stock or to make or repay loans or advances to the Borrower or any
Borrower Subsidiary or to Guarantee Indebtedness of the Borrower or any Borrower
Subsidiary or to transfer assets to or engage in any other transaction with the
Borrower or any Borrower Subsidiary, except (i) restrictions and conditions
imposed by law or by any Loan Document, (ii) restrictions and conditions imposed
under the Senior Subordinated Note Indenture or under any agreement governing
Indebtedness of Holdings permitted to be incurred hereunder, (iii) customary
restrictions and conditions contained in agreements
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relating to the sale of a Borrower Subsidiary pending such sale, if such
restrictions and conditions apply only to the Subsidiary that is to be sold and
such sale is permitted hereunder, (iv) restrictions or conditions upon the
creation, incurrence or existence of a Lien that are imposed by any agreement
relating to secured Indebtedness permitted by this Agreement if such
restrictions or conditions apply only to the property or assets securing such
Indebtedness and (v) customary provisions in leases restricting the assignment
or subleasing thereof.
SECTION 6.11. AMENDMENT OF CERTAIN DOCUMENTS. The Borrower and
Holdings will not, and will not permit any Subsidiary to, amend, supplement,
modify or waive (a) the terms of the Senior Subordinated Notes, Convertible
Debentures and Holdings Discount Debentures, (b) the covenants, events of
default, redemption, repayment and subordination provisions, including
definitions of terms used therein, in the Senior Subordinated Note Indenture and
the Convertible Debenture Indenture, (c) the covenants, events of default,
redemption and repayment provisions applicable to the Holdings Discount
Debentures pursuant to the Holdings Debenture Purchase Agreement or the Holdings
Discount Debenture Indenture, or (d) any of the other provisions of any of the
Transaction Documents, except for changes therein that do not relate to or
affect any of the Transactions and are implemented after 21 days prior written
notice to the Administrative Agent and Lenders, unless within such 21-day period
the Borrower is advised by Required Lenders that, in the good faith opinion of
Required Lenders, such change would be materially adverse to the interests of
the Lenders.
SECTION 6.12. CAPITAL EXPENDITURES. The Borrower and Holdings will
not make, or permit any Subsidiary to make, any Capital Expenditures other than
Capital Expenditures made by the Borrower or a Borrower Subsidiary up to an
aggregate amount (for the Borrower and all Borrower Subsidiaries) that does not,
in any fiscal year of the Borrower set out below, exceed the amount set forth
below as to such fiscal year plus, beginning in the fiscal year ending on or
about June 30, 2000, any positive difference between (a) the amount set forth
below for the immediately preceding fiscal year and (b) the aggregate amount of
Capital Expenditures made by the Borrower and Borrower Subsidiaries in the
immediately preceding fiscal year:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
------------------ ----------
<S> <C>
1999.................. $6,500,000
2000.................. 7,000,000
2001.................. 7,500,000
2002 and thereafter... 8,000,000
</TABLE>
Section 6.13. MINIMUM CASH INTEREST COVERAGE RATIO. The Borrower and
Holdings will not permit the Cash Interest Coverage Ratio, determined as the
last day of any fiscal quarter described below for the period of 12 months then
ended (for example, "FQ2&3inFYE99" means the second and third fiscal quarters in
the fiscal
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year ending on or about June 30, 1999), to be less than the amount set forth as
to such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Ratio
-------------- -------------
<S> <C>
FQ1,2&3in FYE99 1.60
FQ4inFYE99, 1.75
FQ1,2,3&4inFYE00 and
FQ1,2&3inFYE01
FQ4inFYE01 and 1.90
FQ1,2&3inFYE02
FQ4inFYE02 and 2.00
thereafter
</TABLE>
SECTION 6.14. MINIMUM FIXED CHARGE COVERAGE RATIO. The Borrower and
Holdings will not permit the Fixed Charge Coverage Ratio, determined as the last
day of any fiscal quarter described below for the period of 12 months then ended
(for example, "FQ2&3inFYE99" means the second and third fiscal quarters in the
fiscal year ending on or about June 30, 1999), to be less than the amount set
forth as to such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Ratio
-------------- -------------
<S> <C>
FQ1,2&3in FYE99 1.25
FQ4inFYE99 and 1.35
FQ1,2&3inFYE00
FQ4inFYE00 and 1.45
FQ1,2&3inFYE01
FQ4inFYE01 and 1.50
thereafter
</TABLE>
[Remainder of Page Intentionally Left Blank]
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SECTION 6.15. MAXIMUM TOTAL LEVERAGE RATIO. The Borrower and Holdings
will not permit the Total Leverage Ratio, determined as the last day of any
fiscal quarter described below based on Adjusted EBITDA for the period of 12
months then ended (for example, "FQ2&3inFYE99" means the second and third fiscal
quarters in the fiscal year ending on or about June 30, 1999), to be greater
than the amount set forth as to such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Ratio
-------------- -------------
<S> <C>
FQ1inFYE99 5.25
FQ2inFYE99 5.50
FQ3inFYE99 6.00
FQ4inFYE99 5.00
FQ1inFYE00 5.00
FQ2inFYE00 5.25
FQ3inFYE00 5.75
FQ4inFYE00 5.00
FQ1inFYE01 5.00
FQ2inFYE01 5.00
FQ3inFYE01 5.50
FQ4inFYE01 4.50
FQ1inFYE02 4.50
FQ2inFYE02 4.75
FQ3inFYE02 5.25
FQ4inFYE02 4.25
FQ1in FYE03 4.25
FQ2inFYE03 4.50
FQ3inFYE03 5.00
FQ4inFYE03 4.00
</TABLE>
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SECTION 6.16 ADDITIONAL SUBSIDIARIES. The Borrower and Holdings will
not, and will not permit any Subsidiary to, create any additional Subsidiary,
unless such Subsidiary is a Borrower Subsidiary.
ARTICLE VII.
EVENTS OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT. If any of the following events
("Events of Default") shall occur:
(a) FAILURE TO PAY PRINCIPAL OF LOAN OR REIMBURSEMENT OBLIGATION.
The Borrower shall fail to pay any principal of any Loan or any reimbursement
obligation in respect of any LC Disbursement when and as the same shall become
due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or otherwise;
(b) FAILURE TO PAY INTEREST, FEES AND OTHER OBLIGATIONS. The
Borrower shall fail to pay any interest on any Loan or any fee or any other
Obligation (other than an amount referred to in Section 7.1(a)) payable under
this Agreement or any other Loan Document, when and as the same shall become due
and payable, and such failure shall continue unremedied for a period of three
Business Days;
(c) REPRESENTATIONS AND WARRANTIES. Any representation or warranty
made or deemed made by or on behalf of any member of the Holdings Group in or in
connection with any Loan Document or any amendment or modification thereof or
waiver thereunder, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with any Loan Document or any
amendment or modification thereof or waiver thereunder, shall prove to have been
incorrect in any material respect when made or deemed made;
(d) CERTAIN COVENANTS. Any Loan Party shall fail to observe or
perform any covenant or agreement contained in Section 5.2, 5.4 (with respect
only to the existence of the Loan Parties) or 5.11 or in Article VI, except that
if such failure arises from a non-consensual Lien created without the knowledge
of, action by or consent of any Loan Party in violation of Section 6.3, then
such failure shall not constitute an Event of Default unless such failure shall
continue unremedied for 10 days after (i) notice thereof is given to the
Borrower by any Agent or Lender or (ii) any Loan Party acknowledges such failure
in writing;
(e) CERTAIN OTHER COVENANTS. The Loan Parties shall fail to observe
or perform any covenant or agreement contained in Section 5.1(g), 5.3, 5.12,
5.13 or 5.16, and such failure shall continue unremedied for a period of 15 days
after (i) notice thereof is given to the Borrower by any Agent or Lender or
(ii) any Loan Party acknowledges such failure in writing;
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(f) OTHER COVENANTS. Any Loan Party shall fail to observe or perform
any covenant, condition or agreement contained in any Loan Document (other than
those specified in Sections 7.1(a), 7.1(b), 7.1(d) or 7.1(e)), and such failure
shall continue unremedied for a period of 30 days after (i) notice thereof is
given to the Borrower by any Agent or Lender or (ii) any Loan Party
acknowledges such failure in writing;
(g) FAILURE TO PAY OTHER INDEBTEDNESS. Any member of the Holdings
Group shall fail to make any payment (whether of principal or interest and
regardless of amount) in respect of any Indebtedness outstanding in a principal
amount exceeding $1,000,000, when and as the same shall become due and payable
(after giving effect to the expiration of any grace or cure period set forth
therein);
(h) DEFAULT AS TO OTHER INDEBTEDNESS. Any event or condition occurs
that results in any Indebtedness outstanding in a principal amount exceeding
$1,000,000 becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any such Indebtedness or any trustee or agent on its or
their behalf to cause any such Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled
maturity, and, if such notice or lapse of time is required therein, any such
required notice has been given as provided therein or by the Administrative
Agent or Required Lenders and any such required time has elapsed;
(i) INVOLUNTARY PROCEEDINGS. An involuntary proceeding shall be
commenced or an involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of any member of the Holdings Group or
its debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for any member of the Holdings Group or for a
substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree approving
or ordering any of the foregoing shall be entered or such member of the Holdings
Group shall consent to such proceeding or petition or the entry of any such
order or decree;
(j) VOLUNTARY PROCEEDINGS. Any member of the Holdings Group shall
(i) voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in Section 7.1(i),
(iii) apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for any member of the Holdings
Group or for a substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors or (vi) take any action
for the purpose of effecting any of the foregoing;
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(k) INABILITY TO PAY DEBTS. Any member of the Holdings Group shall
become unable to, admit in writing its inability to, or fail generally to, pay
its debts as they become due;
(l) JUDGMENTS. Either:
(i) One or more judgments for the payment of money in an
aggregate amount in excess of $1,000,000 shall be rendered against any
member of the Holdings Group or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of any
member of the Holdings Group to enforce any such judgment; or
(ii) the sum of (A) the aggregate amount paid by any and all
members of the Holdings Group in settlement of product liability claims or
in satisfaction of judgments based on product liability claims from any
source of funds except cash payments made by a third-party insurer under a
product liability insurance policy, (B) the aggregate amount of all
unsatisfied judgments outstanding against any member of the Holdings Group
based upon product liability claims as to which coverage has not been
admitted by any such third-party insurer, and (C) the aggregate uninsured
portion of unsatisfied judgments outstanding against any member of the
Holdings Group based upon product liability claims as to which insurance
coverage is admitted by any such third party insurer but the admitted
coverage either is subject to a deductible amount or self-insured retention
or is less than the amount of the judgment (in each case without counting
amounts paid to settle the claims asserted in litigation commenced by
Wandel, Thomas and Yarusso or to satisfy any judgment rendered therein)
shall at any time exceed the sum of (i) $10,000,000 plus (ii) all payments
to settle such claims or satisfy such judgments that were funded by an
incremental contribution to the common equity capital of the Borrower
received by the Borrower from Holdings after the Effective Date from the
proceeds of the issuance and sale to the Investors of Equity Interests in
Holdings not constituting Disqualified Stock or Subordinated Indebtedness
of Holdings permitted under clause (xii) in Section 6.1;
(m) ERISA. An ERISA Event shall have occurred that, in the opinion
of the Required Lenders, when taken together with all other ERISA Events that
have occurred and have not been satisfied, would reasonably be expected to
result in liability of one or more members of the Holdings Group in an aggregate
amount exceeding $1,000,000;
(n) REPUDIATION OR CONTEST OF OBLIGATIONS. Any Loan Party shall
repudiate, disavow or purport to revoke any of its obligations under any Loan
Document or shall commence or overtly threaten or join or acquiesce in any
litigation seeking to invalidate or annul, or seeking any other relief from or
as to, any of the provisions of any Loan Document on any ground; or any such
litigation shall be commenced by any Person other than a Loan Party and shall
not be dismissed within 60 days thereof;
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(o) IMPAIRMENT OF COLLATERAL. Any Lien purported to be created under
any Security Document shall cease to be, or shall be asserted by any Loan Party
not to be, a valid and perfected Lien on any Collateral, with the priority
required by the applicable Security Document, except (i) as a result of the sale
or other disposition of the applicable Collateral in a transaction permitted
under the Loan Documents, (ii) as a result of the Administrative Agent's release
and redelivery of any stock certificates, promissory notes or other instruments
delivered to it in pledge under any of the Pledge and Security Agreements, or
(iii) as to Miscellaneous Unpledged Assets; or
(p) CHANGE IN CONTROL. Any Change in Control shall occur and demand
shall be made by the Required Lenders as set forth in Section 2.10(a);
THEN, and in every such event (other than an event with respect to any Loan
Party described in Section 7.1(i) or Section 7.1(j)), and at any time thereafter
during the continuance of such event, the Administrative Agent, if so directed
by the Required Lenders, may and shall, by notice to the Borrower, take either
or both of the following actions, at the same or different times: (i) terminate
the Revolving Commitments, and thereupon the Revolving Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrower
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to any Loan
Party described in Section 7.1(i) or Section 7.1(j), the Revolving Commitments
shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of the
Borrower accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
ARTICLE VIII.
THE ADMINISTRATIVE AGENT
AND OTHER AGENTS
SECTION 8.1. APPOINTMENT OF AGENTS. Each of the Lenders and the
Issuing Bank hereby (a) irrevocably appoints SG as the Administrative Agent, DLJ
Capital as Syndication Agent, and SG Cowen and Donaldson, Lufkin & Jenrette as
Arrangers (each of them in such capacity, including the Administrative Agent,
the "Agent") and (b) authorizes the Agent to take such actions on its behalf and
to exercise such powers as are delegated to the Agent by the terms of the Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.
SECTION 8.2. SAME RIGHTS AND POWERS. The Agent shall have the same
rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Agent, and the Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with any
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Transaction Party or any Subsidiary or other Affiliate thereof as if it were not
the Agent hereunder.
SECTION 8.3. NO DUTIES OR OBLIGATIONS; NOT LIABLE. The Agent shall
not have any duties or obligations except those expressly set forth in the Loan
Documents. Without limiting the generality of the foregoing, (a) the Agent shall
not be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing, (b) the Agent shall have any duty to
take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Agent is required to exercise in writing by the Required Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.2), and (c) except as expressly set forth
in the Loan Documents, the Agent shall not have any duty to disclose, and shall
not be liable for the failure to disclose, any information relating to the
Borrower or Holdings or any of the Subsidiaries that is communicated to or
obtained by the Agent or any of its Affiliates in any capacity. The Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
9.2) or in the absence of the Agent's own gross negligence or willful
misconduct. The Agent shall be deemed to have knowledge of any Default unless
and until written notice thereof is given to the Agent by the Borrower or a
Lender, and the Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with any Loan Document, (ii) the contents of any certificate, report
or other document delivered thereunder or in connection therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth in any Loan Document, (iv) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, (v) the creation, enforceability, perfection, priority
or sufficiency of any Lien, or (vi) the satisfaction of any condition set forth
in Article III or elsewhere in any Loan Document, other than to confirm receipt
of items expressly required to be delivered to the Agent.
SECTION 8.4. ENTITLED TO RELY. The Agent shall be entitled to rely
upon, and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Agent also may rely upon any statement made to it orally or by telephone and
believed by it to be made by the proper Person, and shall not incur any
liability for relying thereon. The Agent may consult with legal counsel (who may
be counsel for the Borrower), independent accountants and other experts selected
by it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.
SECTION 8.5. SUB-AGENTS; RELATED PARTIES. The Agent may perform any
and all its duties and exercise its rights and powers by or through any one or
more sub-agents appointed by the Administrative Agent. The Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of this
Article VIII shall apply to any such sub-agent and to the Related Parties of the
Agent and any such sub-agent, and
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shall apply to their respective activities in connection with the syndication of
the credit facilities provided for herein as well as activities as the Agent.
SECTION 8.6. RESIGNATION OF ADMINISTRATIVE AGENT. Subject to the
appointment and acceptance of a successor to the Administrative Agent as
provided in this Section 8.6, the Administrative Agent may resign at any time by
notifying the Lenders, the Issuing Bank and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor,
with the consent of the Borrower (which shall not be unreasonably withheld or
delayed). If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders and the Issuing Bank and with
the consent of the Borrower (which shall not be unreasonably withheld or
delayed), appoint a successor Administrative Agent that shall be a bank with an
office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
upon between the Borrower and such successor. After the Administrative Agent's
resignation hereunder, the provisions of this Article VIII and Section 9.3 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Administrative
Agent.
SECTION 8.7. CONCERNING THE COLLATERAL.
(a) SECURITY DOCUMENTS. The Agent, Issuing Bank and each of the
Lenders authorizes and directs the Administrative Agent to enter into the
Security Documents for the benefit of the Lenders and to perform all obligations
of the Administrative Agent thereunder, including (without limitation)
obligations to release Collateral. Each holder of Obligations agrees that any
action taken by the Required Lenders (or, where required by the express terms of
this Agreement, a greater or lesser proportion of the Lenders) in accordance
with the provisions of this Agreement or the Security Documents, and the
exercise by the Required Lenders (or, where so required, such greater or lesser
proportion) of the powers set forth herein or therein, together with such other
powers as are reasonably incidental thereto, shall be authorized and binding
upon all of the holders of Obligations.
(b) RELEASE OF LIENS. Each Lender hereby agrees that it will, upon
request of the Borrower or the Administrative Agent, confirm the Administrative
Agent's authority to release, or direct the Administrative Agent to release, any
Lien held by the Administrative Agent:
(i) against all of the Collateral, upon expiration or
termination of the obligations of the Lenders under this Agreement,
expiration or other discharge of all Letters of Credit, payment of the
principal of and interest
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on all Loans and reimbursement liabilities with respect to Letters of
Credit and payment of all other Obligations then due and payable;
(ii) against any part of the Collateral sold or disposed of by
the Borrower or any Borrower Subsidiary, if such sale or disposition is
permitted by and is made in accordance with this Agreement; and
(iii) against any Collateral which the Administrative Agent is
required to release pursuant to the Security Documents or applicable law.
(c) NOT ACCOUNTABLE OR LIABLE. The Agent shall not be accountable or
liable for any release of Collateral which (i) the Administrative Agent in good
faith believes is required under the Security Documents or any other Loan
Document, or (ii) results from any failure to give, or delay in giving, any
notice of termination of any rights of the Borrower pursuant to the Security
Documents or any other Loan Document.
SECTION 8.8. NO RELIANCE. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the either
Agent or any other Lender and based on such documents and information as it
shall from time to time deem appropriate, continue to make its own decisions in
taking or not taking action under or based upon this Agreement, any other Loan
Document or related agreement or any document furnished hereunder or thereunder.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1. NOTICES. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(i) if to any member of the Holdings Group, to:
Bell Sports, Inc.
6350 San Ignacio Avenue
San Jose, CA 95129
Attention: Chief Financial Officer
Telecopy: (408) 362-9490
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(ii) if to the Administrative Agent, the Swingline Lender or the
Issuing Bank, to:
Societe Generale
1221 Avenue of the Americas
New York, NY 10020
Attention: Steve Pischel
Telecopy: (212) 278-6178
(iii) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices
and other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
SECTION 9.2. WAIVERS; AMENDMENTS.
(a) NO WAIVER; RIGHTS AND POWERS CUMULATIVE. No failure or delay by
the Agent, the Issuing Bank or any Lender in exercising any right or power
hereunder or under any other Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agent, the Issuing Bank and the
Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of any Loan Document or consent to any departure by any Loan
Party therefrom shall in any event be effective unless the same shall be
permitted by Section 9.2(b), and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. Under no
circumstances shall the making of a Loan or issuance of a Letter of Credit be
construed as a waiver of any Default, regardless of whether the Agent, any
Lender or the Issuing Bank may have had notice or knowledge of such Default at
the time.
(b) WRITING REQUIRED. Neither this Agreement nor any other Loan
Document nor any provision hereof or thereof may be waived, amended or modified
except, in the case of this Agreement, pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or, in the case of
any other Loan Document, pursuant to an agreement or agreements in writing
entered into by the Administrative Agent and the Loan Party or Loan Parties that
are parties thereto, in each case with the consent of the Required Lenders,
except that (i) no such agreement shall (A) increase the Revolving Commitment of
any Lender without the written consent of such Lender, (B) reduce the principal
amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or
reduce any fees payable hereunder, without the written consent of each Lender
affected thereby, (C) postpone the scheduled date of payment of the principal
amount of any Loan or LC Disbursement, or any interest thereon, or any fees
payable hereunder, or reduce the amount of, waive or excuse any such payment, or
postpone the scheduled date of expiration of the Revolving Commitment, without
the
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written consent of each Lender affected thereby, (D) change Section 2.16(b) or
Section 2.16(c) in a manner that would alter the pro rata sharing of payments
required thereby, without the written consent of each Lender, (E) change any of
the provisions of this Section 9.2 or the definition of the term "Required
Lenders" or any other provision of any Loan Document specifying the number or
percentage of Lenders required to waive, amend or modify any rights thereunder
or make any determination or grant any consent thereunder, without the written
consent of each Lender, (F) release any Guarantor that is a Significant
Subsidiary from its liability under the Guaranty, Indemnity and Subordination
Agreement (except as expressly provided therein), or limit such liability,
without the written consent of each Lender, or (G) except as set forth in
Section 8.7(b), release all or any substantial part of the Collateral from the
Liens of the Security Documents, without the written consent of each Lender; and
(ii) no such agreement shall amend, modify or otherwise affect the rights or
duties of any Agents, the Issuing Bank or the Swingline Lender without the prior
written consent of such Agent, the Issuing Bank or the Swingline Lender, as the
case may be.
SECTION 9.3. EXPENSES; INDEMNITY; DAMAGE WAIVER.
(a) EXPENSES. The Borrower and Holdings jointly and severally agree
to pay (i) all reasonable and documented out-of-pocket expenses incurred by the
Administrative Agent or the Arrangers and their respective Affiliates, including
the reasonable and documented fees, charges and disbursements of counsel for the
Administrative Agent, in connection with SG's commitment for and syndication of
the credit facilities provided for herein, the preparation and administration of
the Loan Documents or any amendments, modifications or waivers of the provisions
thereof (whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable and documented out-of-pocket expenses incurred
by the Issuing Bank in connection with the issuance, amendment, renewal or
extension of any Letter of Credit or any demand for payment or dispute
thereunder and (iii) all reasonable and documented out-of-pocket expenses
incurred by the Administrative Agent, the Arrangers, the Issuing Bank or any
Lender, including the reasonable and documented fees, charges and disbursements
of counsel for the Lenders (as a group) and counsel for the Administrative
Agent, the Swingline Lender or the Issuing Bank and any advisors, appraisers,
consultants, or other professional engaged by them or by any such counsel, in
connection with the enforcement or protection of any of their claims, rights or
remedies in connection with the Loan Documents, including their rights under
this Section 9.3, or in connection with the Loans made or Letters of Credit
issued hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit or during the pendency of any bankruptcy or insolvency proceeding.
(b) INDEMNITY. The Borrower and Holdings agree jointly and severally
to defend and indemnify each Agent, Arranger, Issuing Bank and Lender, and each
Related Party of any of the foregoing Persons (all, collectively,
"Indemnitees"), against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including the
reasonable and documented fees, charges and disbursements of any counsel for any
Indemnitee, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery of any Loan
Document or any other agreement or instrument contemplated
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hereby, the performance by the parties to the Loan Documents of their respective
obligations thereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use
of the proceeds therefrom (including any refusal by the Issuing Bank to honor a
demand for payment under a Letter of Credit if the documents presented in
connection with such demand do not strictly comply with the terms of such Letter
of Credit), (iii) the breach by any Loan Party of any representation, warranty,
covenant or agreement set forth in any Loan Document, (iv) any actual or alleged
presence or release of Hazardous Materials on or from any property currently or
formerly owned or operated by any Transaction Party or any of the Subsidiaries,
or any Environmental Liability related in any way to any Transaction Party or
any of the Subsidiaries, or (v) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto, except only that no Indemnitee shall be indemnified hereunder if
and to the extent that any such losses, claims, damages, liabilities or related
expenses incurred or sustained by it are determined by final judgment of a court
of competent jurisdiction to have resulted directly and primarily from the gross
negligence or willful misconduct of such Indemnitee.
(c) PAYMENT BY LENDERS. To the extent that any Loan Party fails to
pay any amount required to be paid by it to the Agent, the Issuing Bank or the
Swingline Lender under Section 9.3(a) or Section 9.3(b), each Lender severally
(and not jointly) agrees to pay to the Administrative Agent, the Issuing Bank or
the Swingline Lender, as the case may be, such Lender's pro rata share
(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount, but (in each case) only if and to the
extent that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent, Issuing Bank or Swingline Lender in its
capacity as such. For purposes hereof, a Lender's "pro rata share" shall be
determined based upon its share of the sum of the Total Exposures and unused
Revolving Commitments at the time.
(d) WAIVER OF LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL AND
PUNITIVE DAMAGES. The Borrower and Holdings will not assert, will cause each
Subsidiary never to assert, and for themselves and each present and future
Subsidiary and their respective Related Persons hereby forever waives, releases
and agrees not to sue upon, any claim against any Indemnitee, on any theory of
liability (whether based upon contract, or founded upon tort or any legal duty
or otherwise), for and special, indirect, consequential damages and, to the
fullest extent a claim for punitive damages is permitted to be waived by law,
for punitive damages arising out of, in connection with, or as a result of, this
Agreement or any agreement or instrument contemplated hereby, the Transactions,
any Loan or Letter of Credit or the use of the proceeds thereof or any act,
omission, claim, breach, wrongful conduct, or other occurrence or event in any
respect relating hereto.
(e) PAYABLE UPON DEMAND. All amounts due under this Section 9.3
shall be payable promptly after written demand therefor.
SECTION 9.4. SUCCESSORS AND ASSIGNS.
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(a) SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit), except that neither the
Borrower nor Holdings may assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
such attempted assignment or transfer without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Agents, the Issuing Bank and the
Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) ASSIGNMENT BY LENDERS. Any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Revolving Commitment and the Loans at the
time owing to it), if (i) the Administrative Agent, the Issuing Bank and the
Swingline Lender and, unless a Default is continuing, the Borrower give their
prior written consent to such assignment (which consent shall not be
unreasonably withheld or delayed), except that no such consent shall be required
in the case of an assignment to a Lender or an Affiliate of a Lender, (ii) the
amount of the Revolving Commitment or Loans of the assigning Lender subject to
each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Administrative Agent) shall
not be less $5,000,000, unless (A) each of the Borrower and the Administrative
Agent consent to a lesser amount, (B) the assignment is made to a Lender or an
Affiliate of a Lender, or (C) the assignment transfers the entire remaining
amount of the assigning Lender's Revolving Commitment or Loans, (iii) each
partial assignment shall be made as an assignment of a proportionate part of all
the assigning Lender's rights and obligations under this Agreement, (iv) the
parties to each assignment shall execute and deliver to the Administrative Agent
an Assignment and Acceptance, together with a processing and recordation fee of
$3,500, except in the case of an assignment by DLJ Capital within 90 days from
the Effective Date, and (v) the assignee, if it shall not be a Lender, shall
deliver to the Administrative Agent an Administrative Questionnaire. Any consent
of the Borrower otherwise required under this Section 9.4 shall not be required
if an Event of Default has occurred and is continuing. Subject to acceptance
and recording thereof pursuant to Section 9.4(d), from and after the effective
date specified in each Assignment and Acceptance the assignee thereunder shall
be a party hereto and, to the extent of the interest assigned by such Assignment
and Acceptance, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.3). Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this Section 9.4(b) shall be treated for purposes of
this Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with Section 9.4(e).
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(c) REGISTER. The Administrative Agent, acting for this purpose as
an agent of the Borrower, shall maintain at one of its offices in The City of
New York a copy of each Assignment and Acceptance delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the Revolving
Commitment of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the "Register").
The entries in the Register shall be conclusive, and the Loan Parties, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, the
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) ACCEPTANCE AND RECORDING OF ASSIGNMENT. Upon its receipt of a
duly completed Assignment and Acceptance executed by an assigning Lender and an
assignee, the assignee's completed Administrative Questionnaire (unless the
assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in Section 9.4(b) and any written consent to such assignment
required by Section 9.4(b), the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement
unless it has been recorded in the Register as provided in this Section 9.4(d).
(e) PARTICIPATIONS. Any Lender may, without the consent of the
Borrower, the Agents, the Issuing Bank or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Revolving Commitment and the Loans owing to
it), but in such event (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (iii) the Loan
Parties, the Agents, the Issuing Bank and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce the Loan Documents and to approve
any amendment, modification or waiver of any provision of the Loan Documents,
except that such agreement or instrument may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification or
waiver described clause (i) in Section 9.2(b) that affects such Participant.
Subject to Section 9.4(f), the Borrower agrees that each Participant shall be
entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to
Section 9.4(b). To the extent permitted by law, each Participant that has been
identified to the Borrower also shall be entitled to the benefits of Section 9.8
as though it were a Lender, if such Participant agrees to be subject to Section
2.16(c) as though it were a Lender.
(f) PARTICIPANT NOT ENTITLED TO A GREATER PAYMENT. A Participant or
an Affiliate of a Lender shall not be entitled to receive any greater payment
under Section 2.14 or Section 2.15 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant
or with respect to the
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Revolving Commitment assigned to such Affiliate, unless the sale of the
participation to such Participant or the assignment to such Affiliate is made
with the Borrower's prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 2.15
unless (i) the Borrower is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 2.15(e) as though it were a Lender and (ii) such Participant
is eligible for exemption from the withholding tax referred to therein,
following compliance with Section 2.15(e).
(g) PLEDGE OR ASSIGNMENT AS SECURITY. Any Lender may at any time
pledge or assign a security interest in all or any portion of its rights under
this Agreement to secure obligations of such Lender, including any pledge or
assignment to secure obligations to a Federal Reserve Bank, and this Section 9.4
shall not apply to any such pledge or assignment of a security interest. No
such pledge or assignment of a security interest shall release a Lender from any
of its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.
SECTION 9.5. SURVIVAL. All covenants, agreements, representations and
warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Agent, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Revolving Commitments have not expired or terminated. The
provisions of Sections 2.14, 2.15, 2.16 and 9.3 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Revolving Commitments or the
termination of this Agreement or any provision hereof.
SECTION 9.6. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Document and any separate letter agreements with respect to fees
payable to the Agents constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof, except
any and all agreements relating to the fees and compensation payable to SG in
connection with the Transactions. Except as provided in Section 3.1, this
Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof that, when taken together, bear the signatures of each of
the other parties hereto, including each Lender identified on the signature
pages hereof, and thereafter shall be binding upon and inure to the benefit of
the parties hereto and their
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respective successors and assigns. Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.
SECTION 9.7. SEVERABILITY. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.8. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
9.8 are in addition to other rights and remedies (including other rights of
setoff) that such Lender may have.
SECTION 9.9. GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) CONSENT TO JURISDICTION. Each of the Borrower and Holdings
hereby irrevocably and unconditionally submits, for itself and its property and
for each other Loan Party and its property, to the nonexclusive jurisdiction of
the Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right that
the Agent, the Issuing Bank or any Lender may otherwise have to bring any action
or proceeding relating to this Agreement or any other Loan Document against any
Loan Party or their properties in the courts of any jurisdiction.
(c) WAIVER OF OBJECTIONS TO VENUE. Each of the Borrower and Holdings
hereby irrevocably and unconditionally waives, for itself and each other Loan
Party, to the fullest extent it may legally and effectively do so, any objection
that it may
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now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any other Loan Document in any
court referred to in Section 9.9(b) other than a court referred to in the last
sentence thereof that is not referred to elsewhere therein. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(d) SERVICE OF PROCESS. Each of the Borrower and Holdings hereby
irrevocably and unconditionally consents, for itself and each other Loan Party,
to service of process in the manner provided for notices in Section 9.1.
Nothing in this Agreement or any other Loan Document will affect the right of
any party to this Agreement to serve process in any other manner permitted by
law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.10.
SECTION 9.11. HEADINGS. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. CONFIDENTIALITY. The Agent, the Issuing Bank and the
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this Section
9.12, to any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement, (g) with
the consent of the Borrower or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section 9.12 or
(ii) becomes available to the Agent, the Issuing Bank or
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any Lender on a nonconfidential basis from a source other than the Holdings. For
the purposes of this Section 9.12, the term "Information" means all information
received from the Holdings Group relating to the or its business, other than any
such information that is available to the Agents, the Issuing Bank or any Lender
on a nonconfidential basis prior to disclosure by the Holdings Group, but, in
the case of information received from the Holdings Group after the date hereof,
only if such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information
as provided in this Section 9.12 shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information.
SECTION 9.13. INTEREST RATE LIMITATION. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts that are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") that may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section 9.13 shall be cumulated and the interest and-Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Rate to the date of repayment, shall
have been received by such Lender.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
BELL SPORTS, INC.,
a California corporation
By:________________________________
Name:
Title:
BELL SPORTS CORP.,
a Delaware corporation
By:________________________________
Name:
Title:
SOCIETE GENERALE
By:________________________________
Name:
Title:
DLJ CAPITAL FUNDING, INC.
By:________________________________
Name:
Title:
S-1
<PAGE>
Exhibit 10.2
================================================================================
BORROWER PLEDGE AND SECURITY AGREEMENT
dated as of
August 17, 1998
BELL SPORTS, INC.,
as Grantor
and
SOCIETE GENERALE,
as Administrative Agent,
as Secured Party
------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I. DEFINITIONS...................................................................... 1
Section 1.1. Certain Terms........................................................ 1
Section 1.2. Terms Defined in Credit Agreement.................................... 3
Section 1.3. Terms Defined in the Uniform Commercial Code......................... 4
Section 1.4. Terms Generally...................................................... 5
ARTICLE II. THE SECURITY INTERESTS.......................................................... 6
Section 2.1. Grant of Security Interests.......................................... 6
Section 2.2. Delivery of Instruments and Securities............................... 8
Section 2.3. Investment Property.................................................. 8
Section 2.4. Registration of Pledge............................................... 8
Section 2.5. Financing Statements................................................. 8
Section 2.6. Secured Party Filing................................................. 9
Section 2.7. Further Assurances................................................... 9
Section 2.8. Power of Attorney.................................................... 9
Section 2.9. Survival of Security Interests....................................... 11
Section 2.10. Reinstatement of Security Interests................................. 11
Section 2.11. Grantor Remains Liable.............................................. 11
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS...................................... 11
Section 3.1. The Collateral....................................................... 11
Section 3.2. Maintenance of Perfection............................................ 13
Section 3.3. Defense of Collateral................................................ 13
Section 3.4. Transfer or Encumbrance.............................................. 13
Section 3.5. Payments, Dividends and Distributions................................ 13
Section 3.6. Voting Rights........................................................ 13
Section 3.7. Maintenance of Collateral............................................ 14
Section 3.8. Concerning Equipment and Inventory................................... 15
Section 3.9. Concerning Accounts, Instruments and other Claims.................... 15
ARTICLE IV. DEFAULT; REMEDIES............................................................... 16
Section 4.1. Default.............................................................. 16
Section 4.2. Remedies upon Default................................................ 17
Section 4.3. Waivers by Grantor................................................... 18
Section 4.4. Standard of Care..................................................... 18
Section 4.5. Application of Proceeds.............................................. 18
Section 4.6. Indemnity and Expenses............................................... 19
Section 4.7. Surplus, Deficiency.................................................. 19
Section 4.8. Information Related to the Collateral................................ 20
Section 4.9. Sale Exempt from Registration........................................ 20
Section 4.10. Rights and Remedies Cumulative...................................... 20
Section 4.11. No Direct Enforcement by Beneficiaries.............................. 20
ARTICLE V. CONCERNING THE SECURED PARTY..................................................... 20
Section 5.1. Agent for Holders.................................................... 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 5.2. Administrative Agent shall be the Secured Party....................... 21
Section 5.3. No Assurances or Liability............................................ 21
Section 5.4. Holders Bound......................................................... 21
ARTICLE VI. MISCELLANEOUS PROVISIONS......................................................... 22
Section 6.1. Continuing Security Interests; Release................................ 22
Section 6.2. Senior Indebtedness................................................... 22
Section 6.3. Amendments; Etc....................................................... 22
Section 6.4. Failure or Indulgence Not Waiver; Remedies Cumulative................. 22
Section 6.5. Notices............................................................... 22
Section 6.6. Severability.......................................................... 23
Section 6.7. Headings.............................................................. 23
Section 6.8. Governing Law; Terms.................................................. 23
Section 6.9. Consent to Jurisdiction and Service of Process........................ 23
Section 6.10. Waiver of Jury Trial................................................. 24
Section 6.11. Counterparts......................................................... 24
</TABLE>
SCHEDULES
Schedule 3.1(b)- Interest Owned in Subsidiaries
Schedule 3.1(c)- Intellectual Property
Schedule 3.1(d)- Investment Property
Schedule 3.1(e)- Location of Equipment and Inventory
Schedule 3.1(g)- Location of Borrower
Schedule 3.1(h)- Legal Name of Borrower
Schedule 3.1(i)- Taxpayer ID Number
<PAGE>
BORROWER PLEDGE AND SECURITY AGREEMENT
This BORROWER PLEDGE AND SECURITY AGREEMENT (this "Agreement") is
dated as of August 17, 1998 and entered into by and between BELL SPORTS, INC., a
California corporation ("Grantor"), and SOCIETE GENERALE ("SG"), in its capacity
as Administrative Agent under the Credit Agreement referred to below ("Secured
Party"), FOR THE BENEFIT OF the Persons that now are or at any time hereafter
become party as a Lender to the Credit Agreement described herein (the
"Lenders"), SG, in its individual capacity, as Administrative Agent and as
Swingline Lender and Issuing Bank and DLJ Capital Funding, Inc., as Syndication
Agent, and all other present and future Holders of any of the Secured
Obligations described herein (all, collectively, including the Lenders, the
Administrative Agent, the Swingline Lender, the Issuing Bank, the Syndication
Agent and the Arrangers, the "Beneficiaries").
RECITALS
The Grantor has requested that credit be extended to the Grantor on
terms and conditions set forth in that certain Credit Agreement dated as of
August 17, 1998, among Grantor, Bell Sports Corp., a Delaware corporation
("Holdings"), Secured Party and the Beneficiaries party thereto.
To induce the Beneficiaries to enter into the Credit Agreement, and in
consideration thereof and of any and all credit at any time extended thereunder,
the Grantor has agreed to grant to the Administrative Agent, for the benefit of
the Beneficiaries, the collateral security described herein as security for the
payment of the Secured Obligations on the terms herein set forth.
ACCORDINGLY, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Grantor hereby agrees with Secured Party for the benefit of the
Beneficiaries as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. CERTAIN TERMS As used in this Agreement, the following
terms have the meanings specified below:
"BANKRUPTCY CODE" means Title 11 of the United States Code, as from
time to time amended.
"CLAIM" has the meaning set forth in the Bankruptcy Code.
"COLLATERAL" has the meaning set forth in Section 2.1
"CREDIT AGREEMENT" means the Credit Agreement as such agreement from
time to time may be modified, amended, restated, extended, refinanced or
replaced in any manner or in any respect (including so as to reduce or increase
the amount or cost of credit extended
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thereunder or to shorten or extend the time of payment thereunder or in any
other manner change the amount or terms of credit extended to the Borrower or
the identity, rights or obligations of any party thereto).
"DISCHARGE OF THE CREDIT AGREEMENT" means that all obligations of the
Lenders to extend credit under the Credit Agreement and all letters of credit at
any time issued under the Credit Agreement have expired or been terminated and
have been absolutely, unconditionally and irrevocably discharged and all
Obligations at any time created, incurred or outstanding (except Obligations for
indemnification which are then contingent and in respect of which no claim or
demand has then been made) have been fully and finally paid in cash.
"EQUITY INTERESTS" means, with respect to any Person, any capital
stock of such Person or membership interests, partnership interests (whether
general or limited) or other equity interests in such Person, regardless of
type, class, preference or designation, and all warrants, options, purchase
rights, conversion or exchange rights, voting rights, calls or claims of any
character with respect thereto, in each case whether outstanding on the date of
this Agreement or issued or granted at any time thereafter.
"EXCLUDED ASSETS" means (a) rights, licenses and franchises granted by
any Governmental Authority in which it is unlawful to create a Lien, (b) any
leasehold interest in real estate, except the tenant's interest in Fixtures
thereon, and (c) any owned real estate, except Fixtures thereon, (d) 35% of the
Equity Interests owned by the Borrower and Subsidiary Guarantors in any Exempted
Foreign Subsidiary that is not a subsidiary of an Exempted Foreign Subsidiary,
(e) any Equity Interest in any Exempted Foreign Subsidiary that is a subsidiary
of an Exempted Foreign Subsidiary, and (f) the assets listed on Schedule 1.1 of
the Credit Agreement, and (g) any rights (other than rights to the payment of
money) under a license agreement entered into by a Loan Party as licensee after
the Effective Date, to the extent that (and only for as long as) such agreement
prohibits the creation of a security interest in such rights and such Loan Party
has made a commercially reasonable effort to avoid such prohibition or to obtain
an exemption therefrom in respect of the Liens granted under the Security
Documents.
"HOLDER" means, in respect of any Secured Obligation, the Person
entitled to enforce payment thereof and specifically includes each Lender, the
Administrative Agent, the Swingline Lender, the Issuing Bank, the Syndication
Agent, and the Arrangers.
"OBLIGATIONS" means all direct or indirect debts, liabilities and
obligations of the Borrower or any other Loan Party of any and every type and
description at any time arising under or in connection with the Credit Agreement
or any other Loan Document, to the Administrative Agent, the Swingline Lender,
any Arranger, the Syndication Agent, the Issuing Bank, any Lender, any Person
entitled to indemnification pursuant to the Credit Agreement or any other Loan
Document or to any other Person, in each case whether now outstanding or
hereafter created or incurred, whether or not the right of such Person to
payment in respect of any such debts, liabilities or obligations is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured and whether or not
such claim is discharged, stayed or otherwise affected by any bankruptcy case or
insolvency, reorganization, receivership, dissolution or liquidation proceeding,
and shall include
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(a) all liabilities of the Borrower for principal of and interest on any and all
Loans at any time outstanding under the Credit Agreement, (b) all liabilities of
the Borrower in respect of letters of credit at any time issued pursuant to the
Credit Agreement, (c) all liabilities of the Borrower under the Loan Documents
for any fees, costs, taxes, expenses, indemnification and other amounts payable
thereunder, (d) all liabilities of any Guarantor under the Guaranty, Indemnity
and Subordination Agreement, and (e) all other liabilities of the Borrower or
any other Loan Party under or in respect of any of the Loan Documents or any of
the transactions contemplated thereby and specifically includes any and all
present and future "Obligations" as such term is defined in the Credit
Agreement.
"PERFECTED" means, as to the security interests granted to Secured
Party in Section 2.1, that (a) a creditor on a simple contract cannot acquire a
judicial lien that is superior to such security interests and (b) if a case were
pending under the Bankruptcy Code in which Grantor is the debtor, such security
interests would be a Lien that is perfected in such bankruptcy case; and
"PERFECT" and "PERFECTION" have correlative meanings.
"POST-PETITION INTEREST AND EXPENSE CLAIMS" means any and all claims
of any Holder of Secured Obligations (a) for interest on any Obligations
determined for any period of time occuring after the commencement of any case
under the Bankruptcy Code or any other insolvency, reorganization, receivership,
dissolution or liquidation proceeding at the contract rate (including any
applicable post-default increase therein) set forth in the Credit Agreement or
any other Loan Document or (b) for cost and expense reimbursements or
indemnification on the terms set forth in the Credit Agreement or any other Loan
Document relating to costs and expenses incurred and indemnification rights
accrued at any time after the commencement of any such case or proceeding, in
each case to the extent such claim accrues or becomes payable in accordance with
the provisions of the Credit Agreement or other Loan Documents (or would have
accrued or become payable if enforceable or allowable in such case or
proceeding), whether or not such claim is enforceable, allowable or allowed in
such case or proceeding and even if such claim is disallowed therein.
"SECURED OBLIGATIONS" is defined in Section 2.1.
SECTION 1.1.1 TERMS DEFINED IN CREDIT AGREEMENT. Unless the context
otherwise requires, the following terms used in this Agreement are used as
defined in the Credit Agreement:
ABR Loans
Arrangers
Borrower
Borrower Subsidiary
Business Day
Default
Disqualified Stock
Domestic Subsidiary
Event of Default
Exempted Foreign Subsidiary
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Governmental Authority
Guarantee
Guarantors
Guarantor Pledge and Security Agreement
Issuing Bank
Lien
Loan Documents
Loans
Loan Parties
Material Adverse Effect
Miscellaneous Unpledged Assets
Merger Agreements
Net Cash Proceeds
Permitted Cash Investments
Person
Required Lenders
Restricted Funds Account
Security Documents
Subsidiary
Swingline Lender
Syndication Agent
Transfer
Transactions
Transaction Documents
SECTION 1.1.2. TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE. When
capitalized, the following terms used in this Agreement or the Security
Documents have the meanings given to them in the Uniform Commercial Code, as in
effect in the State of New York on the date of this Agreement:
Accounts
Certificated Security
Chattel Paper
Commodity Account
Commodity Contract
Commodity Intermediary
Control
Documents
Equipment
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Financial Asset
Fixtures
General Intangibles
Goods
Instruments
Inventory
Investment Property
Securities Account
Securities Intermediary
Security
Security Certificate
Security Entitlement
Uncertificated Security
SECTION 1.2. TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation." The word "will"
shall be construed to have the same meaning and effect as the word "shall."
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors,
transferees and assigns, (c) the words "herein," "hereof" and "hereunder," and
words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (d) all references herein
to Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement, and (e)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, whether real, personal or mixed and of every type and description.
ARTICLE II.
THE SECURITY INTERESTS
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SECTION 2.1. GRANT OF SECURITY INTERESTS. As security for the
payment of the Obligations and all Post-Petition Interest and Expense Claims
(collectively, the "Secured Obligations"), Grantor hereby assigns to Secured
Party for the benefit of the Beneficiaries, and grants Secured Party for the
benefit of the Beneficiaries security interests in, all of Grantor's right,
title and interest in and to the following types or items of property, in each
case whether now or hereafter existing or owned by Grantor or in which Grantor
now owns or hereafter acquires an interest and wherever the same may be located
(collectively, the "Collateral"):
(i) all Inventory, including specifically all raw materials,
work-in-process, finished goods, supplies, materials, spare parts, Goods
held for sale or on lease or for lease or furnished or to be furnished
under contracts of service, merchandise inventory, rental inventory, and
returned or repossessed Goods and all rights to enforce return or
repossession by reclamation, stoppage in transit or otherwise,
(ii) all Equipment, including specifically all manufacturing,
printing, distribution, delivery, retailing, vending, data processing,
communications, office and other equipment in all of its forms, all
vehicles, all tools, dies, and molds, all Fixtures, all other Goods used or
bought for use primarily in a business and all other Goods except
Inventory,
(iii) all Accounts,
(iv) all Chattel Paper,
(v) all Documents,
(vi) all deposits in the Restricted Funds Account,
(vii) all Instruments and all other Claims that are in any
respect evidenced or represented by any writing, including any promissory
notes and all other notes and all other writings evidencing or representing
a Claim against Holdings or any Borrower Subsidiary or any other Person,
(viii) all Securities, whether constituting Certificated
Securities or Uncertificated Securities, all Financial Assets, all Security
Entitlements, all Securities Accounts, all Commodity Contracts, all
Commodity Accounts, and all other Investment Property, including
specifically the Security Certificates described in Schedule 3.1(b) and all
other Equity Interests and all Permitted Cash Investments,
(ix) all money, cash and cash equivalents, including
specifically all deposit accounts and all certificates of deposit,
(x) all General Intangibles, including specifically (a) the
property described on Schedule 3.1(c), (b) all registered and unregistered
trademarks and service marks and all trademark and service mark license
agreements to
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which Grantor is a party (whether as licensor or licensee) and all Claims
(including infringement claims) relating thereto, (c) all patents and
patent applications and all patent license agreements to which Grantor is a
party (whether as licensor or licensee) and all Claims (including
infringement claims) relating thereto, (d) all registered and unregistered
copyrights and all copyright license agreements to which Grantor is a party
(whether as licensor or licensee) and Claims (including infringement
claims) relating thereto, (e) all other intellectual property in which
Grantor has an interest, including proprietary research and development,
know-how, trade secrets, trade names, trade styles, license agreements and
user rights and Claims (including infringement claims) relating thereto,
(f) all customer lists and agreements, (g) all supplier lists and
agreements, (h) all employee and consultant lists, rights, and agreements,
(i) all computing, data and information processing and communications
programs, discs, designs, and information and the data and other entries
thereon, (j) all books, records, catalogs, back issues, library rights and
all manifestations and embodiments thereof, (k) all rights and Claims
arising under or in respect of the Merger Agreements or the other
Transaction Documents, including all indemnification rights and
indemnification payments thereunder, (1) all rights and Claims arising
under or in respect of the Credit Agreement or any Loan Document, including
rights and Claims against Secured Party or any other Beneficiary, (m) all
rights and Claims arising in respect of the Transactions, (n) all Net Cash
Proceeds, (o) all tax refunds, (p) all policies of insurance and
condemnation awards of every type and description and the proceeds thereof,
(q) all loans receivable, letters of credit, bonds and undertakings,
deferred purchase price or deferred purchase consideration, consulting or
non-competition payments and other Indebtedness, liabilities and
obligations receivable not constituting an Account and not evidenced or
represented by any Instrument, Chattel Paper or Security, (r) all rights of
recoupment, recourse, reimbursement, subrogation, indemnity or contribution
(including those arising under any Guarantee or any payment thereon, and
those arising on account of any other agreement, transaction or event), (s)
all other causes of action and Claims of every type and description,
whether fixed or contingent, liquidated or not liquidated, accrued or not
accrued, and all judgments, orders and recoveries thereon, (t) all other
agreements and contract rights of every type and description and Claims
thereon or relating in any manner thereto, (u) all other rights,
privileges, benefits, entitlements, franchises, licenses and expectancies
of every type and description, (v) all other intangible property of every
type and description, and (w) all goodwill associated with any of the
foregoing,
(xi) all property that is at any time delivered to, or that is
at any time in the Control of, Secured Party,
TOGETHER, IN EACH CASE, WITH (a) all accessions thereto and products and
replacements thereof, (b) all guaranties, Liens and other forms of collateral
security therefor, and (c) all dividends, distributions, and payments received
thereon or in exchange or substitution therefor or upon Transfer thereof, and
(d) all other proceeds thereof,
EXCEPT AND EXCLUDING, HOWEVER, each item of property that is an Excluded Asset,
for as long as it remains an Excluded Asset.
Section 2.2. DELIVERY OF INSTRUMENTS AND SECURITIES. On the date
hereof or, if hereafter acquired, immediately upon acquisition thereof by
Grantor, without any notice from or
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demand by Secured Party, (a) Grantor shall deliver to Secured Party Security
Certificates described in Schedule 3.l(b) and all other Instruments (except
checks received and collected in the ordinary course of business) and Security
Certificates at any time constituting Collateral, in each case in suitable form
for transfer by delivery or accompanied by duly executed instruments of
transfer, assignments in blank or with appropriate endorsements, in form and
substance reasonably satisfactory to Secured Party, and (b) Grantor shall cause
the issuer of each Uncertificated Security constituting Collateral to register
Secured Party as the registered owner thereof, either upon original issuance or
by registration of transfer and shall executed and deliver all writings
necessary to cause such issuer to do so.
SECTION 2.3. INVESTMENT PROPERTY. Grantor will cause Secured Party's
security interests in Investment Property to be and remain continuously
Perfected by Control and, in addition, will cause such security interests to be
Perfected by filing. Grantor will not grant or permit any other security
interest or Lien upon any Investment Property constituting Collateral. If so
requested at any time by Secured Party or the Required Lenders as to any
Security Entitlement or Securities Account or any Commodity Contract or
Commodity Account that constitutes Collateral and does not constitute
Miscellaneous Unpledged Assets, Grantor will promptly cause each Person who is a
Securities Intermediary as to any such Security Entitlement or Securities
Account and each Person who is a Commodity Intermediary as to any such Commodity
Contract or Commodity Account to deliver a written agreement enforceable by
Secured Party for the benefit of the Beneficiaries waiving and releasing, and
agreeing not to create, grant, accept or hold, any priority, pari passu or
junior security interest or Lien therein. Grantor will not cause or permit any
Equity Interest in any Subsidiary to be outstanding as an Uncertificated
Security or to constitute a Security Entitlement or be held in a Securities
Account.
SECTION 2.4. REGISTRATION OF PLEDGE. Secured Party may at any time
when any Event of Default is continuing and without any notice to any Loan Party
or any other Person, transfer to and register in Secured Party's name, as
pledgee, any and all Instruments and Investment Property constituting
Collateral. Such transfer and registration shall not foreclose or otherwise
affect any rights or interests of any Loan Party and shall not increase,
restrict or reduce any of Secured Party's rights and remedies. If after any
such transfer and registration Grantor remains entitled under Section 3.6 to
exercise voting rights with respect to Equity Interests included in such
Investment Property, Secured Party shall, at the written request of Grantor,
deliver to Grantor a revocable proxy or other instrument sufficient to permit
Grantor to exercise such voting rights to the extent permitted under Section
3.6.
SECTION 2.5. FINANCING STATEMENTS. Grantor will duly execute,
deliver and (subject to execution by Secured Party, where required by law) file
duly completed financing statements naming Grantor as debtor, naming Secured
Party as secured party, and covering the property described in Section 2.1, in
the proper filing office in each jurisdiction in which a financing statement is
required from time to time to be filed in order to ensure that the security
interests granted to Secured Party in Section 2.1 are at all times continuously
Perfected, to the extent that, under applicable law, such security interests can
be Perfected by the filing of a financing statement.
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SECTION 2.6. SECURED PARTY FILING. Secured Party is hereby
authorized to file one or more financing statements and continuations thereof
and amendments thereto, relative to all or any part of the Collateral, without
the signature of Grantor where permitted by law.
SECTION 2.7. FURTHER ASSURANCES. Grantor will promptly (and in any
event within three Business Days after request by Secured Party or the Required
Lenders) execute and deliver, and use its reasonable and diligent efforts to
obtain from other Persons, all instruments and documents (including security
agreements, security assignments, Lien releases, Lien waivers, transfer
documents and transfer notices, financing statements and other lien notices), in
form and substance reasonably satisfactory to Secured Party or the Required
Lenders, and take all other actions which are necessary or, in the reasonable
judgment of Secured Party or the Required Lenders, desirable or appropriate in
order to create, maintain, Perfect, ensure the agreed priority of, protect or
enforce Secured Party's security interests in the Collateral, to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Collateral, to protect the Collateral against the rights, claims or
interests of third persons, or to effect or to assure further the purposes and
provisions of this Agreement, and Grantor agrees to pay all reasonable costs
related thereto and all reasonable expenses incurred by Secured Party in
connection therewith.
SECTION 2.8. POWER OF ATTORNEY. Grantor hereby irrevocably constitutes
and appoints Secured Party and any officer, agent or nominee of Secured Party,
with full power of substitution, as its true and lawful attorney-in-fact with
full power and authority, in the name of Grantor or in its own name, if and
whenever Grantor is in default under this Agreement as set forth in Section 4.1
to take any and all actions and to execute and deliver any and all agreements,
documents, notices, instruments and writings that Secured Party or the Required
Lenders may determine to be necessary or desirable to create, perfect or ensure
the agreed priority of the security interests granted in Section 2.1 or to
enforce such security interests in any lawful and commercial reasonable manner
or otherwise to protect Secured Party's interest in the Collateral in any lawful
and commercially reasonable manner, including the power and right on behalf of
Grantor, without notice to or assent by Grantor:
(i) to ask for, demand, sue for, collect, settle and give
acquittance for any and all moneys due or to become due with respect to any
or all of the Collateral and otherwise to demand and enforce payment and
collection of any and all Claims constituting Collateral,
(ii) to sign and file in any office in any jurisdiction
financing statements, lien notices, collateral assignments and any other
instruments or writings that may be required or, in the opinion of Secured
Party or the Required Lenders, appropriate to create or Perfect a security
interest in or Lien upon any of the Collateral as security for the Secured
Obligations,
(iii) to accept, hold, collect, endorse, transfer and deliver any
and all checks, notes, drafts, acceptances, documents and other negotiable
and nonnegotiable Instruments, Securities, Documents and Chattel Paper
constituting
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Collateral that may be delivered to Secured Party in accordance with the
provisions of this Agreement, whether made payable to Grantor or otherwise,
(iv) to commence, file, prosecute, defend, settle, compromise
or adjust any claim, suit, action or proceeding with respect to any or all
of the Collateral or otherwise to enforce the rights of Secured Party with
respect to any of the Collateral,
(v) to obtain, contest, enforce, adjust and settle Claims for
insurance proceeds or condemnation awards constituting proceeds of
Collateral or required to be paid to Secured Party pursuant to this
Agreement or the Credit Agreement,
(vi) to do, at its option and at the expense and for the
account of Grantor, at any time and from time to time, all lawful and
commercially reasonable acts and things that Secured Party or the Required
Lenders may deem reasonably necessary or desirable to protect or preserve
the Collateral or to realize upon the Collateral,
(vii) to contest, settle, pay or discharge taxes or Liens
(other than Liens permitted under this Agreement or the Credit Agreement)
levied or placed upon or threatened against any of the Collateral, and for
such purposes (A) the legality or validity thereof and amounts necessary to
settle or discharge the same may be determined by Secured Party or the
Required Lenders in its or their commercially reasonable discretion and (B)
Grantor agrees immediately upon demand to reimburse Secured Party for any
payments made by Secured Party on account of any such taxes or Liens, as
part of the Obligations secured hereby,
(viii) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with the
Accounts and other documents relating to the Collateral, and
(ix) generally to sell, Transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Secured Party were the absolute owner thereof for all
purposes, and to do, at Secured Party's option and at Grantor's expense, at
any time or from time to time, all acts and things that Secured Party or
the Required Lenders reasonably deem necessary to protect, preserve or
realize upon the Collateral and Secured Party's security interests therein
in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
The power granted in this Section 2.8 is a power coupled with an interest, is
irrevocable and shall be discharged upon Discharge of the Credit Agreement.
SECTION 2.9. SURVIVAL OF SECURITY INTERESTS. The security interests
granted hereby shall, unless released in writing by Secured Party, (a) remain
enforceable as security for all Secured Obligations now outstanding or created
or incurred at any future time (whether or not created or incurred pursuant to
any agreement presently in effect or hereafter made and
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notwithstanding any subsequent repayment of any of the Secured Obligations or
any other act, occurrence or event), until Discharge of the Credit Agreement,
(b) survive the Discharge of the Credit Agreement to the same extent that any
contingent Obligation survives, and (c) survive any sale or other Transfer of
any Collateral and remain enforceable against each transferee and subsequent
owner thereof, even if such sale or other Transfer is permitted at the time
under the Credit Agreement, except in the case of inventory, used or surplus
equipment and Permitted Cash Investments sold in the ordinary course of business
and rights granted to a licensee under a trademark license granted in the
ordinary course of business and any other Collateral that is expressly and
specifically released from the security interests created hereby pursuant to a
written release signed by Secured Party.
SECTION 2.10. REINSTATEMENT OF SECURITY INTERESTS. If at any time
any payment on any Secured Obligation is set aside, avoided or rescinded or must
otherwise be restored or returned, this Agreement and the security interests
granted to Secured Party herein and all other obligations of Grantor hereunder
shall remain in full force and effect and, if previously released or terminated,
shall be automatically and fully reinstated, without any necessity for any act,
consent or agreement of Grantor, as fully as if such payment had never been made
and as fully as if any such release or termination had never become effective.
SECTION 2.11. GRANTOR REMAINS LIABLE. Anything contained herein to
the contrary notwithstanding, (a) Grantor shall remain liable under all
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by Secured
Party of any of its rights hereunder shall not release Grantor from any of its
duties or obligations under any contract or agreement included in the
Collateral, (c) Secured Party shall not have any obligation or liability under
any contract or agreement included in the Collateral by reason of this Agreement
or the grant to Secured Party of any security interest in such contract or
agreement, and (d) Secured Party shall not be obligated to perform any of the
obligations or duties of Grantor under any contract or agreement included in the
Collateral or to take any action to collect or enforce any claim for payment
assigned hereunder.
ARTICLE III.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Grantor represents and warrants to Secured Party and agrees with
Secured Party
that:
SECTION 3.1. THE COLLATERAL.
(a) OWNERSHIP. Except as otherwise expressly permitted under the
Credit Agreement, (i) Grantor owns the Collateral free and clear of any and all
Liens and (ii) no effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any filing or
recording office, except those in favor of Secured Party.
(b) INTERESTS IN AND CLAIMS AGAINST SUBSIDIARIES. Schedule 3.l(b)
sets forth accurately and exhaustively all Equity Interests owned by Grantor in
any Subsidiary of Grantor,
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and all other Equity Interests owned by Grantor. All such Equity Interests are
represented by Security Certificates that have been duly authorized and validly
issued, are fully paid and non-assessable and were not issued in breach or
derogation of preemptive rights of any Person.
(c) INTELLECTUAL PROPERTY. Schedule 3.1 (c) sets forth accurately
and exhaustively (a) all registered trademarks and servicemarks owned by
Grantor, all material trademark and service mark license agreements to which
Grantor is a party (whether as licensor or licensee), and all pending or overtly
threatened infringement claims by or against Grantor and other litigation
relating to any such trademarks, servicemarks or trademark or servicemark
license agreements, (b) all patents and patent applications owned by Grantor,
all patent license agreements to which Grantor is a party (whether as licensor
or licensee), and all pending or overtly threatened infringement claims by or
against Grantor and other litigation relating to any such patents, patent
applications or patent license agreements, and (c) all registered copyrights
owned by Grantor, all material copyright license agreements to which Grantor is
a party (whether as licensor or licensee) and all pending or overtly threatened
infringement claims by or against Grantor or other litigation relating to any
such copyrights or copyright license agreements.
(d) OTHER INVESTMENT PROPERTY. Schedule 3.1 (d) sets forth
accurately and exhaustively all other Investment Property of Grantor, except
Investment Property constituting Miscellaneous Unpledged Assets or Permitted
Cash Investments.
(e) LOCATION OF EQUIPMENT AND INVENTORY. All Equipment and Inventory
are located and intended to be kept at one of the collateral locations specified
on Schedule 3.1 (e).
(f) NO CONSUMER GOODS OR FARM PRODUCTS. Grantor does not own any
assets that are, as to it, consumer goods or farm products.
(g) LOCATION OF GRANTOR. The Grantor's chief place of business,
chief executive office and office or offices where the Grantor keeps its records
regarding its Accounts and all originals of its Chattel Paper are located, and
during the preceding four months were located, at the Grantor locations
specified on Schedule 3.1 (g).
(h) NAMES. The correct legal name of Grantor is set forth in the
preamble to this Agreement. Grantor does not conduct business or hold itself
out under, and in the past five years has not conducted business or held itself
out under, any other name (including any tradename or fictitious business name)
except any name listed on Schedule 3.1 (h).
(i) TAXPAYER ID NUMBER. The proper taxpayer identification number
for each Loan Party is accurately set forth on Schedule 3.1 (i).
(j) PERFECTION. Except in the case of property (if any) constituting
Miscellaneous Unpledged Assets, the security interests granted to Secured Party
in Section 2.1 are lawful, valid and enforceable security interests that at all
times have been, and remain, duly and continuously Perfected.
(k) AMENDMENT OF SCHEDULE 3.1. Grantor may at any time unilaterally
amend Schedule 3.1 in any respect required by the occurrence of any event that
does not constitute or
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give rise to a Default, by giving written notice thereof to Secured Party. To be
effective, such notice must state conspicuously that it constitutes an amendment
to certain factual matters relating to the Collateral set forth in Section 3.1
of this Agreement.
SECTION 3.2. MAINTENANCE OF PERFECTION. Grantor will not (a) cause,
permit or suffer any voluntary or involuntary change in its name, identity or
corporate structure, or in the location of its chief executive office, or (b)
keep any tangible Collateral (other than mobile goods and in transit items) or
any records relating to its Accounts at any location other than a location set
forth in Schedule 3.1, unless (in each case) (i) Schedule 3.1 has first been
appropriately supplemented with respect thereto, and (ii) an appropriate
financing statement has been filed in the proper office and in the proper form,
and all other requisite actions have been taken, to Perfect and continue the
Perfection (without loss of priority) of Secured Party's security interests in
the Collateral.
SECTION 3.3. DEFENSE OF COLLATERAL. Grantor will defend the
Collateral against all claims and demands of all Persons at any time claiming
any interest therein.
SECTION 3.4. TRANSFER OR ENCUMBRANCE. Grantor will not encumber or
Transfer any item of Collateral or any interest therein, or permit or suffer any
item of Collateral to be encumbered or Transferred, unless (a) such action is
permitted at the time under the Credit Agreement and (ii) each Loan Party makes
all payments on account of the Secured Obligations required to be made therefrom
and takes all other actions required to be taken in connection therewith under
the Credit Agreement or any other Loan Document.
SECTION 3.5. PAYMENTS, DIVIDENDS AND DISTRIBUTIONS. Grantor shall be
entitled to receive all payments on Accounts, Instruments and Claims and all
dividends and distributions on Equity Interests and other Investment Property
constituting Collateral, so long as (a) no Event of Default has occurred and is
continuing or would result, (b) Grantor ensures that Secured Party's security
interests in any and all such payments, dividends and distributions (except
those constituting Miscellaneous Unpledged Assets) remain continuously Perfected
and (c) each Loan Party makes all payments on account of the Secured Obligations
required to be made therefrom and takes all other actions required to be taken
in connection therewith under the Credit Agreement or any other Loan Document.
SECTION 3.6. VOTING RIGHTS. So long as no Event of Default has
occurred or would result, Grantor shall have and may exercise all voting rights
with respect to any and all Equity Interests constituting Collateral, except
that:
(a) NO BREACH. Grantor shall not act or vote in favor of any action
that would constitute or cause a breach of any obligations of any Loan Party
under the Credit Agreement or under any other Loan Document;
(b) NO CAPITAL STRUCTURE CHANGES. Grantor shall not act or vote in
favor of (i) the authorization or issuance of any Disqualified Stock, options,
warrants, voting rights, or preference shares or additional shares not permitted
by the Credit Agreement, or (ii) any reclassification, readjustment,
reorganization, merger, consolidation, sale or disposition of assets,
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or dissolution not permitted by the Credit Agreement, without giving Secured
Party at least 15 days' prior written notice thereof;
(c) MATERIAL ADVERSE CHANGES. Grantor shall not act or vote in favor
of any action that has or is reasonably likely to have a material adverse effect
on the value of any of the Collateral or that has, or would reasonably be
expected to result in, a Material Adverse Effect; and
(d) TERMINATION OF VOTING RIGHTS. At any time when Grantor is in
default under this Agreement as set forth in Section 4.1, Secured Party may
terminate any or all of Grantor's voting rights with respect to any or all
Equity Interests constituting Collateral, either by giving written notice of
such termination to Grantor or by transferring such Equity Interests into
Secured Party's name, and Secured Party shall thereupon have the sole right and
power to exercise such voting rights.
SECTION 3.7. MAINTENANCE OF COLLATERAL. Grantor shall:
(i) not use or permit any Collateral to be used
unlawfully or in violation of any provision of this Agreement or any other
Loan Document or any applicable statute, regulation or ordinance or any
policy of insurance covering any such Collateral;
(ii) notify Secured Party of any change in Grantor's
name, identity or corporate structure within 30 days after such change;
(iii) give Secured Party 10 business days' prior
written notice of any change in Grantor's chief place of business, chief
executive office, places of business, collateral locations or federal
taxpayer ID number or the office where Grantor keeps its Chattel Paper and
its records regarding any Accounts;
(iv) if the Lenders give value to enable Grantor to
acquire rights in or the use of any Collateral, use such value for such
purposes; and
(v) pay promptly when due all material property and
other taxes, assessments and governmental charges or levies imposed upon
any Collateral and all Claims that are or might become secured by any Lien
upon any Collateral, except to the extent the same is being contested as
permitted under the Credit Agreement; provided, that, notwithstanding any
other provision in the Loan Documents, Grantor shall in any event pay such
taxes, assessments, charges, levies and Claims not later than five days
prior to the date of any proposed sale under any judgment, writ or warrant
of attachment or other legal process entered or filed against Grantor or
any Collateral as a result of the failure to make such payment.
SECTION 3.8. CONCERNING EQUIPMENT AND INVENTORY. Grantor will:
(i) cause the Equipment to be maintained and preserved in the
same condition, repair and working order as when new (ordinary wear and
tear and
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wornout and surplus equipment excepted) and in accordance with Grantor's
past practices and make or cause to be made all repairs, replacements and
other improvements in connection therewith that are necessary or desirable
to such end;
(ii) notify Secured Party of any loss or damage to any
Equipment in an amount exceeding $500,000;
(iii) keep correct and accurate records of the Inventory,
itemizing and describing the kind, type and quantity of Inventory,
Grantor's cost therefor and (where applicable) the current list prices for
the Inventory, in the ordinary course of Grantor's business;
(iv) if any Inventory is in possession or control of any agent,
carrier, warehouseman, bailee, consignee or processor, at any time when
Grantor is in default under this Agreement as set forth in Section 4.1,
instruct such Person to hold all such Inventory for the account of Secured
Party and subject to the instructions of Secured Party; and
(v) if so requested at any time by Secured Party or the
Required Lenders, promptly endorse and deliver to Secured Party each and
all negotiable Documents constituting Collateral.
SECTION 3.9. CONCERNING ACCOUNTS, INSTRUMENTS AND OTHER CLAIMS.
Grantor will:
(i) maintain accurate and complete records concerning the
Accounts, Instruments and all other Claims and the identity, name and
address of each account debtor or obligor thereon, hold and preserve such
records in safekeeping, permit representatives of Secured Party at any time
during normal business hours to inspect, copy and make abstracts from such
records, and render to Secured Party, at Grantor's cost and expense, such
clerical and other assistance as may be reasonably requested with regard
thereto,
(ii) if so requested at any time by Secured Party or the
Required Lenders, certify and deliver to Secured Party complete and correct
copies of each contract or agreement constituting Collateral,
(iii) continue to collect, at Grantor's expense, all amounts due
or to become due to Grantor under Accounts, Instruments and other Claims
and, in connection therewith take such action as Grantor (or, whenever
Grantor is in default under this Agreement as set forth in Section 4.1, as
Secured Party or the Required Lenders) may reasonably deem necessary or
advisable to enforce collection of amounts due or to become due to
thereunder; provided, that Secured Party shall have the right at any time
when Grantor is in default under this Agreement as set forth in Section 4.1
(A) to notify the account debtors or obligors under any or all Accounts,
Instruments or other Claims of the assignment of such Accounts, Instruments
or Claims to Secured Party and
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to direct such account debtors or obligors to make payment of all amounts
due or to become due to Grantor thereunder directly to Secured Party, (B)
to notify each Person maintaining a lockbox or similar arrangement to which
account debtors or obligors under any Accounts, Instruments or other Claims
have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lockbox or other arrangement directly to Secured Party
and and (C) at the expense of Grantor, to demand payment of the Restricted
Funds Account or any Accounts, Instruments and Claims and enforce
collection thereof by legal proceedings in any lawful manner and to extend,
renew adjust, settle or compromise the amount or payment thereof, in the
same manner and to the same extent as Grantor might have done, and
(iv) if Secured Party at any time exercises any of the rights
described in the proviso in Section 3.9(iii), (A) segregate from all other
funds and hold in trust for Secured Party and immediately deliver to
Secured Party (in the identical form received) all amounts and proceeds
(including checks and other instruments) received by Grantor in respect of
the Restricted Funds Account or any and all Accounts, Instruments and other
Claims, and (B) not adjust, settle or compromise the amount or payment of
any Account or Claim, or release wholly or partly any account debtor or
obligor thereon, or allow any credit or discount thereon.
SECTION 3.10. SUBSTITUTED PERFORMANCE. Secured Party may at any time
(but shall not be obligated to) (a) perform any of the obligations of Grantor
under this Agreement if Grantor fails to perform such obligation within three
Business Days (or, in the case of insurance, within one Business Day) after
written demand by Secured Party and (b) make any payments and do any other acts
which Secured Party or the Required Lenders may deem reasonably necessary or
desirable to protect Secured Party's security interests in the Collateral,
including the right to pay, purchase, contest or compromise any Lien that
attaches or is asserted against any Collateral, to procure insurance, and to
appear in and defend any action or proceeding relating to any Collateral, and
Grantor agrees promptly to reimburse Secured Party for all payments made by
Secured Party in doing so, together with interest thereon at the rate then
applicable to ABR Loans, all reasonable attorneys' fees and disbursements
incurred by Secured Party in connection therewith, whether or not suit is
brought, and all other reasonable costs and expenses related thereto.
ARTICLE IV.
DEFAULT; REMEDIES
SECTION 4.1. DEFAULT. Grantor shall be in default under this
Agreement (a) whenever any Event of Default has occurred and is continuing
(without regard to whether or to what degree Grantor individually may have
caused, participated in, or had any knowledge of the occurrence of such Event of
Default) and (b) at all times after the Loans have become due and payable,
whether at maturity, upon acceleration pursuant to Section 7.1 of the Credit
Agreement or otherwise.
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SECTION 4.2. REMEDIES UPON DEFAULT. At any time when Grantor is in
default under this Agreement as set forth in Section 4.1, Secured Party may
exercise and enforce, in any order, (a) each and all of the rights and remedies
available to a secured party upon default under the Uniform Commercial Code or
other applicable law, (b) each and all of the rights and remedies available to
it under the Credit Agreement or any other Loan Document and (c) each and all of
the following rights and remedies:
(a) COLLECTION RIGHTS. Without notice to Grantor or any other Loan
Party, Secured Party may notify any or all account debtors and obligors on any
Accounts, Instruments or other Claims constituting Collateral of Secured Party's
security interests therein and may direct, demand and enforce payment thereof
directly to Secured Party.
(b) TAKING POSSESSION. Secured Party may (i) enter upon any and all
premises owned or leased by Grantor where Collateral is located (or believed by
Secured Party to be located), with or without judicial process and without any
obligation to pay rent, (ii) prior to the disposition of the Collateral, store,
process, repair or recondition the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Secured Party deems
appropriate, (iii) take possession of Grantor's premises or place custodians in
exclusive control thereof, remain on such premises and use the same and any of
Grantor's equipment for the purpose of completing any work in process or
otherwise preparing the Collateral for sale or selling or otherwise Transferring
the Collateral, (iv) take possession of all items of Collateral that are not
then in its possession, either upon such premises or by removal from such
premises, and (v) require Grantor or the Person in possession thereof to deliver
such Collateral to Secured Party at one or more locations designated by Secured
Party and reasonably convenient to it and Grantor.
(c) FORECLOSURE. Secured Party may sell, lease, license or otherwise
dispose of or Transfer any or all of the Collateral or any part thereof in one
or more parcels at public sale or in private sale or transaction, on any
exchange or market or at Secured Party's offices or on Grantor's premises or at
any other location, for cash, on credit or for future delivery, and may enter
into all contracts necessary or appropriate in connection therewith, without any
notice whatsoever unless required by law. Where permitted by law, one or more
of the Beneficiaries may be the purchasers at any such sale and in such event,
if such bid is made by all of the Lenders or by all of the Holders of Secured
Obligations or otherwise whenever a credit bid is expressly permitted under the
Credit Agreement or approved in writing by the Administrative Agent and all of
the Lenders, the Beneficiaries bidding at such sale may bid part or all of the
Obligations owing to them without necessity of any cash payment on account of
the purchase price, even though any other purchaser at such sale is required to
bid a purchase price payable in cash. Grantor agrees that at least 10 calendar
days' written notice to Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall be commercially
reasonable. The giving of notice of any such sale or other disposition shall
not obligate Secured Party to proceed with the sale or disposition, and any such
sale or disposition may be postponed or adjourned from time to time, without
further notice.
(d) USE OF INTELLECTUAL PROPERTY. Secured Party may, on a royalty
free basis, use and license use of any trademark, trade name, trade style,
copyright, patent or technical
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knowledge or process owned, held or used by Grantor in respect of any Collateral
as to which any right or remedy of Secured Party is exercised or enforced.
In addition, each Holder of any Secured Obligation may exercise and enforce such
rights and remedies for the collection of such Secured Obligation as may be
available to it by law or agreement.
SECTION 4.3. WAIVERS BY GRANTOR. Grantor hereby irrevocably waives,
to the fullest extent permitted by law, (a) all rights of redemption from any
foreclosure sale, (b) the benefit of all valuation, appraisal, exemption and
moratorium laws, (c) all rights to notice or a hearing prior to the exercise by
Secured Party of its right to take possession of any Collateral, whether by self
help or by legal process and any right to object to the Secured Party taking
possession of any Collateral by self help, (d) if Secured Party seeks to obtain
possession of any Collateral by replevin, claim and delivery, attachment, levy
or other legal process, (i) any notice or demand for possession prior to the
commencement of legal proceedings, (ii) the posting of any bond or security in
any such proceedings, and (iii) any requirement that Secured Party retain
possession and not dispose of any Collateral until after a trial or final
judgment in such proceedings.
SECTION 4.4. STANDARD OF CARE. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or to protect, preserve, vote or exercise
any rights pertaining to any Collateral. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which Secured Party accords its own property or if it selects, with reasonable
care, a custodian to hold such Collateral on its behalf.
SECTION 4.5. APPLICATION OF PROCEEDS. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of Secured Party, be held by Secured Party
as Collateral for, or then, or at any other time thereafter, applied in full or
in part by Secured Party against, the Secured Obligations in the following order
of priority:
FIRST: To the payment of all reasonable costs and expenses of such
sale, collection or other realization, including reasonable expenses of
Secured Party and the reasonable fees and disbursements of its agents,
consultants and counsel, and all other reasonable expenses, liabilities and
advances made or incurred by Secured Party in connection therewith, and all
amounts for which Secured Party is entitled to indemnification hereunder
and all reasonable advances made by Secured Party hereunder for the account
of Grantor, and to the payment of all reasonable costs and expenses paid or
incurred by Secured Party in connection
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with the exercise of any right or remedy hereunder, all in accordance with
Section 4.6;
SECOND: To the payment of all other Secured Obligations (for the
ratable benefit of the holders thereof) then due and payable; and
THIRD: To the payment to or upon the order of the Grantor, or to
whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 4.6. INDEMNITY AND EXPENSES.
(a) INDEMNITY. Grantor will defend, indemnify and hold harmless
Secured Party and each Beneficiary from and against any and all claims, losses
and liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including enforcement of any
interest, right or remedy created hereby), except to the extent such claims,
losses or liabilities are directly attributable to Secured Party's or such
Beneficiary's gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction.
(b) EXPENSES. Grantor will pay to Secured Party upon demand the
amount of any and all reasonable costs and expenses, including the reasonable
fees and expenses of its counsel and of any advisors, consultants, experts and
agents, that Secured Party may incur in connection with (i) the administration
of this Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the interests, rights or remedies of
Secured Party hereunder, (iv) the failure by Grantor to perform or observe any
of the provisions hereof, or (v) the proof, allowance, protection,
administration, treatment, discharge, collection or enforcement of any of the
Secured Obligations or any of the Collateral in any bankruptcy case or
insolvency, reorganization, receivership, dissolution or liquidation proceeding
of or affecting any Loan Party.
SECTION 4.7. SURPLUS, DEFICIENCY. Any surplus proceeds of any sale
or other disposition by Secured Party of any Collateral remaining after
Discharge of the Credit Agreement and after all Secured Obligations are paid in
full and in cash shall be paid over to Grantor or to whomever may be lawfully
entitled to receive such surplus or as a court of competent jurisdiction may
direct, but prior to Discharge of the Credit Agreement, such surplus proceeds
may be retained by Secured Party and held as Collateral until Discharge of the
Credit Agreement. The Borrower and each Guarantor shall be and remain liable
for any deficiency.
SECTION 4.8. INFORMATION RELATED TO THE COLLATERAL. If Secured Party
determines to sell or otherwise Transfer any Collateral, Grantor shall, and
shall cause any Person controlled by it to, furnish to Secured Party all
information Secured Party may request that pertains or could pertain to the
value or condition of the Collateral or that would or might facilitate such sale
or Transfer. Secured Party shall have the right, notwithstanding any
confidentiality obligation or agreement otherwise binding upon it, freely to
disclose such
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information, and any and all other information (including confidential
information) pertaining in any manner to the Collateral or the assets,
liabilities, results of operations, business or prospects of any Loan Party, to
any Person that Secured Party in good faith believes to be a potential or
prospective purchaser in such sale or Transfer, without liability for any
disclosure, dissemination or use that may be made as to such information by any
such Person.
SECTION 4.9. SALE EXEMPT FROM REGISTRATION. Secured Party shall be
entitled at any such sale or other Transfer, if it deems it advisable to do so,
to restrict the prospective bidders or purchasers to Persons who will provide
assurances satisfactory to Secured Party that the Collateral may be offered and
sold to them without registration under the Securities Act of 1933, as amended,
and without registration or qualification under any other applicable state or
federal law. Upon the consummation of any such sale, Secured Party shall have
the right to assign, transfer and deliver to the purchaser or purchasers thereof
the Collateral so sold. Secured Party may solicit offers to buy the Collateral,
or any part of it, from a limited number of investors deemed by Secured Party,
in its good faith judgment or in good faith reliance upon advice of its counsel,
to meet the requirements to purchase securities under Regulation D promulgated
under the Securities Act of 1933 as then in effect (or any other regulation of
similar import). If Secured Party solicits such offers from such investors,
then the acceptance by Secured Party of the highest offer obtained from any of
them shall be deemed to be a commercially reasonable method of disposition of
the Collateral.
SECTION 4.10. RIGHTS AND REMEDIES CUMULATIVE. The rights provided
for in this Agreement and the other Loan Documents are cumulative and are not
exclusive of any other rights, powers or privileges or remedies provided by law
or in equity, or under any other instrument, document or agreement. Secured
Party may exercise and enforce each right and remedy available to it either
before or concurrently with or after, and independently of, any exercise or
enforcement of any other right or remedy of Secured Party or any Holder of any
Secured Obligation against any Person or property. All such rights and remedies
shall be cumulative, and no one of them shall exclude or preclude any other.
SECTION 4.11. NO DIRECT ENFORCEMENT BY BENEFICIARIES. Secured Party
may freely exercise and enforce any and all of its rights and remedies
hereunder, for the benefit of the Beneficiaries. No Beneficiary, other than
Secured Party, shall have any independent right to collect, take possession of,
foreclose against or otherwise enforce the security interests granted hereby.
ARTICLE V.
CONCERNING THE SECURED PARTY
SECTION 5.1. AGENT FOR HOLDERS. Secured Party is executing and
delivering this Agreement, and accepting the security interests, rights,
remedies, powers and benefits conferred upon Secured Party hereby, both for its
own benefit and as agent for all present and future Holders of Secured
Obligations. The provisions of the Credit Agreement and all rights, powers,
immunities and indemnities granted to Secured Party under the Credit Agreement
or any other Loan Document, or under any separate agreement made by or otherwise
binding upon any Holder of Secured Obligations, shall apply in respect of such
execution, delivery and acceptance
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and in respect of any and all actions taken or omitted by Secured Party under,
in connection with or in respect of this Agreement.
SECTION 5.2. ADMINISTRATIVE AGENT SHALL BE THE SECURED PARTY.
Secured Party shall at all times be the same Person that is the Administrative
Agent under the Credit Agreement. Written notice of resignation by the
Administrative Agent pursuant to Section 8.6 of the Credit Agreement shall also
constitute notice of resignation as Secured Party under this Agreement; and
appointment of a successor Administrative Agent pursuant to Section 8.6 of the
Credit Agreement shall also constitute appointment of a successor Secured Party
under this Agreement. Upon the acceptance of any appointment as Administrative
Agent under Section 8.6 of the Credit Agreement by a successor Administrative
Agent, the successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Secured Party under this Agreement, and the retiring Secured Party under this
Agreement shall promptly (a) transfer to such successor Secured Party all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Secured Party under this Agreement,
and (b) execute and deliver to such successor Secured Party such amendments to
financing statements, and take such other actions, as may be necessary or
appropriate in connection with the assignment to such successor Secured Party of
the security interests created hereunder, whereupon such retiring Secured Party
shall be discharged from its duties and obligations under this Agreement. After
any retiring Administrative Agent's resignation hereunder as Secured Party, the
provisions of this Agreement shall inure to its benefit as to any actions taken
or omitted to be taken by it under this Agreement while it was Secured Party
hereunder.
SECTION 5.3. NO ASSURANCES OR LIABILITY. Secured Party makes no
statement, promise, representation or warranty whatsoever, and shall have no
liability whatsoever, to any Holder of any Secured Obligations as to the
authorization, execution, delivery, legality, enforceability or sufficiency of
this Agreement or as to the creation, Perfection, priority, or enforceability of
any security interests granted hereunder or as to existence, ownership, quality,
condition, value or sufficiency of any Collateral or as to any other matter
whatsoever.
SECTION 5.4. HOLDERS BOUND. Except where the consent of others may
be required pursuant to the express provisions of Section 9.2 of the Credit
Agreement, any modification, amendment, waiver, release, termination or
discharge of any security interest, right, remedy, power or benefit conferred
upon Secured Party that is effectuated in a writing signed by Secured Party
shall be binding upon all Holders of Secured Obligations if it is (i) authorized
pursuant to any provision of the Credit Agreement or any other Loan Document,
(ii) required by law or (iii) authorized or ratified either (A) by the Required
Lenders or (B) by the Holders of at least a majority in outstanding principal
amount of the Secured Obligations (other than contingent or unliquidated Secured
Obligations).
ARTICLE VI.
MISCELLANEOUS PROVISIONS
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SECTION 6.1. CONTINUING SECURITY INTERESTS; RELEASE. This Agreement
creates continuing security interests in the Collateral and shall (a) remain in
full force and effect until the Discharge of the Credit Agreement, (b) be
binding upon Grantor and its successors and assigns, and (c) inure, together
with the rights and remedies of Secured Party hereunder, to the benefit of and
be enforceable by Secured Party and its successors, transferees and assigns
acting in the capacity of Administrative Agent under the Credit Agreement.
Subject to and upon Discharge of the Credit Agreement, Secured Party shall
(within a reasonable time after it receives from Grantor a written request for
release of the Collateral) execute and deliver to Grantor an instrument in form
and substance satisfactory to Secured Party releasing (on a quitclaim basis,
without recourse, without warranty, and without any liability whatsoever) any
security interest Secured Party may then hold in the Collateral and thereupon
Secured Party shall, at Grantor's expense, execute and deliver to Grantor such
UCC termination statements and other like documents as Grantor may reasonably
request to evidence such release.
SECTION 6.2. SENIOR INDEBTEDNESS. All liability of Grantor hereunder
(a) is and shall be (and is hereby designated as) "Senior Indebtedness" within
the meaning of and for the purposes of the Indenture dated as of August 17, 1998
by and among the Borrower, the Subsidiary Guarantors named therein, and Harris
Trust and Savings Bank, as trustee, governing the Borrower's Senior Subordinated
Notes due 2008, and (b) is and shall be (and is hereby made) senior in right of
payment, on the terms set forth in said Indenture, to said Senior Subordinated
Notes and all "Obligations" (as defined in said Indenture) in respect of said
Senior Subordinated Notes and all "Subsidiary Guarantees" (as defined in said
Indenture) at any time issued under or pursuant to said Indenture.
SECTION 6.3. AMENDMENTS; ETC. No amendment or waiver of any
provision of this Agreement, or consent to any departure by Grantor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given.
SECTION 6.4. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 6.5. NOTICES. Any and all notices and communications to be
given to Grantor or Secured Party may be given by courier service, personal
service, mailing the same, postage prepaid, or by telex, facsimile transmission
or cable to each such party at its address set forth in the Credit Agreement, on
the signature pages hereof or to any other address as any party hereto may
specify by written notice to the other parties, and such communication shall be
deemed to have been given when delivered in person or by courier service, upon
receipt of telefacsimile or telex, or three Business Days after depositing it in
the United States mail with postage prepaid and properly addressed.
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SECTION 6.6. SEVERABILITY. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 6.7. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 6.8. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE NEW YORK UNIFORM COMMERCIAL
CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Notwithstanding the foregoing, the creation, perfection, priority and
enforcement of a security interest in any deposit account shall be governed by
the laws of the state in which the depositary bank, or branch bank, maintaining
such deposit account is located.
SECTION 6.9. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE STATE OF NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT GRANTOR
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Grantor hereby
agrees that service of all process in any such proceeding in any such court may
be made by registered or certified mail, return receipt requested, to Grantor at
its address provided in Section 6.5, such service being hereby acknowledged by
Grantor to be sufficient for personal jurisdiction in any action against Grantor
in any such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of Secured Party to bring
proceedings against Grantor in the courts of any other jurisdiction.
SECTION 6.10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this
waiver is intended to be all encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation contract claims, tort claims, breach of duty
claims, and all other
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common law and statutory claims. Grantor and Secured Party each acknowledge that
this waiver is a material inducement for Grantor and Secured Party to enter into
a business relationship, that Grantor and Secured Party have already relied on
this waiver in entering into this Agreement and that each will continue to rely
on this waiver in their related future dealings. Each party hereto further
warrants and represents that it has reviewed this waiver with its legal counsel
and that it knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 6.11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
Signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Grantor and Secured Party have executed this
Agreement as of the date first written above.
BELL SPORTS, INC.
By:____________________________________
Name:________________________________
Title :______________________________
Accepted as of the day
of August 17, 1998
SOCIETE GENERALE,
as Administrative Agent
By:__________________________________
Name:______________________________
Title :____________________________
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EXHIBIT 10.3
================================================================================
GUARANTOR PLEDGE AND SECURITY AGREEMENT
dated as of
August 17, 1998
BELL SPORTS CORP.,
and the Subsidiary Grantors,
as Grantors
and
SOCIETE GENERALE,
as Administrative Agent,
as Secured Party
---------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I. DEFINITIONS..................................................... 2
Section 1.1. Certain Terms..................................... 2
Section 1.2. Terms Defined in Credit Agreement................. 4
Section 1.3. Terms Defined in the Uniform Commercial Code...... 5
Section 1.4. Terms Generally................................... 6
ARTICLE II. THE SECURITY INTERESTS......................................... 6
Section 2.1. Grant of Security Interests....................... 6
Section 2.2. Delivery of Instruments and Securities............ 8
Section 2.3. Investment Property............................... 9
Section 2.4. Registration of Pledge............................ 9
Section 2.5. Financing Statements.............................. 9
Section 2.6. Secured Party Filing.............................. 10
Section 2.7. Further Assurances................................ 10
Section 2.8. Power of Attorney................................. 10
Section 2.9. Survival of Security Interests.................... 12
Section 2.10. Reinstatement of Security Interests............... 12
Section 2.11. Each Grantor Remains Liable....................... 12
Section 2.12. Application of Guaranty Provisions................ 13
Section 2.13. Liability Joint and Several....................... 13
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS..................... 13
Section 3.1. The Collateral................................... 13
Section 3.2. Maintenance of Perfection......................... 15
Section 3.3. Defense of Collateral............................. 15
Section 3.4. Transfer or Encumbrance........................... 15
Section 3.5. Payments, Dividends and Distributions............. 16
Section 3.6. Voting Rights..................................... 16
Section 3.7. Maintenance of Collateral......................... 16
Section 3.8. Concerning Equipment and Inventory................ 17
Section 3.9. Concerning the Restricted Funds Account, Accounts,
Instruments and other Claims...................... 18
Section 3.10. Substituted Performance........................... 19
ARTICLE IV. DEFAULT; REMEDIES.............................................. 19
Section 4.1. Default........................................... 19
Section 4.2. Remedies upon Default............................. 19
Section 4.3. Waivers by Grantor................................ 21
Section 4.4. Standard of Care.................................. 21
Section 4.5. Application of Proceeds........................... 21
</TABLE>
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<TABLE>
<S> <C>
Section 4.6. Indemnity and Expenses...................................... 22
Section 4.7. Surplus, Deficiency......................................... 22
Section 4.8. Information Related to the Collateral....................... 23
Section 4.9. Sale Exempt from Registration............................... 23
Section 4.10. Rights and Remedies Cumulative.............................. 23
Section 4.11. No Direct Enforcement by Beneficiaries...................... 23
ARTICLE V. CONCERNING THE SECURED PARTY.............................................. 24
Section 5.1. Agent for Holders........................................... 24
Section 5.2. Administrative Agent shall be the Secured Party............. 24
Section 5.3. No Assurances or Liability.................................. 24
Section 5.4. Holders Bound............................................... 25
ARTICLE VI. MISCELLANEOUS PROVISIONS................................................. 25
Section 6.1. Continuing Security Interests; Release...................... 25
Section 6.2. Senior Indebtedness......................................... 25
Section 6.3. Amendments; Etc............................................. 26
Section 6.4. Failure or Indulgence Not Waiver; Remedies Cumulative....... 26
Section 6.5. Notices..................................................... 26
Section 6.6. Severability................................................ 26
Section 6.7. Headings.................................................... 26
Section 6.8. Governing Law; Terms........................................ 26
Section 6.9. Consent to Jurisdiction and Service of Process.............. 27
Section 6.10. Waiver of Jury Trial........................................ 27
Section 6.11. Additional Grantors......................................... 28
Section 6.12. Counterparts................................................ 28
</TABLE>
SCHEDULES
Schedule 3.1(b)- Interests owned in Subsidiaries
Schedule 3.1(c)- Intellectual Property
Schedule 3.1(d)- Investment Property
Schedule 3.1(e)- Location of Equipment and Inventory
Schedule 3.1(g)- Location of s
Schedule 3.1(h)- Legal Names of s
Schedule 3.1(i)- Taxpayer ID Number
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GUARANTOR PLEDGE AND SECURITY AGREEMENT
This GUARANTOR PLEDGE AND SECURITY AGREEMENT (this "Agreement") is
dated as of August 17, 1998 and entered into by and between BELL SPORTS, CORP.,
a Delaware corporation ("Holdings"), each of the Persons identified as Initial
Subsidiary Grantors on the signature pages hereof (each an "Initial Subsidiary
Grantor") and each other Person that at any time agrees in writing to be bound
as a Subsidiary Grantor hereunder (the Initial Subsidiary Grantors and each such
other Person, the "Subsidiary Grantors" and, together with Holdings, the
"Grantors"), and SOCIETE GENERALE ("SG"), in its capacity as Administrative
Agent under the Credit Agreement referred to below ("Secured Party"), FOR THE
BENEFIT OF the Persons that now are or at any time hereafter become party as a
Lender to the Credit Agreement described herein (the "Lenders"), SG, in its
individual capacity, as Administrative Agent and as Lender and Issuing Bank, and
DLJ Capital Funding, Inc., as Syndication Agent, and all other present and
future Holders of any of the Secured Obligations described herein (all,
collectively, including the Lenders, the Administrative Agent, the Swingline
Lender, the Issuing Bank, the Syndication Agent and the Arrangers, the
"Beneficiaries").
RECITALS
Bell Sports, Inc., a California corporation (the "Borrower"), is a
Subsidiary of Holdings. Each Initial Subsidiary Grantor is a Domestic
Subsidiary of the Borrower, and each Person that hereafter agrees to become
bound hereby as a Subsidiary Grantor is, on the date it becomes bound hereby, a
Domestic Subsidiary of the Borrower.
The Borrower has requested that credit be extended to the Borrower on
terms and conditions set forth in the Credit Agreement.
To induce the Beneficiaries to enter into the Credit Agreement, and in
consideration thereof and of any and all credit at any time extended thereunder,
(a) Holdings and the Initial Subsidiary Grantors have offered to issue the
guaranties and indemnities and enter into the agreements set forth in Guaranty,
Indemnity and Subordination Agreement dated as of August 17, 1998 (the
"Guaranty, Indemnity and Subordination Agreement") and to grant to the
Administrative Agent, for the benefit of the Beneficiaries, the collateral
security described herein as security for the payment of the Secured Obligations
on the terms herein set forth, and (b) Holdings and the Borrower have agreed in
the Credit Agreement to cause each Person that hereafter becomes a Domestic
Subsidiary of the Borrower to become bound by the provisions of the Guaranty,
Indemnity and Subordination Agreement as a Subsidiary Grantor thereunder and to
become bound by the provisions hereof as a Subsidiary Grantor hereunder.
<PAGE>
ACCORDINGLY, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each Grantor hereby agrees with Secured Party for the benefit of
the Beneficiaries as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1 CERTAIN TERMS. As used in this Agreement, the following
terms have the meanings specified below:
"BANKRUPTCY CODE" means Title 11 of the United States Code, as from
time to time amended.
"CLAIM" has the meaning set forth in the Bankruptcy Code.
"COLLATERAL" has the meaning set forth in Section 2.1.
"CREDIT AGREEMENT" means the Credit Agreement dated as of August 17,
1998 among Borrower, Bell Sports Corp., a Delaware corporation, Lender, the
other Lenders from time to time party thereto, DLJ Capital Funding, Inc., as
Syndication Agent and Societe Generale, as Administrative Agent, Swingline
Lender and Issuing Bank as such agreement from time to time may be modified,
amended, restated, extended, refinanced or replaced in any manner or in any
respect (including so as to reduce or increase the amount or cost of credit
extended thereunder or to shorten or extend the time of payment thereunder or in
any other manner change the amount or terms of credit extended to the Borrower
or the identity, rights or obligations of any party thereto).
"DISCHARGE OF THE CREDIT AGREEMENT" means that all obligations of the
Lenders to extend credit under the Credit Agreement and all letters of credit at
any time issued under the Credit Agreement have expired or been terminated and
have been absolutely, unconditionally and irrevocably discharged and all
Obligations at any time created, incurred or outstanding (except Obligations for
indemnification which are then contingent and in respect of which no claim or
demand has then been made) have been fully and finally paid in cash.
"EQUITY INTERESTS" means, with respect to any Person, any capital
stock of such Person or membership interests, partnership interests (whether
general or limited) or other equity interests in such Person, regardless of
type, class, preference or designation, and all warrants, options, purchase
rights, conversion or exchange rights, voting rights, calls or claims of any
character with respect thereto, in each case whether outstanding on the date of
this Agreement or issued or granted at any time thereafter.
"EXCLUDED ASSETS" means (a) rights, licenses and franchises granted by
any Governmental Authority in which it is unlawful to create a Lien, (b) any
leasehold interest in real
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estate, except the tenant's interest in Fixtures thereon, (c) any owned real
estate, except Fixtures thereon, (d) 35% of the Equity Interests owned by the
Borrower and Subsidiary Grantors in any Exempted Foreign Subsidiary that is not
a subsidiary of an Exempted Foreign Subsidiary, (e) any Equity Interest in any
Exempted Foreign Subsidiary that is a subsidiary of an Exempted Foreign
Subsidiary, (f) the assets listed on Schedule 1.1 of the Credit Agreement and
(g) any rights (other than rights to the payment of money) under a license
agreement entered into by a Loan Party as licensee after the Effective Date, to
the extent that (and only for as long as) such agreement prohibits the creation
of a security interest in such rights and such Loan Party has made a
commercially reasonable effort to avoid such prohibition or to obtain an
exemption therefrom in respect of the Liens granted under the Security
Documents.
"HOLDER" means, in respect of any Secured Obligation, the Person
entitled to enforce payment thereof and specifically includes each Lender, the
Administrative Agent, the Swingline Lender, the Issuing Bank, the Syndication
Agent, and the Arrangers.
"OBLIGATIONS" means all direct or indirect debts, liabilities and
obligations of the Borrower or any other Loan Party of any and every type and
description at any time arising under or in connection with the Credit Agreement
or any other Loan Document, to the Administrative Agent, the Swingline Lender,
any Arranger, the Syndication Agent, the Issuing Bank, any Lender, any Person
entitled to indemnification pursuant to the Credit Agreement or any other Loan
Document or to any other Person, in each case whether now outstanding or
hereafter created or incurred, whether or not the right of such Person to
payment in respect of any such debts, liabilities or obligations is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured and whether or not
such claim is discharged, stayed or otherwise affected by any bankruptcy case or
insolvency, reorganization, receivership, dissolution or liquidation proceeding,
and shall include (a) all liabilities of the Borrower for principal of and
interest on any and all Loans at any time outstanding under the Credit
Agreement, (b) all liabilities of the Borrower in respect of letters of credit
at any time issued pursuant to the Credit Agreement, (c) all liabilities of the
Borrower under the Loan Documents for any fees, costs, taxes, expenses,
indemnification and other amounts payable thereunder, (d) all liabilities of any
Guarantor under the Guaranty, Indemnity and Subordination Agreement, and (e) all
other liabilities of the Borrower or any other Loan Party under or in respect of
any of the Loan Documents or any of the transactions contemplated thereby and
specifically includes any and all present and future "Obligations" as such term
is defined in the Credit Agreement.
"PERFECTED" means, as to the security interests granted to Secured
Party in Section 2.1, that (a) a creditor on a simple contract cannot acquire a
judicial lien that is superior to such security interests and (b) if a case were
pending under the Bankruptcy Code in which any Grantor is the debtor, such
security interests would be a Lien that is perfected in such bankruptcy case;
and "PERFECT" and "PERFECTION" has correlative meanings.
"POST-PETITION INTEREST AND EXPENSE CLAIMS" means any and all claims
of any Holder of Secured Obligations (a) for interest on any Obligations
determined for any period of
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time occurring after the commencement of any case under the Bankruptcy Code or
any other insolvency, reorganization, receivership, dissolution or liquidation
proceeding at the contract rate (including any applicable post-default increase
therein) set forth in the Credit Agreement or any other Loan Document or (b) for
cost and expense reimbursements or indemnification on the terms set forth in the
Credit Agreement or any other Loan Document relating to costs and expenses
incurred and indemnification rights accrued at any time after the commencement
of any such case or proceeding, in each case to the extent such claim accrues or
becomes payable in accordance with the provisions of the Credit Agreement or
other Loan Documents (or would have accrued or become payable if enforceable or
allowable in such case or proceeding), whether or not such claim is enforceable,
allowable or allowed in such case or proceeding and even if such claim is
disallowed therein.
"SECURED OBLIGATIONS" is defined in Section 2.1.
SECTION 1.2. TERMS DEFINED IN CREDIT AGREEMENT. Unless the context
otherwise requires, the following terms used in this Agreement are used as
defined in the Credit Agreement:
ABR Loans
Arrangers
Borrower
Borrower Subsidiary
Business Day
Default
Disqualified Stock
Domestic Subsidiary
Event of Default
Exempted Foreign Subsidiary
Governmental Authority
Guarantee
Grantors
Guarantor Pledge and Security Agreement
Issuing Bank
Lien
Loan Documents
Loans
Loan Parties
Material Adverse Effect
Merger Agreements
Miscellaneous Unpledged Assets
Net Cash Proceeds
Permitted Cash Investments
Person
Required Lenders
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Restricted Funds Account
Security Documents
Subsidiary
Swingline Lender
Syndication Agent
Transfer
Transactions
Transaction Documents
SECTION 1.3 TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE. When
capitalized, the following terms used in this Agreement or the Security
Documents have the meanings given to them in the Uniform Commercial Code, as in
effect in the State of New York on the date of this Agreement:
Accounts
Certificated Security
Chattel Paper
Commodity Account
Commodity Contract
Commodity Intermediary
Control
Documents
Equipment
Financial Asset
Fixtures
General Intangibles
Goods
Instruments
Inventory
Investment Property
Securities Account
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Securities Intermediary
Security
Security Certificate
Security Entitlement
Uncertificated Security
SECTION 1.4. TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation." The word "will"
shall be construed to have the same meaning and effect as the word "shall."
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors,
transferees and assigns, (c) the words "herein," "hereof" and "hereunder," and
words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (d) all references herein
to Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement, and (e)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, whether real, personal or mixed and of every type and description.
ARTICLE II.
THE SECURITY INTERESTS
SECTION 2.1. GRANT OF SECURITY INTERESTS. As security for the payment
of the Obligations and all Post-Petition Interest and Expense Claims
(collectively, the "Secured Obligations"), each Grantor hereby assigns to
Secured Party for the benefit of the Beneficiaries, and grants Secured Party for
the benefit of the Beneficiaries security interests in, all of Grantor's right,
title and interest in and to the following types or items of property, in each
case whether now or hereafter existing or owned by such Grantor or in which such
Grantor now owns or hereafter acquires an interest and wherever the same may be
located (collectively, the "Collateral"):
(i) all Inventory, including specifically all raw materials,
work-in-process, finished goods, supplies, materials, spare parts, Goods
held for sale or on lease or for lease or furnished or to be furnished
under contracts of service,
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merchandise inventory, rental inventory, and returned or repossessed Goods
and all rights to enforce return or repossession by reclamation, stoppage
in transit or otherwise,
(ii) all Equipment, including specifically all manufacturing,
printing, distribution, delivery, retailing, vending, data processing,
communications, office and other equipment in all of its forms, all
vehicles, all tools, dies, and molds, all Fixtures, all other Goods used or
bought for use primarily in a business and all other Goods except
Inventory,
(iii) all Accounts,
(iv) all Chattel Paper,
(v) all Documents,
(vi) all deposits in the Restricted Funds Account,
(vii) all Instruments and all other Claims that are in any
respect evidenced or represented by any writing, including any promissory
notes and all other notes and all other writings evidencing or representing
a Claim against Holdings or any Borrower Subsidiary or any other Person,
(viii) all Securities, whether constituting Certificated
Securities or Uncertificated Securities, all Financial Assets, all Security
Entitlements, all Securities Accounts, all Commodity Contracts, all
Commodity Accounts, and all other Investment Property, including
specifically the Security Certificates described in Schedule 3.1(b) and all
other Equity Interests and all Permitted Cash Investments,
(ix) all money, cash and cash equivalents, including
specifically all deposit accounts and all certificates of deposit,
(x) all General Intangibles, including specifically (a)
the property described on Schedule 3.1(c), (b) all registered and
unregistered trademarks and service marks and all trademark and service
mark license agreements to which any Grantor is a party (whether as
licensor or licensee) and all Claims (including infringement claims)
relating thereto, (c) all patents and patent applications and all patent
license agreements to which any Grantor is a party (whether as licensor or
licensee) and all Claims (including infringement claims) relating thereto,
(d) all registered and unregistered copyrights and all copyright license
agreements to which any Grantor is a party (whether as licensor or
licensee) and Claims (including infringement claims) relating thereto, (e)
all other intellectual property in which any Grantor has an interest,
including proprietary research and development, know-how, trade secrets,
trade names, trade styles, license agreements and user rights and Claims
(including infringement claims) relating thereto, (f) all customer lists
and agreements, (g) all supplier lists and agreements, (h) all employee and
consultant lists, rights, and agreements, (i) all
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computing, data and information processing and communications programs,
discs, designs, and information and the data and other entries thereon, (j)
all books, records, catalogs, back issues, library rights and all
manifestations and embodiments thereof, (k) all rights and Claims arising
under or in respect of the Merger Agreements or the other Transaction
Documents, including all indemnification rights and indemnification
payments thereunder, (l) all rights and Claims arising under or in respect
of the Credit Agreement or any Loan Document, including rights and Claims
against Secured Party or any other Beneficiary, (m) all rights and Claims
arising in respect of the Transactions, (n) all Net Cash Proceeds, (o) all
tax refunds, (p) all policies of insurance and condemnation awards of every
type and description and the proceeds thereof, (q) all loans receivable,
letters of credit, bonds and undertakings, deferred purchase price or
deferred purchase consideration, consulting or non-competition payments and
other Indebtedness, liabilities and obligations receivable not constituting
an Account and not evidenced or represented by any Instrument, Chattel
Paper or Security, (r) all rights of recoupment, recourse, reimbursement,
subrogation, indemnity or contribution (including those arising under any
Guarantee or any payment thereon, and those arising on account of any other
agreement, transaction or event), (s) all other causes of action and Claims
of every type and description, whether fixed or contingent, liquidated or
not liquidated, accrued or not accrued, and all judgments, orders and
recoveries thereon, (t) all other agreements and contract rights of every
type and description and Claims thereon or relating in any manner thereto,
(u) all other rights, privileges, benefits, entitlements, franchises,
licenses and expectancies of every type and description, (v) all other
intangible property of every type and description, and (w) all goodwill
associated with any of the foregoing,
(xi) all property that is at any time delivered to, or that is
at any time in the Control of, Secured Party,
TOGETHER, IN EACH CASE, WITH (a) all accessions thereto and products and
replacements thereof, (b) all guaranties, Liens and other forms of collateral
security therefor, and (c) all dividends, distributions, and payments received
thereon or in exchange or substitution therefor or upon Transfer thereof, and
(d) all other proceeds thereof,
EXCEPT AND EXCLUDING, HOWEVER, each item of property that is an Excluded Asset,
for as long as it remains an Excluded Asset.
SECTION 2.2. DELIVERY OF INSTRUMENTS AND SECURITIES. On the date
hereof or, if hereafter acquired, immediately upon acquisition thereof by each
Grantor, without any notice from or demand by Secured Party, (a) each Grantor
shall deliver to Secured Party Security Certificates described in Schedule
3.1(b) and all other Instruments (except checks received and collected in the
ordinary course of business) and Security Certificates at any time constituting
Collateral, in each case in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer, assignments in blank or
with appropriate endorsements, in form and substance reasonably satisfactory to
Secured Party, and (b) each Grantor shall cause the issuer of each
Uncertificated Security constituting Collateral to register Secured Party as the
registered
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owner thereof, either upon original issuance or by registration of transfer and
shall executed and deliver all writings necessary to cause such issuer to do so.
SECTION 2.3. INVESTMENT PROPERTY. Each Grantor will cause Secured
Party's security interests in Investment Property to be and remain continuously
Perfected by Control and, in addition, will cause such security interests to be
Perfected by filing. No Grantor will grant or permit any other security interest
or Lien upon any Investment Property constituting Collateral. If so requested at
any time by Secured Party or the Required Lenders as to any Security Entitlement
or Securities Account or any Commodity Contract or Commodity Account that
constitutes Collateral and does not constitute Miscellaneous Unpledged Assets,
each Grantor will promptly cause each Person who is a Securities Intermediary as
to any such Security Entitlement or Securities Account and each Person who is a
Commodity Intermediary as to any such Commodity Contract or Commodity Account to
deliver a written agreement enforceable by Secured Party for the benefit of the
Beneficiaries waiving and releasing, and agreeing not to create, grant, accept
or hold, any priority, pari passu or junior security interest or Lien therein.
No Grantor will cause or permit any Equity Interest in any Subsidiary to be
outstanding as an Uncertificated Security or to constitute a Security
Entitlement or be held in a Securities Account.
SECTION 2.4. REGISTRATION OF PLEDGE. Secured Party may at any time
when any Event of Default is continuing and without any notice to any Loan Party
or any other Person, transfer to and register in Secured Party's name, as
pledgee, any and all Instruments and Investment Property constituting
Collateral. Such transfer and registration shall not foreclose or otherwise
affect any rights or interests of any Loan Party and shall not increase,
restrict or reduce any of Secured Party's rights and remedies. If after any such
transfer and registration any Grantor remains entitled under Section 3.6 to
exercise voting rights with respect to Equity Interests included in such
Investment Property, Secured Party shall, at the written request of such
Grantor, deliver to such Grantor a revocable proxy or other instrument
sufficient to permit such Grantor to exercise such voting rights to the extent
permitted under Section 3.6.
SECTION 2.5. FINANCING STATEMENTS. EACH GRANTOR WILL DULY EXECUTE,
DELIVER AND (SUBJECT TO EXECUTION BY SECURED PARTY, WHERE REQUIRED BY LAW) FILE
DULY COMPLETED FINANCING STATEMENTS NAMING SUCH GRANTOR AS DEBTOR, NAMING
SECURED PARTY AS SECURED PARTY, AND COVERING THE PROPERTY DESCRIBED IN SECTION
2.1, IN THE PROPER FILING OFFICE IN EACH JURISDICTION IN WHICH A FINANCING
STATEMENT IS REQUIRED FROM TIME TO TIME TO BE FILED IN ORDER TO ENSURE THAT THE
SECURITY INTERESTS GRANTED TO SECURED PARTY IN SECTION 2.1 ARE AT ALL TIMES
CONTINUOUSLY PERFECTED, TO THE EXTENT THAT, UNDER APPLICABLE LAW, SUCH SECURITY
INTERESTS CAN BE PERFECTED BY THE FILING OF A FINANCING STATEMENT.
SECTION 2.6. SECURED PARTY FILING. Secured Party is hereby authorized
to file one or more financing statements and continuations thereof and
amendments thereto, relative to all or any part of the Collateral, without the
signature of any Grantor where permitted by law.
SECTION 2.7. FURTHER ASSURANCES. Each Grantor will promptly (and in
any event within three Business Days after request by Secured Party or the
Required Lenders) execute and
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deliver, and use its reasonable and diligent efforts to obtain from other
Persons, all instruments and documents (including security agreements, security
assignments, Lien releases, Lien waivers, transfer documents and transfer
notices, financing statements and other lien notices), in form and substance
reasonably satisfactory to Secured Party or the Required Lenders, and take all
other actions which are necessary or, in the reasonable judgment of Secured
Party or the Required Lenders, desirable or appropriate in order to create,
maintain, Perfect, ensure the agreed priority of, protect or enforce Secured
Party's security interests in the Collateral, to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral, to protect the Collateral against the rights, claims or interests of
third persons, or to effect or to assure further the purposes and provisions of
this Agreement, and each Grantor agrees to pay all reasonable costs related
thereto and all reasonable expenses incurred by Secured Party in connection
therewith.
SECTION 2.8. POWER OF ATTORNEY. Each Grantor hereby irrevocably
constitutes and appoints Secured Party and any officer, agent or nominee of
Secured Party, with full power of substitution, as its true and lawful attorney-
in-fact with full power and authority, in the name of such Grantor or in its own
name, if and whenever any Grantor is in default under this Agreement as set
forth in Section 4.1 to take any and all actions and to execute and deliver any
and all agreements, documents, notices, instruments and writings that Secured
Party or the Required Lenders may determine to be necessary or desirable to
create, perfect or ensure the agreed priority of the security interests granted
in Section 2.1 or to enforce such security interests in any lawful and
commercial reasonable manner or otherwise to protect Secured Party's interest in
the Collateral in any lawful and commercially reasonable manner, including the
power and right on behalf of any Grantor, without notice to or assent by any
Grantor:
(i) to ask for, demand, sue for, collect, settle and give
acquittance for any and all moneys due or to become due with respect to any
or all of the Collateral and otherwise to demand and enforce payment and
collection of any and all Claims constituting Collateral,
(ii) to sign and file in any office in any jurisdiction
financing statements, lien notices, collateral assignments and any other
instruments or writings that may be required or, in the opinion of Secured
Party or the Required Lenders, appropriate to create or Perfect a security
interest in or Lien upon any of the Collateral as security for the Secured
Obligations,
(iii) to accept, hold, collect, endorse, transfer and deliver
any and all checks, notes, drafts, acceptances, documents and other
negotiable and nonnegotiable Instruments, Securities, Documents and Chattel
Paper constituting Collateral that may be delivered to Secured Party in
accordance with the provisions of this Agreement, whether made payable to a
Grantor or otherwise,
(iv) to commence, file, prosecute, defend, settle, compromise or
adjust any claim, suit, action or proceeding with respect to any or all of
the Collateral or otherwise to enforce the rights of Secured Party with
respect to any of the Collateral,
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(v) to obtain, contest, enforce, adjust and settle Claims for
insurance proceeds or condemnation awards constituting proceeds of
Collateral or required to be paid to Secured Party pursuant to this
Agreement or the Credit Agreement,
(vi) to do, at its option and at the expense and for the account
of any Grantor, at any time and from time to time, all lawful and
commercially reasonable acts and things that Secured Party or the Required
Lenders may deem reasonably necessary or desirable to protect or preserve
the Collateral or to realize upon the Collateral,
(vii) to contest, settle, pay or discharge taxes or Liens (other
than Liens permitted under this Agreement or the Credit Agreement) levied
or placed upon or threatened against any of the Collateral, and for such
purposes (A) the legality or validity thereof and amounts necessary to
settle or discharge the same may be determined by Secured Party or the
Required Lenders in its or their commercially reasonable discretion and (B)
each Grantor agrees immediately upon demand to reimburse Secured Party for
any payments made by Secured Party on account of any such taxes or Liens,
as part of the Obligations secured hereby,
(viii) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with the
Accounts and other documents relating to the Collateral, and
(ix) generally to sell, Transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Secured Party were the absolute owner thereof for all
purposes, and to do, at Secured Party's option and at Grantors' expense, at
any time or from time to time, all acts and things that Secured Party or
the Required Lenders reasonably deem necessary to protect, preserve or
realize upon the Collateral and Secured Party's security interests therein
in order to effect the intent of this Agreement, all as fully and
effectively as any Grantor might do.
The power granted in this Section 2.8 is a power coupled with an interest, is
irrevocable and shall be discharged upon Discharge of the Credit Agreement.
SECTION 2.9. SURVIVAL OF SECURITY INTERESTS. The security interests
granted hereby shall, unless released in writing by Secured Party, (a) remain
enforceable as security for all Secured Obligations now outstanding or created
or incurred at any future time (whether or not created or incurred pursuant to
any agreement presently in effect or hereafter made and notwithstanding any
subsequent repayment of any of the Secured Obligations or any other act,
occurrence or event), until Discharge of the Credit Agreement, (b) survive the
Discharge of the Credit Agreement to the same extent that any contingent
Obligation survives, and (c) survive any sale or other Transfer of any
Collateral and remain enforceable against each transferee and subsequent owner
thereof, even if such sale or other Transfer is permitted at the time under the
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Credit Agreement, except in the case of inventory sold in the ordinary course of
business and any other Collateral that is expressly and specifically released
from the security interests created hereby pursuant to a written release signed
by Secured Party.
SECTION 2.10. REINSTATEMENT OF SECURITY INTERESTS. If at any time any
payment on any Secured Obligation is set aside, avoided or rescinded or must
otherwise be restored or returned, this Agreement and the security interests
granted to Secured Party herein and all other obligations of each Grantor
hereunder shall remain in full force and effect and, if previously released or
terminated, shall be automatically and fully reinstated, without any necessity
for any act, consent or agreement of any Grantor, as fully as if such payment
had never been made and as fully as if any such release or termination had never
become effective.
SECTION 2.11. EACH GRANTOR REMAINS LIABLE. Anything contained herein
to the contrary notwithstanding, (a) each Grantor shall remain liable under all
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by Secured
Party of any of its rights hereunder shall not release any Grantor from any of
its duties or obligations under any contract or agreement included in the
Collateral, (c) Secured Party shall not have any obligation or liability under
any contract or agreement included in the Collateral by reason of this Agreement
or the grant to Secured Party of any security interest in such contract or
agreement, and (d) Secured Party shall not be obligated to perform any of the
obligations or duties of any Grantor under any contract or agreement included in
the Collateral or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 2.12. APPLICATION OF GUARANTY PROVISIONS. Each and all of the
provisions set forth in the Guaranty, Indemnity and Subordination Agreement that
govern or in any respect relate to any Guarantor's guarantee of payment of the
Guaranteed Obligations (as defined therein) or the liability of any Guarantor
thereunder or any recourse, reimbursement, contribution, indemnity or
subrogation rights related thereto and the subordination of claims arising
therefrom (including specifically each and all of the provisions in Section 2.5,
Article III, Article IV and Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6 and 5.7
thereof) shall apply with like force and effect to the security interest granted
by such Guarantor as Grantor under this Agreement and to the liability of such
Guarantor as Grantor under this Agreement, mutatis mutandis, to the end and with
the effect that (a) such security interest and liability hereunder shall be as
equally absolute, unconditional, continuing, unlimited (except to the extent
provided in Section 2.5 of the Guaranty, Indemnity and Subordination Agreement),
enduring, assured and protected as such Guaranteed Obligations and the liability
of such Guarantor under the Guaranty, Indemnity and Subordination Agreement are
absolute, unconditional, continuing, unlimited, enduring, assured and protected
and (b) all recourse, reimbursement, contribution, indemnity or subrogation
rights are forever waived, released and discharged with respect to such security
interest or any enforcement of such security interest or the liability of any
Grantor hereunder on the same terms as those set forth in Article IV of the
Guaranty, Indemnity and Subordination Agreement, with the exceptions therein set
forth.
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SECTION 2.13. LIABILITY JOINT AND SEVERAL. The security interest
granted by each Grantor herein and all liability of each Grantor hereunder shall
be the joint and several obligation of each Grantor and may be freely enforced
against each Grantor, for the full amount of the Secured Obligations and all
other liabilities of such Grantor hereunder, without regard to whether
enforcement is sought or available against any other Grantor.
ARTICLE III.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Grantor represents and warrants to Secured Party and agrees with
Secured Party that:
SECTION 3.1. THE COLLATERAL.
(a) OWNERSHIP. Except as otherwise expressly permitted under the
Credit Agreement, (i) each Grantor owns the Collateral free and clear of any and
all Liens and (ii) no effective financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any filing or
recording office, except those in favor of Secured Party.
(b) INTERESTS IN AND CLAIMS AGAINST SUBSIDIARIES. Schedule 3.1(b) sets
forth accurately and exhaustively all Equity Interests owned by any Grantor in
any Subsidiary of any Grantor, and all other Equity Interests owned by any
Grantor. All such Equity Interests are represented by Security Certificates that
have been duly authorized and validly issued, are fully paid and non-assessable
and were not issued in breach or derogation of preemptive rights of any Person.
(c) INTELLECTUAL PROPERTY. Schedule 3.1(c) sets forth accurately and
exhaustively (a) all registered trademarks and servicemarks owned by any
Grantor, all material trademark and service mark license agreements to which any
Grantor is a party (whether as licensor or licensee), and all pending or overtly
threatened infringement claims by or against any Grantor and other litigation
relating to any such trademarks, servicemarks or trademark or servicemark
license agreements, (b) all patents and patent applications owned by any
Grantor, all patent license agreements to which any Grantor is a party (whether
as licensor or licensee), and all pending or overtly threatened infringement
claims by or against any Grantor and other litigation relating to any such
patents, patent applications or patent license agreements, and (c) all
registered copyrights owned by any Grantor, all material copyright license
agreements to which any Grantor is a party (whether as licensor or licensee) and
all pending or overtly threatened infringement claims by or against any Grantor
or other litigation relating to any such copyrights or copyright license
agreements.
(d) OTHER INVESTMENT PROPERTY. Schedule 3.1(d) sets forth accurately
and exhaustively all other Investment Property of any Grantor, except Investment
Property constituting Miscellaneous Unpledged Assets or Permitted Cash
Investments.
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(e) LOCATION OF EQUIPMENT AND INVENTORY. All Equipment and Inventory
are located and intended to be kept at one of the collateral locations specified
on Schedule 3.1(e).
(f) NO CONSUMER GOODS OR FARM PRODUCTS. No Grantor owns any assets
that are, as to it, consumer goods or farm products.
(g) LOCATION OF GRANTORS. Each Grantor's chief place of business,
chief executive office and office or offices where such Grantor keeps its
records regarding its Accounts and all originals of its Chattel Paper are
located, and during the preceding four months were located, at the Grantor
locations specified on Schedule 3.1(g).
(h) NAMES. The correct legal name of each Grantor is set forth in the
preamble to this Agreement. No Grantor conducts business or holds itself out
under, and in the past five years has not conducted business or held itself out
under, any other name (including any trade-name or fictitious business name)
except any name listed on Schedule 3.1(h).
(i) TAXPAYER ID NUMBER. The proper taxpayer identification number for
each Loan Party is accurately set forth on Schedule 3.1(i).
(j) PERFECTION. Except in the case of property (if any) constituting
Miscellaneous Unpledged Assets, the security interests granted to Secured Party
in Section 2.1 are lawful, valid and enforceable security interests that at all
times have been, and remain, duly and continuously Perfected.
(k) AMENDMENT OF SCHEDULE 3.1. Any Grantor may at any time
unilaterally amend Schedule 3.1 in any respect required by the occurrence of any
event that does not constitute or give rise to a Default, by giving written
notice thereof to Secured Party. To be effective, such notice must state
conspicuously that it constitutes an amendment to certain factual matters
relating to the Collateral set forth in Section 3.1 of this Agreement.
SECTION 3.2. MAINTENANCE OF PERFECTION. No Grantor will (a) cause,
permit or suffer any voluntary or involuntary change in its name, identity or
corporate structure, or in the location of its chief executive office, or (b)
keep any tangible Collateral (other than mobile goods and in transit items) or
any records relating to its Accounts at any location other than a location set
forth in Schedule 3.1, unless (in each case) (i) Schedule 3.1 has first been
appropriately supplemented with respect thereto, and (ii) an appropriate
financing statement has been filed in the proper office and in the proper form,
and all other requisite actions have been taken, to Perfect and continue the
Perfection (without loss of priority) of Secured Party's security interests in
the Collateral.
SECTION 3.3. DEFENSE OF COLLATERAL. Each Grantor will defend the
Collateral against all claims and demands of all Persons at any time claiming
any interest therein.
SECTION 3.4. TRANSFER OR ENCUMBRANCE. No Grantor will encumber or
Transfer any item of Collateral or any interest therein, or permit or suffer any
item of Collateral to be
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encumbered or Transferred, unless (a) such action is permitted at the time under
the Credit Agreement and (ii) each Loan Party makes all payments on account of
the Secured Obligations required to be made therefrom and takes all other
actions required to be taken in connection therewith under the Credit Agreement
or any other Loan Document.
SECTION 3.5. PAYMENTS, DIVIDENDS AND DISTRIBUTIONS. Each Grantor shall
be entitled to receive all payments on Accounts, Instruments and Claims and all
dividends and distributions on Equity Interests and other Investment Property
constituting Collateral, so long as (a) no Event of Default has occurred and is
continuing or would result, (b) such Grantor ensures that Secured Party's
security interests in any and all such payments, dividends and distributions
(except those constituting Miscellaneous Unpledged Assets) remain continuously
Perfected and (c) each Loan Party makes all payments on account of the Secured
Obligations required to be made therefrom and takes all other actions required
to be taken in connection therewith under the Credit Agreement or any other Loan
Document.
SECTION 3.6. VOTING RIGHTS. So long as no Event of Default has
occurred or would result, each Grantor shall have and may exercise all voting
rights with respect to any and all Equity Interests constituting Collateral,
except that:
(a) NO BREACH. No Grantor shall act or vote in favor of any action
that would constitute or cause a breach of any obligations of any Loan Party
under the Credit Agreement or under any other Loan Document;
(b) NO CAPITAL STRUCTURE CHANGES. No Grantor shall act or vote in
favor of (i) the authorization or issuance of any Disqualified Stock, options,
warrants, voting rights, or preference shares or additional shares not permitted
by the Credit Agreement, or (ii) any reclassification, readjustment,
reorganization, merger, consolidation, sale or disposition of assets, or
dissolution not permitted by the Credit Agreement, without giving Secured Party
at least 15 days' prior written notice thereof;
(c) MATERIAL ADVERSE CHANGES. No Grantor shall act or vote in favor
of any action that has or is reasonably likely to have a material adverse effect
on the value of any of the Collateral or that has, or would reasonably be
expected to result in, a Material Adverse Effect; and
(d) TERMINATION OF VOTING RIGHTS. At any time when any Grantor is in
default under this Agreement as set forth in Section 4.1, Secured Party may
terminate any or all of each Grantor's voting rights with respect to any or all
Equity Interests constituting Collateral, either by giving written notice of
such termination to the Borrower or by transferring such Equity Interests into
Secured Party's name, and Secured Party shall thereupon have the sole right and
power to exercise such voting rights.
SECTION 3.7. MAINTENANCE OF COLLATERAL. Each Grantor shall:
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(i) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any other Loan Document or
any applicable statute, regulation or ordinance or any policy of insurance
covering any such Collateral;
(ii) notify Secured Party of any change in such Grantor's name,
identity or corporate structure within 30 days after such change;
(iii) give Secured Party 10 business days' prior written notice
of any change in Grantor's chief place of business, chief executive office,
places of business, collateral locations or federal taxpayer ID number or
the office where such Grantor keeps its Chattel Paper and its records
regarding any Accounts;
(iv) if the Lenders give value to enable such Grantor to acquire
rights in or the use of any Collateral, use such value for such purposes;
and
(v) pay promptly when due all material property and other taxes,
assessments and governmental charges or levies imposed upon any Collateral
and all Claims that are or might become secured by any Lien upon any
Collateral, except to the extent the same is being contested as permitted
under the Credit Agreement; PROVIDED, that, notwithstanding any other
provision in the Loan Documents, each Grantor shall in any event pay such
taxes, assessments, charges, levies and Claims not later than five days
prior to the date of any proposed sale under any judgment, writ or warrant
of attachment or other legal process entered or filed against any Grantor
or any Collateral as a result of the failure to make such payment.
SECTION 3.8. CONCERNING EQUIPMENT AND INVENTORY. Each Grantor will:
(i) cause the Equipment to be maintained and preserved in the
same condition, repair and working order as when new (ordinary wear and
tear and worn-out and surplus equipment excepted) and in accordance with
such Grantor's past practices and make or cause to be made all repairs,
replacements and other improvements in connection therewith that are
necessary or desirable to such end;
(ii) notify Secured Party of any loss or damage to any Equipment
in an amount exceeding $500,000;
(iii) keep correct and accurate records of the Inventory,
itemizing and describing the kind, type and quantity of Inventory, such
Grantor's cost therefor and (where applicable) the current list prices for
the Inventory, in the ordinary course of such Grantor's business;
(iv) if any Inventory is in possession or control of any agent,
carrier, warehouseman, bailee, consignee or processor, at any time when any
Grantor is in default under this Agreement as set forth in Section 4.1,
instruct such Person to hold all
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such Inventory for the account of Secured Party and subject to the
instructions of Secured Party; and
(v) if so requested at any time by Secured Party or the Required
Lenders, promptly endorse and deliver to Secured Party each and all
negotiable Documents constituting Collateral.
SECTION 3.9. CONCERNING THE RESTRICTED FUNDS ACCOUNT, ACCOUNTS,
INSTRUMENTS AND OTHER CLAIMS. Each Grantor will:
(i) maintain accurate and complete records concerning the
Restricted Funds Account, Accounts, Instruments and all other Claims and
the identity, name and address of each account debtor or obligor thereon,
hold and preserve such records in safekeeping, permit representatives of
Secured Party at any time during normal business hours to inspect, copy and
make abstracts from such records, and render to Secured Party, at such
Grantor's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto,
(ii) if so requested at any time by Secured Party or the
Required Lenders, certify and deliver to Secured Party complete and correct
copies of each contract or agreement constituting Collateral,
(iii) continue to collect, at such Grantor's expense, all
amounts due or to become due to any Grantor under the Restricted Funds
Account, Accounts, Instruments and other Claims and, in connection
therewith take such action as such Grantor (or, whenever any Grantor is in
default under this Agreement as set forth in Section 4.1, as Secured Party
or the Required Lenders) may reasonably deem necessary or advisable to
enforce collection of amounts due or to become due to thereunder; PROVIDED,
that Secured Party shall have the right at any time when any Grantor is in
default under this Agreement as set forth in Section 4.1 (A) to notify the
account debtors or obligors under the Restricted Funds Account or any or
all Accounts, Instruments or other Claims of the assignment of such
Accounts, Instruments or Claims to Secured Party and to direct such account
debtors or obligors to make payment of all amounts due or to become due to
any Grantor thereunder directly to Secured Party, (B) to notify each Person
maintaining a lockbox or similar arrangement to which account debtors or
obligors under the Restricted Funds Account or any Accounts, Instruments or
other Claims have been directed to make payment to remit all amounts
representing collections on checks and other payment items from time to
time sent to or deposited in such lockbox or other arrangement directly to
Secured Party and (C) at the expense of Grantors, to demand payment of the
Restricted Funds Account or any Accounts, Instruments and Claims and
enforce collection thereof by legal proceedings in any lawful manner and to
extend, renew adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as any Grantor might have done,
and
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(iv) if Secured Party at any time exercises any of the rights
described in the proviso in Section 3.9(iii), (A) segregate from all other
funds and hold in trust for Secured Party and immediately deliver to
Secured Party (in the identical form received) all amounts and proceeds
(including checks and other instruments) received by any Grantor in respect
of the Restricted Funds Account or any and all Accounts, Instruments and
other Claims, and (B) not adjust, settle or compromise the amount or
payment of any Account or Claim, or release wholly or partly any account
debtor or obligor thereon, or allow any credit or discount thereon.
SECTION 3.10. SUBSTITUTED PERFORMANCE. Secured Party may at any time
(but shall not be obligated to) (a) perform any of the obligations of any
Grantor under this Agreement if such Grantor fails to perform such obligation
within three Business Days (or, in the case of insurance, within one Business
Day) after written demand by Secured Party and (b) make any payments and do any
other acts which Secured Party or the Required Lenders may deem necessary or
desirable to protect Secured Party's security interests in the Collateral,
including the right to pay, purchase, contest or compromise any Lien that
attaches or is asserted against any Collateral, to procure insurance, and to
appear in and defend any action or proceeding relating to any Collateral, and
each Grantor agrees promptly to reimburse Secured Party for all payments made by
Secured Party in doing so, together with interest thereon at the rate then
applicable to ABR Loans, all reasonable attorneys' fees and disbursements
incurred by Secured Party in connection therewith, whether or not suit is
brought, and all other reasonable costs and expenses related thereto.
ARTICLE IV.
DEFAULT; REMEDIES
SECTION 4.1. DEFAULT. Grantors shall be in default under this
Agreement (a) whenever any Event of Default has occurred and is continuing
(without regard to whether or to what degree any Grantor individually may have
caused, participated in, or had any knowledge of the occurrence of such Event of
Default) and (b) at all times after the Loans have become due and payable,
whether at maturity, upon acceleration pursuant to Section 7.1 of the Credit
Agreement or otherwise.
SECTION 4.2. REMEDIES UPON DEFAULT. At any time when any Grantor is in
default under this Agreement as set forth in Section 4.1, Secured Party may
exercise and enforce, in any order, (a) each and all of the rights and remedies
available to a secured party upon default under the Uniform Commercial Code or
other applicable law, (b) each and all of the rights and remedies available to
it under the Credit Agreement or any other Loan Document and (c) each and all of
the following rights and remedies:
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(a) COLLECTION RIGHTS. Without notice to any Grantor or any other
Loan Party, Secured Party may notify any or all account debtors and obligors on
any Accounts, Instruments or other Claims constituting Collateral of Secured
Party's security interests therein and may direct, demand and enforce payment
thereof directly to Secured Party.
(b) TAKING POSSESSION. Secured Party may (i) enter upon any and all
premises owned or leased by any Grantor where Collateral is located (or believed
by Secured Party to be located), with or without judicial process and without
any obligation to pay rent, (ii) prior to the disposition of the Collateral,
store, process, repair or recondition the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Secured Party deems
appropriate, (iii) take possession of any Grantor's premises or place custodians
in exclusive control thereof, remain on such premises and use the same and any
of Grantor's equipment for the purpose of completing any work in process or
otherwise preparing the Collateral for sale or selling or otherwise Transferring
the Collateral, (iv) take possession of all items of Collateral that are not
then in its possession, either upon such premises or by removal from such
premises, and (v) require any Grantor or the Person in possession thereof to
deliver such Collateral to Secured Party at one or more locations designated by
Secured Party and reasonably convenient to it and each Grantor.
(c) FORECLOSURE. Secured Party may sell, lease, license or otherwise
dispose of or Transfer any or all of the Collateral or any part thereof in one
or more parcels at public sale or in private sale or transaction, on any
exchange or market or at Secured Party's offices or on Grantor's premises or at
any other location, for cash, on credit or for future delivery, and may enter
into all contracts necessary or appropriate in connection therewith, without any
notice whatsoever unless required by law. Where permitted by law, one or more
of the Beneficiaries may be the purchasers at any such sale and in such event,
if such bid is made by all of the Lenders or by all of the Holders of Secured
Obligations or otherwise whenever a credit bid is expressly permitted under the
Credit Agreement or approved in writing by the Administrative Agent and all of
the Lenders, the Beneficiaries bidding at such sale may bid part or all of the
Obligations owing to them without necessity of any cash payment on account of
the purchase price, even though any other purchaser at such sale is required to
bid a purchase price payable in cash. Each Grantor agrees that at least 10
calendar days' written notice to such Grantor of the time and place of any
public sale or the time after which any private sale is to be made shall be
commercially reasonable. The giving of notice of any such sale or other
disposition shall not obligate Secured Party to proceed with the sale or
disposition, and any such sale or disposition may be postponed or adjourned from
time to time, without further notice.
(d) USE OF INTELLECTUAL PROPERTY. Secured Party may, on a royalty-
free basis, use and license use of any trademark, trade name, trade style,
copyright, patent or technical knowledge or process owned, held or used by any
Grantor in respect of any Collateral as to which any right or remedy of Secured
Party is exercised or enforced. In addition, each Holder of any Secured
Obligation may exercise and enforce such rights and remedies for the collection
of such Secured Obligation as may be available to it by law or agreement.
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SECTION 4.3. WAIVERS BY GRANTOR. Each Grantor hereby irrevocably
waives, to the fullest extent permitted by law, (a) all rights of redemption
from any foreclosure sale, (b) the benefit of all valuation, appraisal,
exemption and moratorium laws, (c) all rights to notice or a hearing prior to
the exercise by Secured Party of its right to take possession of any Collateral,
whether by self-help or by legal process and any right to object to the Secured
Party taking possession of any Collateral by self-help, (d) if Secured Party
seeks to obtain possession of any Collateral by replevin, claim and delivery,
attachment, levy or other legal process, (i) any notice or demand for possession
prior to the commencement of legal proceedings, (ii) the posting of any bond or
security in any such proceedings, and (iii) any requirement that Secured Party
retain possession and not dispose of any Collateral until after a trial or final
judgment in such proceedings.
SECTION 4.4 STANDARD OF CARE. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or to protect, preserve, vote or exercise
any rights pertaining to any Collateral. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which Secured Party accords its own property or if it selects, with reasonable
care, a custodian to hold such Collateral on its behalf.
SECTION 4.5. APPLICATION OF PROCEEDS. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of Secured Party, be held by Secured Party
as Collateral for, or then, or at any other time thereafter, applied in full or
in part by Secured Party against, the Secured Obligations in the following order
of priority:
FIRST: To the payment of all reasonable costs and expenses of such
sale, collection or other realization, including reasonable expenses of
Secured Party and the reasonable fees and dispensements of its agents,
consultants and counsel, and all other reasonable expenses, liabilities and
advances made or incurred by Secured Party in connection therewith, and all
amounts for which Secured Party is entitled to indemnification hereunder and
all reasonable advances made by Secured Party hereunder for the account of
any Grantor, and to the payment of all reasonable costs and expenses paid or
incurred by Secured Party in connection with the exercise of any right or
remedy hereunder, all in accordance with Section 4.6;
SECOND: To the payment of all other Secured Obligations (for the
ratable benefit of the holders thereof) then due and payable; and
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THIRD: To the payment to or upon the order of the Grantor entitled
thereto, or to whomsoever may be lawfully entitled to receive the same or as
a court of competent jurisdiction may direct, of any surplus then remaining
from such proceeds.
SECTION 4.6. INDEMNITY AND EXPENSES.
(a) INDEMNITY. Each Grantor will defend, indemnify and hold harmless
Secured Party and each Beneficiary from and against any and all claims, losses
and liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including enforcement of any
interest, right or remedy created hereby), except to the extent such claims,
losses or liabilities are directly attributable to Secured Party's or such
Beneficiary's gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction.
(b) EXPENSES. Each Grantor will pay to Secured Party upon demand the
amount of any and all reasonable costs and expenses, including the reasonable
fees and expenses of its counsel and of any advisors, consultants, experts and
agents, that Secured Party may incur in connection with (i) the administration
of this Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the interests, rights or remedies of
Secured Party hereunder, (iv) the failure by any Grantor to perform or observe
any of the provisions hereof, or (v) the proof, allowance, protection,
administration, treatment, discharge, collection or enforcement of any of the
Secured Obligations or any of the Collateral in any bankruptcy case or
insolvency, reorganization, receivership, dissolution or liquidation proceeding
of or affecting any Loan Party.
SECTION 4.7. SURPLUS, DEFICIENCY. Any surplus proceeds of any sale or
other disposition by Secured Party of any Collateral remaining after Discharge
of the Credit Agreement and after all Secured Obligations are paid in full and
in cash shall be paid over to the Grantor entitled thereto or to whomever may be
lawfully entitled to receive such surplus or as a court of competent
jurisdiction may direct, but prior to Discharge of the Credit Agreement, such
surplus proceeds may be retained by Secured Party and held as Collateral until
Discharge of the Credit Agreement. The Borrower and each Guarantor shall be and
remain liable for any deficiency.
SECTION 4.8. INFORMATION RELATED TO THE COLLATERAL. If Secured Party
determines to sell or otherwise Transfer any Collateral, each Grantor shall, and
shall cause any Person controlled by it to, furnish to Secured Party all
information Secured Party may request that pertains or could pertain to the
value or condition of the Collateral or that would or might facilitate such sale
or Transfer. Secured Party shall have the right, notwithstanding any
confidentiality obligation or agreement otherwise binding upon it, freely to
disclose such information, and any and all other information (including
confidential information) pertaining in any manner to the Collateral or the
assets, liabilities, results of operations, business or prospects of any Loan
Party, to any Person that Secured Party in good faith believes to be a potential
or
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prospective purchaser in such sale or Transfer, without liability for any
disclosure, dissemination or use that may be made as to such information by any
such Person.
SECTION 4.9. SALE EXEMPT FROM REGISTRATION. Secured Party shall be
entitled at any such sale or other Transfer, if it deems it advisable to do so,
to restrict the prospective bidders or purchasers to Persons who will provide
assurances satisfactory to Secured Party that the Collateral may be offered and
sold to them without registration under the Securities Act of 1933, as amended,
and without registration or qualification under any other applicable state or
federal law. Upon the consummation of any such sale, Secured Party shall have
the right to assign, transfer and deliver to the purchaser or purchasers thereof
the Collateral so sold. Secured Party may solicit offers to buy the Collateral,
or any part of it, from a limited number of investors deemed by Secured Party,
in its good faith judgment or in good faith reliance upon advice of its counsel,
to meet the requirements to purchase securities under Regulation D promulgated
under the Securities Act of 1933 as then in effect (or any other regulation of
similar import). If Secured Party solicits such offers from such investors, then
the acceptance by Secured Party of the highest offer obtained from any of them
shall be deemed to be a commercially reasonable method of disposition of the
Collateral.
SECTION 4.10. RIGHTS AND REMEDIES CUMULATIVE. The rights provided for
in this Agreement and the other Loan Documents are cumulative and are not
exclusive of any other rights, powers or privileges or remedies provided by law
or in equity, or under any other instrument, document or agreement. Secured
Party may exercise and enforce each right and remedy available to it either
before or concurrently with or after, and independently of, any exercise or
enforcement of any other right or remedy of Secured Party or any Holder of any
Secured Obligation against any Person or property. All such rights and remedies
shall be cumulative, and no one of them shall exclude or preclude any other.
SECTION 4.11. NO DIRECT ENFORCEMENT BY BENEFICIARIES. Secured Party
may freely exercise and enforce any and all of its rights and remedies
hereunder, for the benefit of the Beneficiaries. No Beneficiary, other than
Secured Party, shall have any independent right to collect, take possession of,
foreclose against or otherwise enforce the security interests granted hereby.
ARTICLE V.
CONCERNING THE SECURED PARTY
SECTION 5.1. AGENT FOR HOLDERS. Secured Party is executing and
delivering this Agreement, and accepting the security interests, rights,
remedies, powers and benefits conferred upon Secured Party hereby, both for its
own benefit and as agent for all present and future Holders of Secured
Obligations. The provisions of the Credit Agreement and all rights, powers,
immunities and indemnities granted to Secured Party under the Credit Agreement
or any other Loan Document, or under any separate agreement made by or otherwise
binding upon any Holder of Secured Obligations, shall apply in respect of such
execution, delivery and acceptance and in respect of any and all actions taken
or omitted by Secured Party under, in connection with or in respect of this
Agreement.
22
<PAGE>
SECTION 5.2. ADMINISTRATIVE AGENT SHALL BE THE SECURED PARTY. Secured
Party shall at all times be the same Person that is the Administrative Agent
under the Credit Agreement. Written notice of resignation by the Administrative
Agent pursuant to Section 8.6 of the Credit Agreement shall also constitute
notice of resignation as Secured Party under this Agreement; and appointment of
a successor Administrative Agent pursuant to Section 8.6 of the Credit Agreement
shall also constitute appointment of a successor Secured Party under this
Agreement. Upon the acceptance of any appointment as Administrative Agent under
Section 8.6 of the Credit Agreement by a successor Administrative Agent, the
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Secured Party
under this Agreement, and the retiring Secured Party under this Agreement shall
promptly (a) transfer to such successor Secured Party all sums, securities and
other items of Collateral held hereunder, together with all records and other
documents necessary or appropriate in connection with the performance of the
duties of the successor Secured Party under this Agreement, and (b) execute and
deliver to such successor Secured Party such amendments to financing statements,
and take such other actions, as may be necessary or appropriate in connection
with the assignment to such successor Secured Party of the security interests
created hereunder, whereupon such retiring Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring
Administrative Agent's resignation hereunder as Secured Party, the provisions of
this Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Agreement while it was Secured Party hereunder.
SECTION 5.3. NO ASSURANCES OR LIABILITY. Secured Party makes no
statement, promise, representation or warranty whatsoever, and shall have no
liability whatsoever, to any Holder of any Secured Obligations as to the
authorization, execution, delivery, legality, enforceability or sufficiency of
this Agreement or as to the creation, Perfection, priority, or enforceability of
any security interests granted hereunder or as to existence, ownership, quality,
condition, value or sufficiency of any Collateral or as to any other matter
whatsoever.
SECTION 5.4. HOLDERS BOUND. Except where the consent of others may be
required pursuant to the express provisions of Section 9.2 of the Credit
Agreement, any modification, amendment, waiver, release, termination or
discharge of any security interest, right, remedy, power or benefit conferred
upon Secured Party that is effectuated in a writing signed by Secured Party
shall be binding upon all Holders of Secured Obligations if it is (i) authorized
pursuant to any provision of the Credit Agreement or any other Loan Document,
(ii) required by law or (iii) authorized or ratified either (A) by the Required
Lenders or (B) by the Lenders of at least a majority in outstanding principal
amount of the Secured Obligations (other than contingent or unliquidated Secured
Obligations).
ARTICLE VI.
MISCELLANEOUS PROVISIONS
SECTION 6.1. CONTINUING SECURITY INTERESTS; RELEASE. This Agreement
creates continuing security interests in the Collateral and shall (a) remain in
full force and effect until the Discharge of the Credit Agreement, (b) be
binding upon each Grantor and its successors and
23
<PAGE>
assigns, and (c) inure, together with the rights and remedies of Secured Party
hereunder, to the benefit of and be enforceable by Secured Party and its
successors, transferees and assigns acting in the capacity of Administrative
Agent under the Credit Agreement. Subject to and upon Discharge of the Credit
Agreement, Secured Party shall (within a reasonable time after it receives from
Grantors a written request for release of the Collateral) execute and deliver to
Grantors an instrument in form and substance satisfactory to Secured Party
releasing (on a quitclaim basis, without recourse, without warranty, and without
any liability whatsoever) any security interest Secured Party may then hold in
the Collateral and thereupon Secured Party shall, at Grantor's expense, execute
and deliver to Grantors such UCC termination statements and other like documents
as Grantors may reasonably request to evidence such release.
SECTION 6.2. SENIOR INDEBTEDNESS. All liability of each Grantor
hereunder (a) is and shall be (and is hereby designated as) "Senior
Indebtedness" within the meaning of and for the purposes of the Indenture dated
as of August 17, 1998 by and among the Borrower, the Subsidiary Guarantors named
therein, and Harris Trust Savings Bank, as trustee, governing the Borrower's 11%
Senior Subordinated Notes due 2008, and (B) is and shall be (and is hereby made)
senior in right of payment, on the terms set forth in said Indenture, to said
Senior Subordinated Notes and all "Obligations" (as defined in said Indenture).
SECTION 6.3. AMENDMENTS; ETC. No amendment or waiver of any provision
of this Agreement, or consent to any departure by any Grantor herefrom, shall in
any event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 6.4. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 6.5. NOTICES. Any and all notices and communications to be
given to any Grantor or Secured Party may be given by courier service, personal
service, mailing the same, postage prepaid, or by telex, facsimile transmission
or cable to each such party at its address set forth in the Credit Agreement, on
the signature pages hereof or to any other address as any party hereto may
specify by written notice to the other parties, and such communication shall be
deemed to have been given when delivered in person or by courier service, upon
receipt of telefacsimile or telex, or three Business Days after depositing it in
the United States mail with postage prepaid and properly addressed.
SECTION 6.6. SEVERABILITY. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and
24
<PAGE>
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 6.7. HEADINGS. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 6.8. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE NEW YORK UNIFORM COMMERCIAL
CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Notwithstanding the foregoing, the creation, perfection, priority and
enforcement of a security interest in any deposit account shall be governed by
the laws of the state in which the depositary bank, or branch bank, maintaining
such deposit account is located.
SECTION 6.9. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR RELATING TO
THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YORK. BY EXECUTION AND DELIVERY OF THIS
AGREEMENT GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
Each Grantor hereby agrees that service of all process in any such proceeding in
any such court may be made by registered or certified mail, return receipt
requested, to such Grantor at its address provided in Section 6.5, such service
being hereby acknowledged by such Grantor to be sufficient for personal
jurisdiction in any action against such Grantor in any such court and to be
otherwise effective and binding service in every respect. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of Secured Party to bring proceedings against such Grantor in
the courts of any other jurisdiction.
SECTION 6.10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. Grantors and Secured
Party each acknowledge that this
25
<PAGE>
waiver is a material inducement for Grantors and Secured Party to enter into a
business relationship, that Grantors and Secured Party have already relied on
this waiver in entering into this Agreement and that each will continue to rely
on this waiver in their related future dealings. Each party hereto further
warrants and represents that it has reviewed this waiver with its legal counsel
and that it knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 6.11. ADDITIONAL GRANTORS. The initial Grantors hereunder
shall be Holdings and such of the Domestic Subsidiaries of the Borrower as are
signatories hereto on the date hereof. From time to time subsequent to the date
hereof, additional Domestic Subsidiaries of the Borrower may become party
hereto, as additional Grantors (each an "Additional Grantor"), by executing a
counterpart of this Agreement. Upon delivery of any such counterpart to the
Administrative Agent, notice of which is hereby waived by each Grantor, each
such Additional Grantor shall be a Grantor and shall be as fully a party hereto
as if such Additional Grantor were an original signatory hereof. Each Grantor
expressly agrees that its obligations arising hereunder shall not be affected or
diminished by the addition or release of any other Grantor hereunder, nor by any
election of any Beneficiary not to cause any Domestic Subsidiary of Borrower to
become an Additional Grantor hereunder. This Agreement shall be fully effective
as to any Grantor that is or becomes a party hereto regardless of whether any
other Person becomes or fails to become or ceases to be a Grantor hereunder.
SECTION 6.12. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
Signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
26
<PAGE>
IN WITNESS WHEREOF, Grantor and Secured Party have executed this
Agreement as of the date first written above.
GIRO SPORT DESIGN INTERNATIONAL, INC.
By: ________________________________
Name:________________________
Title:_________________________
BELL SPORTS CORP.
By: ________________________________
Name:________________________
Title:_________________________
Accepted as of the 17th day
of August, 1998
SOCIETE GENERALE,
AS ADMINISTRATIVE AGENT
By:________________________________
Name:_______________________
Title:________________________
i
<PAGE>
EXHIBIT 10.4
CORPORATE DEVELOPMENT AND ADMINISTRATIVE SERVICES AGREEMENT
This Corporate Development and Administrative Services Agreement, dated as
of August 17, 1998, is entered into among Brentwood Private Equity LLC, a
Delaware limited liability company ("BPE"), Charlesbank Capital Partners, LLC, a
Delaware limited liability company ("Charlesbank" and together with BPE, each an
"Advisor" and together, the "Advisors"), Bell Sports, Inc., a California
Corporation ("BSI") and Bell Sports Corp., a Delaware corporation (together with
all of its subsidiaries, including BSI, the "Company"). For and in consideration
of the covenants and agreements contained herein, the parties hereto hereby
agree as follows:
1. Services and Resources.
----------------------
1.1 The Advisors will assist materially in the corporate development
activities of the Company and contribute to the administration of the business
growth efforts of Company by providing the following services to Company:
(a) assistance in analyzing, structuring and negotiating the terms of
investments and acquisitions;
(b) researching, identifying, contacting, meeting and negotiating
with prospective sources of debt and equity financing;
(c) preparing, coordinating and conducting presentations to
prospective sources of debt and equity financing;
(d) assistance in structuring and establishing the terms of debt and
equity financing; and
(e) assistance and advice in connection with the preparation of
Company's financial and operating plans.
1.2 In rendering the services described above, the Advisors may do, or
cause others to do, all things that in the good faith judgment of the Advisors
are necessary, proper or desirable to discharge the aforementioned duties and
responsibilities, including, without limitation, employing the services of any
other person or persons (including administrative and support services personnel
of other entities associated with the Advisors) and paying to any such other
person or persons such amounts as the Advisors may deem reasonable and
appropriate in the circumstances and as may be approved by Company from time to
time.
<PAGE>
2. Reimbursement and Compensation.
------------------------------
2.1 Reimbursement. As partial consideration for the services to be
-------------
provided pursuant to Section 1 hereof, Company agrees that it shall pay to each
of the Advisors or another party designated by any Advisor, in reimbursement of
fees and expenses incurred or advanced by or on behalf of such Advisor or any
persons or entities associated with such Advisor, the following:
(a) all travel and reasonable fees and expenses incurred from time to
time in performing the services described in Section 1 hereof;
(b) all reasonable fees and costs of legal counsel and accountants
and all reasonable out-of-pocket expenses incurred in connection with the
investments of any entities affiliated with either of the Advisors
(collectively, the "Affiliated Investors") in Company, including, without
limitation, all reasonable fees and expenses incurred with respect to (A)
the formation, organization and initial capitalization of the Company and
(B) the negotiation, documentation and consummation of those matters
described in clause (A) of this paragraph (b), including the negotiation
and preparation of this Agreement;
(c) all reasonable fees and expenses (recurring and nonrecurring)
incurred hereinafter in connection with all investments of the Affiliated
Investors in the Company, including, without limitation, all reasonable
fees and expenses incurred with respect to (A) requested waivers of any
rights of any of the Investors relating to, or the consent of any of the
Investors to, contemplated acts of Company (whether or not granted or
obtained), (B) preparation and distribution to the Affiliated Investors of
financial statements, tax returns and other information or reports relating
to such Affiliated Investors' interests in the Company (including the
reasonable fees and costs of accountants and other experts incurred in
connection therewith) and (C) customary maintenance and monitoring
activities associated with the Investors' interest in Company; and
(d) all reasonable fees and expenses (recurring and nonrecurring)
incurred hereafter in connection with (A) any direct or indirect
contribution of capital to, investment in or financing of Company by any of
the Affiliated Investors, (B) any sale, distribution or other transfer of,
or any alteration of, any direct or indirect Company interest of any of the
Affiliated Investors, including, without limitation, the sale of all or a
part of the business or assets of Company or the merger, consolidation or
recapitalization of Company and (C) compliance with all applicable Federal,
state and local laws, rules and regulations with respect to the matters
described in paragraphs (a) through (c) above and in this paragraph (d).
-2-
<PAGE>
Company shall reimburse each of the Advisors all amounts pursuant to this
Section 2.1 in cash promptly upon receipt of a written statement setting forth
in reasonable detail the fees and expenses for which such Advisor is seeking
reimbursement.
2.2 Compensation.
------------
(a) As partial consideration for the services to be provided pursuant
to Section 1 hereof, the Company shall pay to each of the Advisors, or
another party designated any Advisor, a monitoring fee (the "Monitoring
Fee") from the "Monitoring Fee Commencement Date" through the last day of
the term of this Agreement. The "Monitoring Fee Commencement Date" will be
the earlier of (i) the date on which 95% of the aggregate amount committed
to be invested by the partners of Brentwood Associates Buyout Fund II, L.P.
("BABF II") has been invested by BABF II or (ii) January 3, 2001. The
amount of the Monitoring Fee shall be an amount equal to one half of one
percent (0.5%) of the aggregate capital invested by the Advisors and their
affiliates. The Monitoring Fee, payable to each Advisor, shall be paid in
two equal installments in advance (i) on or before January 10 of each year
with respect to the half year beginning on January 1 of such year and (ii)
on or before July 10 of each year with respect to the half year beginning
on July 1 of such year. The Monitoring Fee for any partial period shall be
prorated on the basis of the ratio that the total number of days in the
half year during which the obligation to pay the Monitoring Fee is
effective under this Agreement bears to 182. To the extent that any
portion of the Monitoring Fee for the final half year has been prepaid but
has not been earned, each of the Advisors shall cause the unearned portion
(determined by the method set forth in the immediately preceding sentence)
of such payment paid to such Advisors to be refunded to Company. Subject
only to the immediately preceding sentence, all amounts paid under this
Section 2.2 shall be nonrefundable. The Monitoring Fee, if not payable
when due because of an event of default under the Company's senior secured
credit facility or a default under the indenture for the Company 11% Senior
Subordinated Notes due 2008, will accrue until such time as the Monitoring
Fee is payable in cash.
(b) As partial compensation for the financial advisory services to be
provided pursuant to Section 1 hereof, Company shall pay to each of the
Advisors, or another party designated by any Advisor, an advisory fee equal
to three quarters of one percent (0.75%) of the aggregate amount of all
capital investments (excluding maintenance capital investments in existing
facilities or equipment of the Company and its subsidiaries solely for the
general upkeep and repair of those facilities and equipment) made by the
Company and of all amounts paid by the Company in connection with any
acquisitions, including the transactions contemplated by the Agreement and
Plan of Recapitalization and Merger dated February 17, 1998, as amended on
April 8, 1998, between Bell Sports Corp. and HB Acquisition Corporation.
Such fee shall be payable
-3-
<PAGE>
concurrently with the making of any such investment or the closing of any
such acquisition.
3. General. This Agreement (i) constitutes the entire agreement and
-------
supersedes all other prior and contemporaneous agreements and undertakings, both
written and oral, among the parties hereto with regard to the specific subject
matter hereof; (ii) is not intended to confer upon any person any rights or
remedies hereunder or with respect to the subject matter hereof except as
specifically provided in this Agreement; (iii) shall not be assigned by
operation of law or otherwise; (iv) shall be governed by, and construed in
accordance with, the internal substantive laws (but not the law governing choice
of law) of the State of Delaware; (v) may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute a single agreement; and (vi) may be
amended only by a written instrument executed by or on behalf of the parties
hereto.
4. Construction. All Section and paragraph titles or captions contained
------------
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of any provision of this Agreement. All terms used in
this Agreement include, where appropriate, the singular as well as the plural
and the masculine, feminine and neuter genders. The words "herein," "hereof"
and "hereunder," and other words of similar import, refer to this Agreement as a
whole and not to any particular Section, paragraph or other subdivision; and all
Section, paragraph and other subdivision references contained herein refer to
Sections, paragraphs and other subdivisions hereof unless another agreement or
instrument is specifically referenced. Use herein of the term "or" is not
intended to be exclusive, unless the context clearly requires. All provisions
hereof apply to successive events and transactions. Time is of the essence for
each and every term and condition of this Agreement in which time is a factor.
5. Severability. If any term or provision of this Agreement or the
------------
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or enforceable.
6. Term. This Agreement shall terminate upon the first to occur of (i)
----
the date of termination of this Agreement set forth in a written instrument
executed by the parties hereto expressly terminating this Agreement and (ii) the
first to occur of (A) the closing of an acquisition of Company through an asset
purchase, merger or sale of 80% (in value) or more of the outstanding equity
securities of Company in which the consideration is all cash or (B) the final
distribution in liquidation of Company following the dissolution of Company.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
[Corp. Dev. and Admin. Services Agreement]
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
with the intent to be legally bound, all as of the date first above set forth.
BELL SPORTS CORP.
By:_______________________________________
BELL SPORTS, INC.
By:_______________________________________
(Signatures continued on following page)
<PAGE>
[Corp. Dev. and Admin. Services Agreement]
BRENTWOOD PRIVATE EQUITY LLC
By:_______________________________________
Managing Member
CHARLESBANK CAPITAL PARTNERS, LLC
By:_______________________________________
Authorized Signatory
By:_______________________________________
Authorized Signatory
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Bell Sports Corp., of our report dated
July 27, 1998, except as to Note 1, which is as of August 17, 1998 relating to
the financial statements of Bell Sports Corp., which appears in such Prospectus.
We also consent to the reference to us under the headings "Experts", "Summary
Historical and Pro Forma Consolidated Financial Data" and "Holdings Selected
Historical Consolidated Financial and Other Data" in such Prospectus. However,
it should be noted that PricewaterhouseCoopers LLP has not prepared or certified
such "Summary Historical and Pro Forma Consolidated Financial Data" or such
"Holdings Selected Historical Consolidated Financial and Other Data."
PRICEWATERHOUSECOOPERS LLP
San Franciso, California
September 30, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as
Trustee
Check if an Application to Determine
Eligibility of a Trustee Pursuant to Section
305(b)(2) _______________
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(I.R.S. Employer
(State of Incorporation) Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Daniel G. Donovan, Harris Trust and Savings Bank,
111 West Monroe Street, Chicago, Illinois, 60603
312-461-2908
(Name, address and telephone number for agent for service)
BELL SPORTS, INC.
BELL SPORTS CORP.
(As Guarantor)
(Name of Obligor)
Delaware 36-3671789
(I.R.S. Employer
(State of Incorporation) Identification No.)
6350 San Ignacio
San Jose, CA 95119
(Address of principal executive offices)
11% Series B Senior Subordinated Notes due 2008
(Title of indenture securities)
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System,Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee as now in effect
which includes the authority of the trustee to commence business and
to exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in
effect and includes the authority of the Trustee to commence business
and to exercise corporate trust powers was filed in connection with
the Registration Statement of Commercial Federal Corporation, File No.
33320711, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of C-Cube Microsystems, Inc., File No.
33-97166, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 29th day of September, 1998.
Harris Trust and Savings Bank
By: _________________________
D. G. Donovan
Assistant Vice President
EXHIBIT A
The consents of the Trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
Harris Trust and Savings Bank
By: _________________________
D.G. Donovan
Assistant Vice President
2
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of March 31, 1998, as published in accordance with a
call made by the State Banking Authority and by the Federal Reserve Bank of the
Seventh Reserve District.
[LOGO OF HARRIS BANK] HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on March 31, 1998, a state banking institution organized and operating
under the banking laws of this State and a member of the Federal Reserve System.
Published in accordance with a call made by the Commissioner of Banks and Trust
Companies of the State of Illinois and by the Federal Reserve Bank of this
District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
Cash and balances due from depository institutions:
<S> <C> <C>
Non-interest bearing balances and currency and coin..................... $ 1,039,854
Interest bearing balances............................................... $ 290,921
Securities:....................................................................
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $ 4,266,201
Federal funds sold and securities purchased under agreements to resell $ 82,000
Loans and lease financing receivables:
Loans and leases, net of unearned income................................ $8,726,578
LESS: Allowance for loan and lease losses.............................. $ 101,318
-------------------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b).................................................... $ 8,625,260
Assets held in trading accounts................................................ $ 120,674
Premises and fixed assets (including capitalized leases)....................... $ 219,475
Other real estate owned........................................................ $ 699
Investments in unconsolidated subsidiaries and associated companies............ $ 120
Customer's liability to this bank on acceptances outstanding................... $ 46,688
Intangible assets.............................................................. $ 266,411
Other assets................................................................... $ 773,386
-------------------------
TOTAL ASSETS $15,731,689
=========================
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
Deposits:
<S> <C> <C>
In domestic offices.......................................................... $ 8,270,648
Non-interest bearing.................................................... $ 2,684,862
Interest bearing........................................................ $ 5,585,786
In foreign offices, Edge and Agreement subsidiaries, and IBF's............... $ 1,307,928
Non-interest bearing.................................................... $ 23,432
Interest bearing........................................................ $ 1,284,496
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and
in IBF's:
Federal funds purchased & securities sold under agreements to repurchase....... $ 3,599,510
Trading Liabilities 74,487
Other borrowed money:..........................................................
a. With remaining maturity of one year or less $ 471,692
b. With remaining maturity of more than one year $ 0
Bank's liability on acceptances executed and outstanding $ 46,688
Subordinated notes and debentures.............................................. $ 325,000
Other liabilities.............................................................. $ 386,442
-------------------------
TOTAL LIABILITIES $14,482,395
=========================
EQUITY CAPITAL
Common stock................................................................... $ 100,000
Surplus........................................................................ $ 601,026
a. Undivided profits and capital reserves..................................... $ 545,185
b. Net unrealized holding gains (losses) on available-for-sale securities $ 2,802
-------------------------
TOTAL EQUITY CAPITAL $ 1,249,294
=========================
Total liabilities, limited-life preferred stock, and equity capital............ $15,731,689
=========================
</TABLE>
I, Pamela Piarowski, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
PAMELA PIAROWSKI
1/30/98
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
RICHARD E. TERRY
Directors.
4
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
BELL SPORTS, INC.
OFFER TO EXCHANGE
11% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
FOR
11% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
================================================================================
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON __________,1998 (AS SUCH DATE AND TIME MAY BE EXTENDED, THE "EXPIRATION
DATE").
================================================================================
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed and delivered to:
Harris Trust and Savings Bank
<TABLE>
<S> <C> <C>
By Mail: By Overnight Carrier: By Hand:
c/o Harris Trust Company of New York c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station 88 Pine Street, 19th Floor 88 Pine Street, 19th Floor
Post Office Box 1023 New York, New York 10005 New York, New York 10005
New York, New York 10268-1023 Att'n: Reorganization Department Att'n: Reorganization Department
</TABLE>
By Facsimile Transmission:
(For Eligible Institutions Only):
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE NUMBER
OTHER THAN THAT SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt of the Prospectus dated
__________, 1998 (as the same may be amended or supplemented from time to time,
the "Prospectus") of Bell Sports, Inc., a California corporation (the
"Company"), and this Letter of Transmittal (the "Letter of Transmittal"), that
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 in principal amount of its 11% Series B Senior Subordinated Notes due
2008 ("New Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), for each $1,000 in principal amount of its
outstanding 11% Series A Senior Subordinated Notes due 2008 ("Notes"), of which
$110,000,000 aggregate principal amount
<PAGE>
are outstanding. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This Letter of Transmittal is to be completed either if (a) certificates
for Notes are to be delivered herewith or (b) tenders are to be made pursuant to
the procedures for tender by book-entry transfer set forth in the Prospectus
under "Exchange Offer -- Procedures for Tendering" and an Agent's Message (as
defined below) is not delivered. Certificates for Notes, or book-entry
confirmation of a book-entry transfer of such Notes into the account of Harris
Trust and Savings Bank (the "Exchange Agent") at The Depository Trust Company
("DTC"), as well as this Letter of Transmittal (or a facsimile copy hereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by this Letter of Transmittal, must be received
by the Exchange Agent at its address set forth herein on or prior to the
Expiration Date or the guaranteed delivery procedures set forth in Instruction 2
must be complied with. Tenders by book-entry transfer may also be made by
delivering an Agent's Message in lieu of this Letter of Transmittal. The term
"book-entry confirmation" means a confirmation of book-entry transfer of Notes
into the Exchange Agent's account at DTC. The term "Agent's Message" means a
message, transmitted by DTC to and received by the Exchange Agent and forming a
part of a book-entry confirmation, which states that DTC has received an express
acknowledgment from the tendering participant, which acknowledgment states that
such participant has received and agrees to be bound by this Letter of
Transmittal and that the Company may enforce this Letter of Transmittal against
such participant.
If a registered holder (which term, for purposes of this document, shall
include a participant in the book-entry transfer facility system at DTC whose
name appears on a security position listing as the owner of the Notes) desires
to tender Notes and such Notes are not immediately available or time will not
permit all documents required by the Exchange Offer to reach the Exchange Agent
(or if the procedures for book-entry transfer cannot be completed on a timely
basis) prior to the Expiration Date, a tender may be effected in accordance with
the guaranteed delivery procedures set forth in Instruction 2.
The undersigned hereby tenders to the Company, the aggregate principal
amount of Notes described in Box 1 below (the "Tendered Notes") in exchange for
a like aggregate principal amount of the Company's New Notes which have been
registered under the Securities Act, upon the terms and subject to the
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered holder of all the Tendered Notes and the
undersigned represents that it has received from each beneficial owner of
Tendered Notes ("Beneficial Owners") a duly completed and executed form of
"Instruction to Registered Holder from Beneficial Owner" accompanying this
Letter of Transmittal, instructing the undersigned to take the action described
in this Letter of Transmittal.
Subject to and effective upon the acceptance for exchange of the Tendered
Notes tendered herewith in accordance with the terms and conditions of the
Exchange Offer (including, if the Exchange Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in, to and under the Tendered Notes.
Unless otherwise indicated under "Special Issuance Instructions" below (Box
4), the undersigned hereby directs that the New Notes exchanged for the Tendered
Notes be issued in the name(s) of the undersigned or, in the case of a book-
entry transfer of Notes, that such New Notes be credited to the account
indicated below maintained at DTC. If applicable, substitute certificates
representing Notes not exchanged or not accepted for exchange will be issued to
the undersigned or, in the case of a book-entry transfer of Notes, will be
credited to the account indicated below maintained at DTC. Similarly, unless
otherwise indicated under "Special Delivery Instructions" below (Box 5), please
send or cause to be sent the certificates
-2-
<PAGE>
for New Notes (and accompanying documents, as appropriate) to the undersigned at
the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact (with full knowledge
that the Exchange Agent is also acting as agent of the Company in connection
with the Exchange Offer) of the undersigned with respect to the Tendered Notes,
with full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), subject only to the right of
withdrawal described in Instruction 6, to (i) deliver certificates for the
Tendered Notes to the Company or cause ownership of the Tendered Notes to be
transferred to, or upon the order of, the Company, on the books of the registrar
for the Notes and deliver all accompanying evidences of transfer and
authenticity to, or transfer ownership of such Notes on the account books
maintained by DTC to, or upon the order of, the Company, upon receipt by the
Exchange Agent, as the undersigned's agent, of the New Notes to be issued in
exchange for such Notes pursuant to the Exchange Offer, and (ii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of the Tendered Notes, all in accordance with the terms of
the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to any one of
the procedures described in the Prospectus under the caption "Exchange Offer -
Procedures for Tendering" and in the instructions hereto will, upon the
Company's acceptance for exchange of such Tendered Notes, constitute a binding
agreement among the undersigned and the Company upon the terms and subject to
the conditions of the Exchange Offer, subject only to withdrawal of such tenders
on the terms set forth in Instruction 6. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Company may not be
required to accept for exchange any of the Tendered Notes. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned and any Beneficial Owner(s), and every obligation of the undersigned
or any Beneficial Owners hereunder shall be binding upon the heirs, executors,
administrators, personal representatives, trustees in bankruptcy, legal
representatives, successors and assigns of the undersigned and such Beneficial
Owner(s).
The undersigned hereby represents, warrants and agrees that the undersigned
has full power and authority to tender, exchange, sell, assign and transfer the
Tendered Notes and that the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances when the Tendered Notes are acquired by the Company as
contemplated herein, and the Tendered Notes are not subject to any adverse
claims or proxies. The undersigned warrants and agrees that the undersigned and
each Beneficial Owner will, upon request, execute and deliver any additional
documents deemed by the Company or the Exchange Agent to be necessary or
desirable to complete the tender, exchange, sale, assignment and transfer of the
Tendered Notes, and that the undersigned will comply with its obligations under
the Registration Rights Agreement. The undersigned has read and agrees to all
of the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
BY TENDERING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL (OR DELIVERY OF
AN AGENT'S MESSAGE IN LIEU HEREOF), THE UNDERSIGNED HEREBY REPRESENTS AND
WARRANTS THAT (i) NEITHER THE UNDERSIGNED NOR ANY BENEFICIAL OWNER(S) IS AN
"AFFILIATE" OF THE COMPANY, (ii) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED
AND ANY BENEFICIAL OWNER(S) ARE BEING ACQUIRED BY THE UNDERSIGNED AND ANY
BENEFICIAL OWNER(S) IN THE ORDINARY COURSE OF BUSINESS OF THE UNDERSIGNED AND
ANY BENEFICIAL OWNER(S), (iii) THE UNDERSIGNED AND EACH
-3-
<PAGE>
BENEFICIAL OWNER HAVE NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW
NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (iv) THE UNDERSIGNED AND ANY
SUCH BENEFICIAL OWNER IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES.
A broker-dealer who holds Notes for its own account as a result of market-
making activities or other trading activities and who receives New Notes in
exchange for such Notes pursuant to the Exchange Offer may be deemed to be an
"underwriter" within the meaning of the Securities Act and will be required to
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. If the undersigned or any
beneficial owner(s) is a broker-dealer which acquired any of the Tendered Notes
for its own account as the result of market-making activities or other trading
activities, such broker-dealer acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
New Notes received in exchange for any of such Tendered Notes that were acquired
for its own account as the result of market-making activities or other trading
activities (provided that, by so acknowledging and by delivering a prospectus,
such broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act).
Subject to certain provisions set forth in the Registration Rights
Agreement and to the limitations described in the Prospectus, the Company has
agreed that the Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer (as defined below) in
connection with resales of New Notes received in exchange for Notes that were
acquired by such Participating Broker-Dealer for its own account as a result of
market-making activities or other trading activities, for a period ending on
August 17, 2000 or, if earlier, when all such New Notes have been disposed of by
such Participating Broker-Dealer. In that regard, each broker-dealer who
participates in the Exchange Offer with respect to Notes acquired for its own
account as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), by tendering such Notes and executing this
Letter of Transmittal or delivering an Agent's Message in lieu hereof, agrees
that, upon receipt of notice from the Company of the occurrence of any event or
the discovery of any fact which makes any statement contained or incorporated by
reference in the Prospectus untrue in any material respect or which causes the
Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference therein, in light of the
circumstances under which they were made, not misleading or of the occurrence of
certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of New Notes pursuant to the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer or the Company has
given notice that the sale of the New Notes may be resumed, as the case may be.
As a result, a Participating Broker-Dealer who intends to use the Prospectus in
connection with resales of New Notes received in exchange for Notes pursuant to
the Exchange Offer must notify the Company, or cause the Company to be notified,
on or prior to the Expiration Date, that it is a Participating Broker-Dealer.
Such notice may be given in the space provided below or may be delivered to the
Exchange Agent at the address set forth in the Prospectus under "Exchange Offer-
- -Exchange Agent."
Any holder of Notes who uses the Exchange Offer to participate in a
distribution of the New Notes to be acquired in the Exchange Offer, any broker-
dealer who receives New Notes in exchange for Notes that were purchased directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, any person participating in the distribution
of the Notes who receives New Notes in the Exchange Offer and any "affiliate" of
the Company who receives New Notes in the Exchange Offer (a) will not be able to
rely on the interpretative letters of the staff of the Securities and Exchange
Commission (the
-4-
<PAGE>
"SEC") described in the section of the Prospectus entitled "Exchange Offer" and
(b) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or other transfer of such New
Notes, unless such sale is made pursuant to an exemption from such requirements.
Any such resale transaction must be made by delivery of a prospectus containing
the selling securityholder information required by the rules of the SEC under
the Securities Act.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
<TABLE>
<CAPTION>
==========================================================================================================
BOX 1
DESCRIPTION OF TENDERED NOTES
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
==========================================================================================================
Certificate Aggregate
Name(s) and address(es) of Registered Holder(s), exactly as Number(s)* Principal Aggregate
name(s) appear(s) on Note Certificate(s) or on a security of Notes Amount Principal
position listing Represented Amount
(Please fill in, if blank) by Certificate(s) Tendered**
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
==========================================================================================================
</TABLE>
* Need not be completed by book-entry holders.
** The minimum permited tender is $1,000 in principal amounts of Notes. All
other tenders must be in integral multiples of $1,000 of principal amount.
Unless otherwise indicated in this column, the principal amount of all Note
Certificates identified in this Box 1 or delivered to the Exchange Agent
herewith shall be deemed tendered.
<TABLE>
<CAPTION>
===================================================================================================================
BOX 2
BENEFICIAL OWNER(S)
===================================================================================================================
State of Principal Residence of Each Beneficial Owner of Aggregate Principal Amount of Tendered Notes Held for
Tendered Notes Account of Beneficial Owner
===================================================================================================================
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
</TABLE>
If delivery of Notes is to be made by book-entry transfer to the account
maintained by the Exchange Agent at DTC, then tenders of Notes must be effected
in accordance with the procedures mandated by DTC's Automated Tender Offer
Program and the procedures set forth in the Prospectus under the caption
"Exchange Offer - Procedures for Tendering."
-5-
<PAGE>
================================================================================
BOX 3
(TO BE COMPLETED BY ELIGIBLE INSTITUTIONS ONLY)
================================================================================
[_] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution ____________________________________
DTC Account Number _______________________________________________
Transaction Code Number __________________________________________
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holders(s) ____________________________________
Window Ticket Number (if any) ____________________________________
Date of Execution of Notice of Guaranteed Delivery _______________
Name of Institution which Guaranteed Delivery______________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution ____________________________________
DTC Account Number _______________________________________________
Transaction Code Number __________________________________________
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED NOTES ARE
TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _____________________________________________________________
Address: __________________________________________________________
================================================================================
-6-
<PAGE>
================================================================================
BOX 4
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4, 7 AND 8)
================================================================================
To be completed ONLY if the New Notes are to be issued in the name of someone
other than the registered holder(s) of the Notes whose name(s) appear(s) above
(Box 1) or if Notes delivered by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account other than the account
indicated above (Box 3).
Issue
[_] Notes not tendered
[_] New Notes
to:
Name(s): _____________________________________________________________________
Address: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(include Zip Code)
Area Code and
Telephone Number: ____________________________________________________________
Tax Identification or
Social Security No.: _________________________________________________________
[_] Credit unexchanged Notes delivered by book-entry transfer to the DTC
account set forth below.
_____________________________________
(DTC Account Number, if applicable)
================================================================================
-7-
<PAGE>
================================================================================
BOX 5
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 7 AND 8)
================================================================================
To be completed ONLY if certificates for the New Notes exchanged for the Notes
and for untendered Notes are to be sent to someone other than the registered
holder(s) whose name(s) appear(s) above (Box 1), or to such registered holder(s)
at an address other than that shown above (Box 1).
Mail New Notes and any untendered Notes to:
Name(s): _____________________________________________________________________
(please print)
Address: _____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(include Zip Code)
Area Code and
Telephone Number: ____________________________________________________________
Tax Identification or
Social Security No.: _________________________________________________________
================================================================================
================================================================================
BOX 6
USE OF GUARANTEED DELIVERY
================================================================================
[_] CHECK HERE ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY. See Instruction 2. If this box is checked, please
provide the following information:
Name(s) of Registered Holder(s): _____________________________________________
_______________________________________________________________________________
Date of Execution of Notice of Guaranteed Delivery: __________________________
Name of Institution which Guaranteed Delivery: _______________________________
================================================================================
-8-
<PAGE>
================================================================================
BOX 7
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1, 4 AND 7)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREIN
================================================================================
<TABLE>
<S> <C>
X _________________________________________ Guarantee of Signature(s)
(If required by Instructions 4 and 7)
X _________________________________________ Authorized Signature
(Signature(s) of Registered Holder(s)
or Authorized Signatory) X __________________________________________
Note: The above lines must be signed by the registered Name: ______________________________________
holder(s) of Notes exactly as their name(s) appear(s) on (please print)
certificate(s) for Notes hereby tendered or on a security
position listing, or by person(s) authorized to become Title: _____________________________________
the registered holder(s) by endorsements and documents Name of Firm: ______________________________
transmitted herewith (including such opinions of (Must be an Eligible Institution
counsel, certifications and other information as may be as defined in Instruction 2)
required by the Company to comply with the
restrictions on transfer applicable to the Notes). If Address: ___________________________________
signature is by a trustee, executor, administrator, ___________________________________
guardian, attorney-in-fact, officer, or other person ___________________________________
acting in a fiduciary or representative capacity, such (include Zip Code)
person must set forth his or her full title below. See
Instruction 7. Area Code and
Telephone Number: __________________________
Dated: _____________________________________________
Name(s): _____________________________________________ Dated: _____________________________________
_____________________________________________
(please print)
Capacity: _____________________________________________
_____________________________________________
(full title)
Street Address: ______________________________________
______________________________________
______________________________________
(include Zip Code)
Area Code and
Telephone Number: __________________________________
Tax Identification or Social Security Number(s):
__________________________________
</TABLE>
================================================================================
-9-
<PAGE>
IMPORTANT TAX INFORMATION
PLEASE PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER ON
THIS SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE NOT SUBJECT TO BACKUP
WITHHOLDING. FAILURE TO DO SO MAY SUBJECT YOU TO 31% FEDERAL INCOME TAX
WITHHOLDING.
BOX 8
SUBSTITUTE FORM W-9
PART I -- Please provide the Taxpayer Identification Number ("TIN") of the
person submitting this Letter of Transmittal in the box at right and certify by
signing and dating below.
Social Security Number
----------------------
| |
----------------------
or Employer
Identification Number
PART II -- For Payees exempt from backup withholding, see the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 and complete as instructed therein.
CERTIFICATION -- Under penalties of perjury, the undersigned hereby certifies
the following:
(1) The TIN shown in Part I above is the correct TIN of the person who is
submitting this Letter of Transmittal and who is required by law to provide
such TIN; and
(2) The person who is submitting this Letter of Transmittal and who is required
by law to provide such TIN is not subject to backup withholding because
such person has not been notified by the Internal Revenue Service ("IRS")
that such person is subject to backup withholding as a result of a failure
to report all interest or dividends, or because the IRS has notified such
person that he or she is no longer subject to backup withholding, or
because such person is an exempt payee under the attached guidelines.
NOTE: You must cross out item (2) above if you have been notified by the IRS
that you are subject to backup withholding unless you have been notified
by the IRS that you are no longer subject to backup withholding.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
Signature: ________________________ Date: _______________________
________________________
-10-
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates. Certificates
for the Tendered Notes, as well as a properly completed and duly executed copy
of this Letter of Transmittal, with any required signature guarantees, a
Substitute Form W-9 (or facsimile thereof) and any other documents required by
this Letter of Transmittal must be received by the Exchange Agent at its address
set forth herein on or prior to the Expiration Date; provided, however, that
book-entry transfers of Notes may be effected in accordance with the procedures
mandated by DTC's Automatic Tender Offer Program ("ATOP"). Certificates for
Notes, or book-entry confirmation of a book-entry transfer of such Notes into
the Exchange Agent's account at DTC, as well as this Letter of Transmittal (or
facsimile hereof or Agent's Message in lieu hereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date or the
guaranteed delivery procedures set forth in Instruction 2 must be complied with.
THE METHOD OF DELIVERY OF CERTIFICATES FOR TENDERED NOTES, THIS LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF
THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS TO BE BY MAIL, THE USE OF
REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN
OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof or delivery of an Agent's Message in lieu thereof), waives any
right to receive any notice of the acceptance of such tender.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Notes
but (i) the certificates for such Notes are not immediately available, (ii) who
cannot deliver their Notes, Letter of Transmittal and any other documents
required by the Letter of Transmittal to the Exchange Agent on or prior to the
Expiration Date or (iii) who cannot complete the procedures for delivery by
book-entry transfer on a timely basis, must tender their Notes according to the
guaranteed delivery procedures set forth below, including completion of Box 6.
Pursuant to such procedures: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) on or prior to the Expiration
Date, a completed and signed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery), substantially in the form accompanying
this Letter of Transmittal, must have been delivered to the Exchange Agent; and
(iii) the certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing the Tendered Notes, in proper form for transfer,
together with a completed and signed Letter of Transmittal or, in the case of a
book-entry tender, an Agent's Message in lieu of this Letter of Transmittal,
with any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within three New
York Stock Exchange, Inc. trading days after the date of execution of such
Notice of Guaranteed Delivery, all as provided in the Prospectus under "Exchange
Offer--Procedures for Tendering."
The Notice of Guaranteed Delivery may be delivered by hand or overnight
carrier, or transmitted by facsimile or mail to the Exchange Agent, and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery. For Notes to be properly tendered pursuant to
the guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery on or prior to the
-11-
<PAGE>
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
3. Beneficial Owner Instructions to Registered Holders. Only a holder in
whose name the Notes are registered on the books of the registrar or on a
security position listing (or the legal representative or attorney-in-fact of
such registered holder) may execute and deliver this Letter of Transmittal (or
an Agent's Message in lieu hereof). Any Beneficial Owner of Notes who is not
the registered holder must arrange promptly with the registered holder to
execute and deliver this Letter of Transmittal on his or her behalf through the
execution and delivery to the registered holder of the Instructions to
Registered Holder from Beneficial Owner form accompanying this Letter of
Transmittal.
4. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder of
Notes tendered herewith, unless such holder(s) has completed
either the box entitled "Special Issuance Instructions" (Box 4)
or the box entitled "Special Delivery Instructions" (Box 5)
above, or
(ii) such Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 7.
5. Inadequate Space. If the space provided in the box captioned
"Description of Notes" is inadequate, the certificate number(s) and/or the
aggregate principal amount of Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
6. Partial Tenders and Withdrawal Rights. Tenders of Notes will be
accepted only in the aggregate principal amount of $1,000 or any integral
multiple in excess thereof. If less than the entire aggregate principal amount
of Notes evidenced by any certificate submitted is tendered, the tendering
holder should fill in the principal amount tendered in the column labeled
"Aggregate Principal Amount Tendered" of the box entitled "Description of Notes
Tendered" (Box 1) above. The entire aggregate principal amount of Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire aggregate principal amount of all Notes is
not tendered, new certificate(s) for Notes for the principal amount of Notes not
tendered and New Notes exchanged for any Notes tendered will be sent to the
holder at his or her registered address, unless a different address is provided
in the appropriate box on this Letter of Transmittal, as soon as practicable
following the Expiration Date.
As set forth below, tenders of Notes may be withdrawn at any time on or
prior to the Expiration Date. In order for a withdrawal to be effective, a
written or facsimile transmission of such notice of withdrawal must be received
by the Exchange Agent at one of its addresses set forth above on or prior to the
Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Notes to be withdrawn, the aggregate principal amount of
Notes to be withdrawn, and (if certificates for Notes have been tendered) the
name of the registered holder of the Notes as set forth on the certificate for
the Notes, if different from that of the person who tendered such Notes. If
certificates for the Notes have been delivered
-12-
<PAGE>
or otherwise identified to the Exchange Agent, then prior to the physical
release of such certificates for the Notes, the tendering holder must submit the
serial numbers shown on the particular certificates for the Notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Notes tendered for the account of an
Eligible Institution. If Notes have been tendered pursuant to the procedures for
book-entry transfer set forth in the Prospectus under "Exchange Offer--
Procedures for Tendering," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn Notes.
Withdrawals of tenders of Notes may not be rescinded. Notes properly withdrawn
will not be deemed validly tendered for purposes of the Exchange Offer, but may
be retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "Exchange
Offer--Procedures for Tendering."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
The Company, any affiliates or assigns of the Company, the Exchange Agent or any
other person shall not be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Notes which have been tendered but which are
withdrawn will be returned to the holder thereof promptly after withdrawal.
7. Signatures on the Letter of Transmittal; Bond Powers and Endorsements.
If this Letter of Transmittal is signed by the registered holder(s) of the
Tendered Notes, the signature(s) must correspond exactly with the name(s) as
written on the face of the certificates, or on a security position listing,
without alteration, enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are registered in different names on several certificates, it will be
necessary to complete, sign and submit as many separate copies of the Letter of
Transmittal documents as there are names in which certificates are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes and New Notes are to be issued (and any untendered aggregate
principal amount of Notes is to be reissued) to the registered holder(s), the
registered holder(s) need not and should not endorse any Tendered Notes nor
provide a separate bond power. In any other case, such registered holder(s)
must either duly endorse the certificate(s) for Notes tendered or transmit a
properly executed bond power with the certificate(s), with the signature(s) on
the endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Notes listed, the certificates must be endorsed or
accompanied by appropriate bond powers, in each case, signed exactly as the name
or names of the registered holder(s) appear(s) on the certificates, and also
must be accompanied by such opinions of counsel, certifications and other
information as the Company may require in accordance with the restrictions on
transfer applicable to the Notes. The signature on the endorsement or bond
power must be guaranteed by an Eligible Institution.
If this Letter of Transmittal, any certificate for Notes, bond power, power
of attorney or any other document required by this Letter of Transmittal is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted with this Letter of
Transmittal.
-13-
<PAGE>
Endorsements on certificates or signatures on bond powers required by this
Instruction 7 must be guaranteed by an Eligible Institution.
8. Special Issuance and Special Delivery Instructions. If New Notes are
to be issued in the name of a person other than the registered holder(s) of
Tendered Notes or are to be sent to a name and address other than the name and
address of the person signing this Letter of Transmittal or if Notes delivered
by book-entry transfer which are not accepted for exchange are to be returned by
credit to a DTC account other than that of the person signing this Letter of
Transmittal, the appropriate boxes (Box 4 and/or Box 5) on this Letter of
Transmittal should be completed. Certificates for Notes not exchanged will be
returned by mail or, if tendered by book-entry transfer, by crediting the
account indicated above maintained at DTC. See Instruction 6.
9. Transfer Taxes. Holders who tender their Notes for exchange will not
be obligated to pay any transfer taxes in connection therewith. If, however,
New Notes are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the Tendered Notes, or if a transfer tax is
imposed for any reason other than the exchange of Notes in connection with the
Exchange Offer, then the amount of any such transfer tax (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
10. Tax Identification Number. A holder whose Tendered Notes are accepted
for exchange should provide the Exchange Agent with such holder's correct
taxpayer identification number ("TIN"), which, in the case of a holder who is an
individual, is his or her social security number. If the Exchange Agent is not
provided with the correct TIN, the holder or other payee may be subject to a $50
penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
payments to such holders or other payees with respect to Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
To prevent backup withholding with respect to payments of distributions on
the New Notes, each tendering holder should provide such holder's correct TIN by
completing the Substitute Form W-9 set forth herein, certifying that the TIN
provided is correct (or that such holder is awaiting a TIN), and that the holder
is not subject to backup withholding because (i) the holder is exempt from
backup withholding, or (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends, or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding.
If the New Notes will be registered in more than one name or are not in the
name of the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for information on which
TIN to report. Certain holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Such holders should nevertheless complete the attached
Substitute Form W-9, and write "exempt" on the face thereof, to avoid possible
erroneous backup withholding. A foreign person may qualify as an exempt
recipient by submitting a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding. Any amount paid as backup withholding will be creditable against a
holder's tax liability.
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<PAGE>
11. Validity of Tenders. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
Tendered Notes will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. The Company reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders determined by it not to be in proper form or the acceptance of which, or
exchange for, may, in the view of the Company or of counsel to the Company, be
unlawful. The Company also reserves the absolute right, subject to applicable
law, to waive any of the conditions of the Exchange Offer as set forth in the
Prospectus under "Exchange Offer --Conditions" or any condition, defect or
irregularity in any tender of Notes of any particular holder whether or not
similar conditions, defects or irregularities are waived in the case of other
holders. The interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) by the
Company will be final and binding on all parties. No tender of Notes will be
deemed to have been validly made until all irregularities with respect to such
tender have been cured or waived. The Company, any affiliates or assigns of the
Company, the Exchange Agent or any other person shall not be under any duty to
give any notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
12. Mutilated, Lost, Stolen or Destroyed Certificates. Any tendering
holder whose Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated above for further instruction. This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing mutilated, lost, stolen or destroyed certificate(s)
have been followed.
13. Questions, Requests for Assistance and Additional Copies. Questions
and requests for assistance and requests for additional copies of the Prospectus
and this Letter of Transmittal may be directed to the Exchange Agent at the
address and telephone number set forth on the front of this Letter of
Transmittal. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
14. Acceptance of Tendered Notes and Issuance of New Notes; Return of
Notes. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Notes as soon as practicable after
the Expiration Date and will issue New Notes therefor as soon as practicable
thereafter. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted the Tendered Notes when, as and if the Company has given written
or oral notice thereof to the Exchange Agent. If any Tendered Notes are not
exchanged pursuant to the Exchange Offer for any reason, such unexchanged Notes
will be returned, without expense, to the undersigned at the address shown below
or at a different address as may be indicated herein under "Special Issuance
Instructions" or "Special Delivery Instructions."
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF OR AN
AGENT'S MESSAGE IN LIEU HEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-
0000. Employer identification number have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
========================================================== ================================================================
Give the SOCIAL SECURITY Give the EMPLOYER
For this type of account number of -- For this type of account IDENTIFICATION number
of--
========================================================== ================================================================
<S> <C> <C> <C>
1. Individual The individual 5. Sole proprietorship The Owner/3/
account
2. Two or more individuals The actual owner of the 6. A valid trust, estate, Legal entity (Do not furnish
(joint account) account or, if combined or pension trust the identifying number of the
funds, the first individual on personal representative or
the account/1/ trustee unless the legal entity
itself is not designated in the
account title.)/4/
3. Custodian account of a The minor/2/ 7. Corporate The Corporation
minor
(Uniform Gift to Minors
Act)
4. a. The usual revocable The grantor-trustee/1/ 8. Association, club, The organization
savings trust account religious, charitable,
(grantor is also educational, or other
trustee) The actual owner/1/ tax-exempt organization
b. So-called trust
account that is not a
legal or valid trust
under State law
9. Partnership The partnership
10. A broker or registered The broker or nominee
nominee
11. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a State or local
government, school
district, or person) that
receives agricultural
program payments
========================================================== ================================================================
</TABLE>
/1/ List first and circle the name of the person whose number you furnish.
/2/ Circle the minor's name and furnish the minor's social security number.
/3/ You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
/4/ List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name issued.
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<PAGE>
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
PURPOSE OF FORM.--A person who is required to file an information return with
the IRS must get your correct TIN to report, for example, income paid to you,
real estate transactions, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or contributions you made
to an IRA. Use Form W-9 to give your correct TIN to the requester (the person
requesting your TIN) and, when applicable, (1) to certify the TIN you are giving
is correct (or you are waiting for a number to be issued), (2) to certify you
are not subject to backup withholding, or (3) to claim exemption from backup
withholding if you are an exempt payee. Giving your correct TIN and making the
appropriate certifications will prevent certain payments from being subject to
backup withholding.
WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you must
withhold and pay to the IRS 31% of such payments under certain conditions. This
is called "backup withholding." Payments that could be subject to backup
withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee pay, and certain payments from
fishing boat operators. Real estate transactions are not subject to backup
withholding.
If you give the requester your correct TIN, make the proper certifications,
and report all your taxable interest and dividends on your tax return, your
payments will not be subject to backup withholding. Payments you receive will
be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS tells the requester that you furnished an incorrect TIN,
or
3. The IRS tells you that you are subject to backup withholding
because you did not report all your interest and dividends on your tax
return (for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to
backup withholding under 3 above (for reportable interest and dividend
accounts opened after 1983 only), or
5. You do not certify your TIN when required. See the Part III
Instructions for exceptions.
Certain payees and payments are exempt from backup withholding and
information reporting. See the Part II Instructions and the separate
Instructions for the Requester of Form W-9.
HOW TO GET A TIN.--If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Number Card (for
individuals), from your local office of the Social Security Administration, or
Form SS-4, Application for Employer Identification Number (for businesses and
all other entities), or Form W-7, Application for IRS Individual Taxpayer
Identification Number (for resident aliens ineligible to get a social security
number), from the IRS by calling 1-800-TAX-FORM (1-800-829-3676).
If you do not have a TIN, write "Applied For" in the space for the TIN in
Part I, sign and date the form, and give it to the requester. Generally, you
will then have 60 days to get a TIN and give it to the requester. If the
requester does not receive your TIN within 60 days, backup withholding, if
applicable, will begin and continue until you furnish your TIN.
Note: Writing "Applied For" on the form means that you have already applied for
a TIN OR that you intend to apply for one soon.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date the form, and give it to the requester.
PENALTIES
FAILURE TO FURNISH TIN.--If you fail to furnish your correct TIN to a requester,
you are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a
false statement with no reasonable basis that results in no backup withholding,
you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
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<PAGE>
MISUSE OF TINS.--If the requester discloses or uses TINs in violation of Federal
law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
NAME.--If you are an individual, you must generally enter the name shown on your
social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your name, the last name shown on your social
security card and your new last name.
SOLE PROPRIETOR.--You must enter your individual name. (Enter either your SSN
or EIN in Part 1). You may also enter your business name or "doing business as"
name on the business name line. Enter your name as shown on your social
security card and business name as it was used to apply for your EIN on Form
SS-4.
PART I--TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a sole proprietor,
you may enter your SSN or EIN. Also see the chart on page 20 for further
clarification of name and TIN combinations. If you do not have a TIN, follow
the instructions under HOW TO GET A TIN on page 21.
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are not exempt from backup withholding.
Corporations are exempt from backup withholding for certain payments, such as
interest and dividends.
If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding. Enter your correct TIN in
Part I, write "Exempt" in Part II, and sign and date the form. If you are a
nonresident alien or a foreign entity not subject to backup withholding, give
the requester a completed Form W-8, Certificate of Foreign Status.
PART III--CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign.
1. Interest, Dividend, and Barter Exchange Accounts Opened Before 1984
and Broker Accounts Considered Active During 1983. You must give your correct
TIN, but you do not have to sign the certification.
2. Interest, Dividend, Broker, and Barter Exchange Accounts Opened After
1983 and Broker Accounts Considered Inactive During 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out Item 2 in the certification before signing the form.
3. Real Estate Transactions. You must sign the certification. You may
cross out Item 2 of the certification.
4. Other Payments. You must give your correct TIN, but you do not have
to sign the certification unless you have been notified of an incorrect TIN.
Other payments include payments made in the course of the requester's trade or
business for rents, royalties, goods (other than bills for merchandise), medical
and health care services, payments to a nonemployee for services (including
attorney and accounting fees), and payments to certain fishing boat crew
members.
5. Mortgage Interest Paid by You, Acquisitions or Abandonment of Secured
Property, Cancellation of Debt, or IRA Contributions. You must give your
correct TIN, but you do not have to sign the certification.
PRIVACY ACT NOTICE
Section 6109 requires you to give your correct TIN to persons who must file
information returns with the IRS to report interest, dividends, and certain
other income paid to you, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or contributions you made
to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or
not you are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not give a TIN to a payer. Certain penalties may also apply.
-18-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
11% SERIES A SENIOR SUBORDINATED NOTES
DUE 2008
OF
BELL SPORTS, INC.
As set forth in the Exchange Offer (as defined below), this Notice of
Guaranteed Delivery (or a facsimile hereof) or one substantially equivalent
hereto or the electronic form used by The Depository Trust Company ("DTC") for
this purpose must be used to accept the Exchange Offer if certificates for 11%
Series A Senior Subordinated Notes due 2008 (the "Notes") of Bell Sports, Inc.,
a California corporation (the "Company"), are not immediately available to the
registered holder of such Notes, or if a participant in DTC is unable to
complete the procedures for book-entry transfer on a timely basis of Notes to
the account maintained by Harris Trust and Savings Bank (the "Exchange Agent")
at DTC, or if time will not permit all documents required by the Exchange Offer
to reach the Exchange Agent prior to 5:00 p.m., New York City time, on ________,
1998, unless extended (the "Expiration Date"). This Notice of Guaranteed
Delivery (or a facsimile hereof) or one substantially equivalent hereto or the
electronic form used by DTC may be delivered by mail (registered or certified
mail is recommended), by facsimile transmission, by hand or overnight carrier to
the Exchange Agent. See "Exchange Offer - Procedures for Tendering." Capitalized
terms used herein and not defined herein have the meanings assigned to them in
the Exchange Offer (as defined below).
The Exchange Agent is:
HARRIS TRUST AND SAVINGS BANK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand/Overnight Carrier:
c/o Harris Trust Company of New (For Eligible Institutions Only): c/o Harris Trust Company of New
York (212) 701-7636 York
Wall Street Station 88 Pine Street, 19th Floor
Post Office Box 1023 Confirm by Telephone New York, New York 10005
New York, New York 10268-1023 (212) 701-7624 Att'n: Reorganization Department
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A
FACSIMILE NUMBER OTHER THAN THE NUMBER LISTED ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined therein) under the
instructions thereto, such signature guarantee must appear in the applicable
space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company the aggregate principal
amount of Notes indicated below (the "Tendered Notes") pursuant to the
guaranteed delivery procedures and upon the terms and subject to the conditions
set forth in the accompanying Prospectus dated _____________, 1998 (as the same
may be amended or supplemented from time to time, the "Prospectus") and in the
related Letter of Transmittal (which together with the Prospectus constitute the
"Exchange Offer"), receipt of which is hereby acknowledged.
The undersigned hereby represents, warrants and agrees that the undersigned
has full power and authority to tender, exchange, sell, assign, and transfer the
Tendered Notes and that the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances when the Tendered Notes are acquired by the Company as
contemplated herein, and the Tendered Notes are not subject to any adverse
claims or proxies. The undersigned warrants and agrees that the undersigned and
each Beneficial Owner will, upon request, execute and deliver any additional
documents deemed by the Company or the Exchange Agent to be necessary or
desirable to complete the tender, exchange, sale, assignment and transfer of the
Tendered Notes, and that the undersigned will comply with its obligations under
the Registration Rights Agreement. The undersigned has read and agrees to all of
the terms of the Exchange Offer.
BY TENDERING NOTES AND EXECUTING THIS NOTICE OF GUARANTEED DELIVERY, THE
UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT (i) NEITHER THE UNDERSIGNED NOR
ANY BENEFICIAL OWNER(S) IS AN "AFFILIATE" OF THE COMPANY, (ii) ANY NEW NOTES TO
BE RECEIVED BY THE UNDERSIGNED AND ANY SUCH BENEFICIAL OWNER(S) ARE BEING
ACQUIRED BY THE UNDERSIGNED AND ANY BENEFICIAL OWNER(S) IN THE ORDINARY COURSE
OF BUSINESS OF THE UNDERSIGNED AND ANY BENEFICIAL OWNER(S), (iii) THE
UNDERSIGNED AND EACH BENEFICIAL OWNER HAVE NO ARRANGEMENT OR UNDERSTANDING WITH
ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE
SECURITIES ACT) OF NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (iv) THE
UNDERSIGNED OR ANY SUCH BENEFICIAL OWNER IS NOT ENGAGED IN, AND DOES NOT INTEND
TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH
NEW NOTES.
A broker-dealer who holds Notes for its own account as a result of market-
making activities or other trading activities and who receives New Notes in
exchange for such Notes pursuant to the Exchange Offer may be deemed to be an
"underwriter" within the meaning of the Securities Act and will be required to
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. If the undersigned or any
beneficial owner(s) is a broker-dealer which acquired any of the Tendered Notes
for its own account as the result of market-making activities or other trading
activities, such broker-dealer acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
New Notes received in exchange for any of such Tendered Notes that were acquired
for its own account as the result of market-making activities or other trading
activities (provided that, by so acknowledging and by delivering a prospectus,
such broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act).
ALL QUESTIONS AS TO THE FORM OF DOCUMENTS, VALIDITY, ELIGIBILITY (INCLUDING
TIME OF RECEIPT) AND ACCEPTANCE FOR EXCHANGE OF TENDERED NOTES WILL BE
DETERMINED BY THE COMPANY, IN ITS SOLE DISCRETION, WHOSE DETERMINATION SHALL BE
FINAL AND BINDING ON ALL PARTIES. THE COMPANY RESERVES THE ABSOLUTE RIGHT, IN
ITS SOLE AND ABSOLUTE DISCRETION, TO REJECT ANY AND ALL TENDERS DETERMINED BY
THE COMPANY NOT TO BE
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<PAGE>
IN PROPER FORM OR THE ACCEPTANCE OF WHICH, OR EXCHANGE FOR WHICH, MAY, IN THE
VIEW OF THE COMPANY OR OF COUNSEL TO THE COMPANY, BE UNLAWFUL.
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, EXECUTORS, ADMINISTRATORS, PERSONAL
REPRESENTATIVES, TRUSTEES IN BANKRUPTCY, LEGAL REPRESENTATIVES, SUCCESSORS AND
ASSIGNS OF THE UNDERSIGNED.
Name(s) of Registered Holder(s):________________________________________________
________________________________________________________________________________
Please Print
Address(es):____________________________________________________________________
________________________________________________________________________________
Area Code and Tel. No(s):_______________________________________________________
X__________________________________________________________________________
X__________________________________________________________________________
Signature(s) of Owner(s) or Authorized Signatory
Must be signed by the registered holder(s) of the Tendered Notes as their
name(s) appear(s) on certificates for such Tendered Notes, or on a security
position listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer or other person acting in a fiduciary or representative capacity,
such person must set forth his or her full title below.
Aggregate Principal
Certificate No(s) Amount Represented Aggregate Principal
(if available) by Certificate Amount Tendered
----------------- ------------------- -------------------
_______________________ _______________________ _______________________
_______________________ _______________________ _______________________
_______________________ _______________________ _______________________
_______________________ _______________________ _______________________
If Notes will be delivered by book-entry transfer to The Depository Trust
Company, provide the following information:
Signature:______________________________________________________________________
Account Number:_________________________________________________________________
Date:___________________________________________________________________________
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
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<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees delivery to the
Exchange Agent, at one of its addresses set forth above, of either certificates
for the Notes tendered hereby, in proper form for transfer, or confirmation of
the book-entry transfer of such Notes to the Exchange Agent's account at The
Depository Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal (or facsimile
thereof or an Agent's Message in lieu thereof) and any other documents required
by the Letter of Transmittal, all within three (3) New York Stock Exchange
trading days after the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must communicate the guarantee to the
Exchange Agent and must deliver the Letter of Transmittal and certificates for
the Notes tendered hereby to the Exchange Agent within the time period shown
hereon and that failure to do so could result in a financial loss to the
undersigned.
___________________________________ ___________________________________
Firm Authorized Signature
___________________________________ Name_______________________________
Address (Please Type or Print)
___________________________________ Title______________________________
Zip Code
Dated________________________, 1998
Area Code and Tel. No.:____________________________________________________
DO NOT SEND CERTIFICATES FOR NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
ACTUAL SURRENDER OF NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
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