BELL SPORTS CORP, 10-K405, 1998-07-27

BELL SPORTS CORP
10-K405, 1998-07-27
SPORTING & ATHLETIC GOODS, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

(Mark
One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended June 27, 1998

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from to

COMMISSION FILE NUMBER 0-19873

BELL SPORTS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 36-3671789
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYERIDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

6350 SAN IGNACIO AVENUE, SAN JOSE, 95119
CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)

(408) 574-3400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH NAME OF EACH EXCHANGE
CLASS ON WHICH REGISTERED
------------- ---------------------
<S> <C>
Not applicable
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)

PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)

4 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2000
(TITLE OF CLASS)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of July 22, 1998 was $106,922,000 (based on the average of the
high and low sales price as reported by The Nasdaq Stock Market on such date).

APPLICABLE ONLY TO CORPORATE REGISTRANTS

The number of shares outstanding of each of the registrant's classes of
common stock, as of July 22, 1998:

<TABLE>
<CAPTION>
NUMBER OF
CLASS SHARES
----- ----------
<S> <C>
Common Stock, $.01 par value................................... 13,915,436
</TABLE>

DOCUMENTS INCORPORATED BY REFERENCE

None

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PART I.

ITEM 1. BUSINESS

(a) General development of business

Bell Sports Corp. was incorporated in Delaware in 1989. As used herein,
unless the context otherwise clearly requires, the "Company" refers to Bell
Sports Corp., its consolidated subsidiaries and its predecessors. The Company
is 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.

The Company 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.

Since its founding in 1954, the Company 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
USA, Inc. ("Rhode Gear USA") in November 1989; (ii) Blackburn Designs, Inc.
("Blackburn") in November 1992; (iii) VistaLite, Inc. ("VistaLite") in January
1994; (iv) SportRack Canada, Inc. ("SportRack") in May 1995; (v) American
Recreation Company Holdings, Inc. ("AMRE") in July 1995; and (vi) Giro Sport
Design International, Inc. ("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. The
Company divested Service Cycle/Mongoose in April 1997 and SportRack in July
1997. 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 April 1992, the Company completed an initial public offering of its
common stock, par value $.01 ("Common Stock"). In December 1992, the Company
completed a secondary public offering of its Common Stock and in November 1993
completed a public offering of its 4 1/4% Convertible Subordinated Debentures
due 2000 (the "Debentures").

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.
(together with its affiliates, "Brentwood"), and the Company 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 the
Company, with the Company continuing as the surviving corporation (the "Bell
Merger"). The 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

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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").

(b) Financial information about industry segments

The Company operates primarily in one line of business -- the designing,
manufacturing, marketing and distributing of bicycle accessories and bicycle
helmets. The Company also manufactures and markets auto racing, in-line
skating, snowboarding, snow skiing and water sport helmets. The revenues
generated and the identifiable assets from these businesses are not
significant to the Company.

(i)Principal products, markets and distribution channels

The Company primarily manufactures, market and distributes bicycle helmets
and accessories.

The Company sells its products primarily through the mass merchant and IBD
channels. The Company distributes its products to these retailers through
independent, commissioned representatives. The representatives are integral to
the Company's efforts to maintain excellent customer relationships. The
Company directs its representatives through an experienced in-house sales team
of national and 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 a wide range of bicycle
accessories and bicycle helmets through the mass merchant channel, including
retailers such as Wal-Mart, K-Mart, Costco, Sears and Fred Meyer. Bicycle
helmets are marketed through the mass merchant channel under the Bell brand
name. Bicycle accessories are marketed through the mass merchant channel under
the Bell, Copper Canyon Cycling, Cycletech, Spoke-Hedz and Fisher Price(R)
brand names. Prior to fiscal 1996, the Bell brand of bicycle helmets was
marketed exclusively in the specialty retail trade channel.

The IBD Channel. The Company markets premium bicycle helmets and accessories
through the IBD channel which includes bicycle chains, independent bicycle
shops, specialized sporting goods stores and mail order catalogs. Bicycle
helmets are marketed through the IBD channel under the Bell Pro and Giro brand
names. Bicycle accessories are marketed through the IBD channel under the
Blackburn, Rhode Gear and VistaLite brand names.

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.

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.

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, the Company 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.

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(ii) Status of new products

The Company has ongoing research and development programs directed at
enhancing and extending its existing products and developing new
products. See "Research and Development Expenditures." The Company does
not presently have a new product or new industry segment that requires
the investment of a material amount of the total assets of the Company.

(iii) Sources and availability of raw materials

No single raw material accounts for a significant portion of the cost
of the Company's products. The Company's bicycle, snow skiing,
snowboarding and auto racing helmets contain plastic expandable
polystyrene foam, which is one of the primary materials used in the
Company's helmets. In fiscal 1998, the Company purchased substantially
all of its expandable polystyrene from BASF and Polysource, two of
several possible suppliers of this material. During fiscal 1998, the
Company negotiated a letter of intent to sell the assets of its domestic
foam molding facility in Rantoul, Illinois. Upon completion of this
transaction, the Company no longer expects to purchase a significant
amount of raw expandable polystyrene. The Company expects to enter into
a foam molding agreement with the purchaser of the assets of the
Rantoul, Illinois foam molding facility. Metal tubing, readily available
from many sources, is used extensively in the manufacturing of bicycle
carriers (shuttles) for automobiles. The Company does not have any long-
term supply contracts for the purchase of raw materials. Some components
and many finished good items, including bicycle accessories, are
manufactured for the Company by outside suppliers, including suppliers
in North America, Western Europe, Taiwan and China. Although the Company
believes there are sufficient alternative sources of the raw materials
it utilizes in the manufacture of its products, there can be no
assurance that the Company would find such alternative suppliers on a
timely basis and on terms favorable to the Company.

(iv) Patents, trademarks and licenses

In the course of its business, the Company employs various trademarks,
trade names and service marks, including its logos, in the packaging and
advertising of its products. The Company believes the strength of its
service marks, trademarks and trade names are of considerable value and
importance to its business and intends to continue to protect and
promote its marks as appropriate. The loss of any significant mark could
have a material adverse effect on the Company. The Company also licenses
the Bell trademark for use on certain motorcycle, snowmobile and police
helmets manufactured by third parties.

The Company is the owner of numerous federal trademark registrations
and applications filed with the United States Patent and Trademark
Office. These registrations constitute evidence of the validity of these
marks and the Company's exclusive right to use the marks on its
products. The Company may also be entitled to protection under the
Federal Trademark Act for the Company's unregistered marks.
Additionally, the Company owns numerous foreign trademark registrations.
The Company owns 75 United States patents and 17 foreign patents. As of
June 27, 1998, the Company had ten United States patents and five
foreign patents pending issuance. None of the Company's patents are
believed to be material to the Company's financial condition or results
of operations.

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 the Company, Bell Sports, Inc., a California corporation
and wholly-owned subsidiary of the Company ("BSI") or their
subsidiaries. Other brand names, trademarks, servicemarks or tradenames
referred to or incorporated by reference in this Form 10-K are the
registered trademarks of their respective owners.

(v) Extent to which the business is seasonal

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

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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.

(vi) Working capital items

The timing of the Company's preseason selling programs and spring
selling season may cause fluctuations in the levels of inventory and
receivables held by the Company from quarter to quarter. The Company
supports sales of its products through various seasonal promotions,
which include extended payment terms for independent bicycle dealers.
Historically, inventories and receivables are higher in the second
half of the fiscal year as compared to the first half.

(vii) Dependence on single customer

In fiscal 1998, 1997 and 1996, approximately 21%, 18% and 17%,
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 1998 and 1997, 27% and 23% 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.

(viii) Backlog orders

Historically, there is a backlog of specialty retail orders from
October to December as a result of preseason orders placed after the
fall trade shows. The backlog of orders decreases over the winter
months and is usually insignificant by the end of the Company's third
fiscal quarter. The mass merchant trade channel does not operate with
a large backlog. At the end of each fiscal year, the backlog was not
significant.

(ix) Business subject to renegotiation

The Company does not currently engage in any business with
governmental authorities that may be subject to renegotiation of
profits or termination of contracts or subcontracts at the election of
such authorities.

(x) Competitive conditions

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.

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(xi) Research and development expenditures

The Company has an ongoing research and development program directed
at enhancing and expanding its existing products and developing new
products. The Company's bicycle helmet research and development staff
primarily focuses on developing technical product features which can
improve helmet aerodynamics, weight, comfort, durability, safety, fit,
aesthetics and style in an effort to broaden a helmet's consumer
appeal. A separate staff focuses on developing innovative and better
performing bicycle accessories. Research and development expenditures
in fiscal 1998, 1997 and 1996 were approximately $3.6 million, $4.7
million and $4.7 million, respectively.

(xii) Material effects of compliance with environmental regulations

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 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

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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.

(ii) Number of 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.

(d) Financial information about foreign and domestic operations and export
sales

The financial information required with respect to foreign and domestic
operations and export sales of the Company appears in Note 15 to the
Consolidated Financial Statements of the Company appearing on page 39 of this
Annual Report on Form 10-K.

ITEM 2. PROPERTIES

The following table sets forth a brief description of the properties of the
Company and its subsidiaries:

<TABLE>
<CAPTION>
LOCATION GENERAL DESCRIPTION
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<C> <S>
San Jose, CA............. Corporate headquarters and sales, marketing,
administration, research and development facility of
approximately 63,600 square feet
Rantoul, IL (1).......... Administration, manufacturing, and distribution
facility of approximately 322,400 square feet on 34
acres
Santa Cruz, CA........... Giro sales, marketing, administration,
manufacturing, distribution and research and
development facility of approximately 41,300 square
feet
Scottsdale, AZ........... Administration offices of approximately 1,600 square
feet
York, PA................. Distribution center with approximately 300,000
square feet
Fairfield, CA (2)........ Distribution center with approximately 254,000
square feet
Roche La Moliere, France. Administrative, manufacturing and distribution
facility of approximately 38,700 square feet on 2.9
acres
Limerick, Ireland........ Giro sales, manufacturing and distribution facility
of approximately 18,800 square feet
Granby, Quebec........... Sales, marketing, administration and distribution
facilities of approximately 136,000 square feet
Calgary, Alberta......... Distribution facility of approximately 14,000 square
feet
Sydney, Australia........ Sales, marketing, administration and distribution
facility of approximately 21,500 square feet
</TABLE>
- --------
All locations are leased except for the York, Pennsylvania facility and the
Roche La Moliere facility, which is held under a lease-purchase arrangement.

(1) The Company announced its intention to sell the assets of the domestic
foam molding plant facility and sublease the facility in fiscal 1999. The
foam plant represents approximately 27,000 square feet and is detached
from the distribution and manufacturing facilities.

(2) The Company announced a plan to close this facility by September 1998.

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ITEM 3. LEGAL PROCEEDINGS

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.

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 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.

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.

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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 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.

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.

9
<PAGE>

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, CB Capital Investors, L.P. ("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.

See Item 1.(c)(xii) "Material effects of compliance with environmental
regulations" for information relating to an investigation by the Illinois
Environmental Protection Agency of certain of the Company's off-site waste
handling practices and a De Minimus Notice Letter and Settlement Offer from
USEPA.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock is traded on The Nasdaq National Market under the symbol
"BSPT". The Company's 4 1/4% Convertible Subordinated Debentures due 2000 are
traded on The Nasdaq Small Cap Market under the symbol "BSPTG".

<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Fiscal Year 1998:
1st Quarter.............................................. $11.000 $6.938
2nd Quarter.............................................. 11.250 7.500
3rd Quarter.............................................. 10.500 7.938
4th Quarter.............................................. 10.000 7.875
Fiscal Year 1997:
1st Quarter.............................................. $ 7.625 $5.500
2nd Quarter.............................................. 7.125 5.625
3rd Quarter.............................................. 6.375 4.875
4th Quarter.............................................. 8.125 4.938
</TABLE>

As of July 22, 1998, there were approximately 900 shareholders of record;
the Company estimates that, as of such date, there were approximately 8,500
beneficial owners.

The Company currently intends to retain future earnings for use in its
business, and therefore, does not anticipate paying any dividends in the
foreseeable future.

10
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below has been derived from the
audited consolidated financial statements of the Company. The following
selected financial data should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
report.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------
JUNE 27, JUNE 28, JUNE 29, JULY 1, JULY 2,
1998 (1) 1997 (2) 1996 (3) 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Net sales..................... $207,236 $259,534 $262,340 $102,990 $116,090
Net income (loss)............. 8,578 (18,188) (12,375) (3,443) 10,459
PER SHARE DATA:
Net income (loss):
Basic....................... $ 0.62 $ (1.33) $ (0.90) $ (0.42) $ 1.30
Diluted..................... 0.61 (1.33) (0.90) (0.42) 1.27
Weighted average shares
outstanding:
Basic....................... 13,764 13,722 13,740 8,144 8,057
Diluted..................... 14,130 13,722 13,740 8,144 8,245
BALANCE SHEET DATA:
Working capital............... $130,437 $130,677 $149,474 $108,821 $ 91,044
Total assets.................. 247,067 268,754 298,635 186,434 184,658
Total debt, less current
portion...................... 87,705 107,688 124,500 89,833 89,445
Total stockholders' equity.... 128,259 118,965 136,041 75,816 75,187
</TABLE>
- --------
All earnings per share amounts have been retroactively restated to reflect
the adoption of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."
(1) Results for fiscal 1998 include one-time restructuring charges of $1.2
million and a net loss on disposal of product lines and sale of assets of
$700,000.
(2) Results for fiscal 1997 include a pre-tax loss on disposal of product line
of $25.4 million related to the sale of the Service Cycle/Mongoose
business in April 1997 and $4.1 million related to one-time restructuring
charges.
(3) Results for fiscal 1996 include an inventory write-up of $14.1 million
related to the AMRE Merger (as defined) and the acquisitions of SportRack
and Giro, which was fully charged against cost of sales and $5.9 million
related to one-time restructuring charges.

ITEM 7. 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 Company's
Financial Statements, and the related notes thereto included elsewhere in this
Annual Report on Form 10-K. 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.

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.

11
<PAGE>

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, 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 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.

12
<PAGE>

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. 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 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 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 costs
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. The Company expects to
enter into a foam molding supply agreement with the purchaser. 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

13
<PAGE>

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 and EuroBell. 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 $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 merger with AMRE (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
$15.7 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.

14
<PAGE>

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.

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.

15
<PAGE>

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.

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 consummation of the Bell Merger and related transactions (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 Bell Merger, BSI will issue the Notes for $110.0
million in gross proceeds and will enter into a senior secured credit facility
(the "Senior Secured Credit Facility"), which will provide 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, BSI anticipates that it would have had $46.3 million available
to be borrowed under the Senior Secured Credit Facility. Proceeds to BSI from
the issuance of the Notes, initial borrowings under the Senior Secured Credit
Facility and a portion of BSI's available cash will be paid to Bell Sports
Corp. to finance, in part, the Transactions and pay the related fees and
expenses. In connection with the Bell Merger, the Investors will invest $45.0
million in the equity of HB Acquisition and $15.0 million in Bell Sports
Corp.'s Senior Discount Debentures due 2009.

Management believes that, upon the completion of the Transactions, 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.

16
<PAGE>

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.

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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 27, 1998, the Company maintains a portion of its cash and cash
equivalents in financial instruments with original maturities of three months
or less. These financial instruments are subject to interest rate risk, and
will decline in value if interest rates increase. Due to the short duration of
these financial instruments, an immediate 10 percent increase in interest
rates would not have a material effect on the Company's financial condition.

The Company's outstanding long-term debt at June 27, 1998 bears interest at
fixed rates; therefore, the Company's results of operations would only be
affected by interest rate changes to the extent that variable rate short-term
notes payable are outstanding. Due to the short-term nature and insignificant
amount of the Company's notes payable, an immediate 10 percent change in
interest rates would not have a material effect on the Company's results of
operations over the next fiscal year.

The Company periodically enters into forward foreign exchange contracts in
managing its foreign currency risk. The Company has no significant outstanding
foreign exchange contracts at June 27, 1998, and had no significant foreign
exchange contract activity during fiscal 1998.

17
<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
Bell Sports Corp.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Bell
Sports Corp. and its subsidiaries at June 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

18
<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.

19
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<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)
======== ======== ========
Net income (loss) per share:
Basic.......................................... $ 0.62 $ (1.33) $ (0.90)
Diluted........................................ $ 0.61 $ (1.33) $ (0.90)
Weighted average number of shares outstanding:
Basic.......................................... 13,764 13,722 13,740
Diluted........................................ 14,130 13,722 13,740
</TABLE>

See accompanying notes to these consolidated financial statements.

20
<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.

21
<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.

22
<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").

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 June
29, 1997 for the statement of operations data presented.
PRO FORMA COMBINED BSI AND AMRE

<TABLE>
<CAPTION>
JUNE 27, 1998
-------------
(UNAUDITED)
<S> <C>
Selected Combined Balance Sheet Data:
Cash and cash equivalents................................. $ 34,662
Current assets............................................ 149,972
Total assets.............................................. 197,888
Current liabilities....................................... 28,907
Total liabilities......................................... 144,977
Debt payable to unrelated parties......................... 2,134
Intercompany debt payable to the Company.................. 113,573
Stockholder's equity...................................... 52,891
<CAPTION>
FOR THE
YEAR ENDED
JUNE 27, 1998
-------------
(UNAUDITED)
<S> <C>
Selected Combined Statement of Operations Data:
Net sales................................................. $207,236
Gross profit.............................................. 69,564
Total interest expense.................................... 449
Net income................................................ 13,260
</TABLE>

23
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

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.

24
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

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.

25
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

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.

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 JUNE
27, 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>

26
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

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

27
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

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):

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.

28
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 11. The options are immediately exercisable and must be
exercised within three years of the date of grant.

On August 27, 1996 the Management Stock Incentive Committee (the
"Committee") of the Board of Directors (the "Board") adopted a program
permitting employees eligible to participate in the Company's bonus program to
elect to forego their fiscal 1997 operating bonus and return all outstanding
stock options granted after April 1992 in exchange for replacement stock
options. In general, employees eligible to participate in the Company's bonus
program are eligible for 10% to 75% of their annual base salary if the Company
meets or exceeds certain Board approved net operating income goals.

Senior management with long tenure agreed to cancel 40% of their existing
stock options, excluding stock options granted prior to April 1992, to
increase the number of stock options available for grant, thereby facilitating
the broadening of participation in the stock option program and enabling the
Company to create a voluntary program by which other employees participating
in the Company's bonus program would be able to replace existing stock options
in exchange for foregoing their fiscal 1997 operating bonus.

Under the replacement program, the number of shares of Common Stock subject
to a replacement option to be granted to an eligible employee was determined
by multiplying 80% of such employee's estimated fiscal 1997 operating bonus.
Each replacement option had an exercise price 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>

29
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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>

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) per share for each fiscal year would have been reported as
follows (in thousands, except per share data):

30
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<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)
Basic net income (loss) per share:
As reported..................................... $ 0.62 $ (1.33) $ (0.90)
Pro forma for SFAS 123.......................... 0.54 (1.39) (0.90)
Diluted net income (loss) per share:
As reported..................................... $ 0.61 $ (1.33) $ (0.90)
Pro forma for SFAS 123.......................... 0.53 (1.39) (0.90)
</TABLE>

The pro forma effects of applying SFAS 123 may not be representative of the
effects on reported net income and earnings per share for future years since
options vest over several years 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,
$.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.

31
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8--EARNINGS PER SHARE

The Company has adopted SFAS No. 128, "Earnings per Share" ("SFAS 128"),
which replaced the calculation of primary and fully diluted net income per
share with basic and diluted net income per share. Unlike primary net income
per share, basic net income per share excludes any dilutive effects of options
and convertible securities. Diluted net income per share is very similar to
the previously reported fully diluted net income per share.

Net income per share is calculated as follows (in thousands, except per
share data):

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------
JUNE
27, JUNE 28, JUNE 29,
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income (loss)............................... $ 8,578 $(18,188) $(12,375)
======= ======== ========
Denominator for basic net income per share--
weighted average common shares outstanding....... 13,764 13,722 13,740
Effects of dilutive securities:
Common stock options............................ 366
------- -------- --------
Denominator for diluted net income per share--
adjusted weighted average common shares and
assumed conversions.............................. 14,130 13,722 13,740
======= ======== ========
Basic net income per share........................ $ 0.62 $ (1.33) $ (0.90)
======= ======== ========
Diluted net income per share...................... $ 0.61 $ (1.33) $ (0.90)
======= ======== ========
</TABLE>

The 4 1/4% convertible subordinated debentures are excluded from the above
tables since their effect would be antidilutive.

NOTE 9--COMMITMENTS AND CONTINGENCIES

32
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

33
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

34
<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 10--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 11--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

35
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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.

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 was 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 12--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>

36
<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 ex-
penses............................... $ 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
JULY ACCRUAL RESTRUC- NON-
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>

37
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 13--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 JUNE
JUNE 27, 28, 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.

38
<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 14--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>

39
<PAGE>

BELL SPORTS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 15--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 16--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
Net income per share:
Basic................................... $ 0.05 $ 0.02 $ 0.23 $ 0.32
Diluted................................. 0.05 0.02 0.22 0.32
Year ending June 28, 1997:
Net sales................................. $62,068 $56,623 $ 70,575 $70,268
Gross profit.............................. 17,508 16,006 20,713 22,209
Net income (loss)......................... 3 (475) (21,943) 4,227
Net income (loss) per share:
Basic................................... $ 0.00 $ (0.03) $ (1.59) $ 0.31
Diluted................................. 0.00 (0.03) (1.59) 0.31
</TABLE>

40
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and certain other representations that no
other reports were required, during the year ended June 27, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater
than ten-percent beneficial owners were complied with.

Directors of the Registrant

Class I--Serving Until 1998 Annual Meeting:

MICHAEL R. HANNON, Director, age 38. Mr. Hannon has been a Director of the
Company since July 1995. Mr. Hannon has been a General Partner of Chase
Capital Partners ("CCP") since January 1997 where he chiefly focuses on the
media/telecom and financial services industries. Mr. Hannon has been employed
by CCP since 1988. Mr. Hannon is the Chairman of TeleCorp PCS, Inc. and a
Director of Formus Communications and Financial Equity Partners.

W. LEO KIELY III, Director, age 51. Mr. Kiely has been a Director of the
Company since January 1995. Mr. Kiely has been the President and Chief
Operating Officer of Coors Brewing Company since March 1993. From 1982 until
he joined Coors, Mr. Kiely oversaw various operations at Frito-Lay Inc., a
subsidiary of PepsiCo, Inc. Mr. Kiely serves on the Wharton Marketing Advisory
Board and the Wharton Graduate Executive Board. He is also a director of
Signature Resorts, Inc.

TERRY G. LEE, Director, Chairman and Chief Executive Officer, age 49. Mr.
Lee has served the Company in various capacities since 1984. He joined Bell
Helmets, Inc. (a predecessor of the Company, "Bell Helmets") as Director and
the President and Chief Operating Officer in 1984, and became Chief Executive
Officer in 1986 and Chairman in 1989. He served as President of the Company
from 1984 until the consummation of the AMRE Merger in 1995. Mr. Lee was a
stockholder and consultant to Echelon Sports Corporation (a predecessor of the
Company) prior to its acquisition by the Company in 1989. Prior to joining
Bell Helmets in 1984, Mr. Lee was employed by Wilson Sporting Goods for 14
years, where his last position was Senior Vice President--Sales and
Distribution.

Class II--Serving Until 1999 Annual Meeting:

KENNETH K. HARKNESS, Director, age 64. Mr. Harkness has been a Director of
the Company since February 1992. Since 1996, Mr. Harkness has been part owner
and Chief Executive Officer of Ceratech Holdings (a giftware holding company).
Mr. Harkness specializes in personally managing and investing in undeveloped
companies. From 1993 to 1996 he was the Chief Executive Officer of Ramco
Industries, Inc. and of Cirgon Technologies. Mr. Harkness was the Director and
the Chief Executive Officer of Guidance Technologies, Inc. from 1989 through
1992.

HARRY H. MANKO, Director and Vice Chairman, age 71. Mr. Manko has been a
Director and the Vice Chairman of the Company since July 1995. Mr. Manko
currently serves as the Treasurer of the Bicycle Products Supplier Association
("BPSA"). He served as President of BPSA from 1995 to 1997 and also has served
as President of the Bicycle Institute of America. Mr. Manko has served as
Chairman of the Board and a Director of AMRE since April 1993. From 1984 to
1993, Mr. Manko was President and Chief Executive Officer of American
Recreation Group, L.P., a predecessor of AMRE.

41
<PAGE>

FREDERICK W. WINTER, Director, age 53. Mr. Winter has been a Director of the
Company since October 1991. Mr. Winter has been the Dean of the Joseph M. Katz
Graduate School of Business at the University of Pittsburgh since August 1997.
He previously served as the Dean of the School of Management at the University
of Buffalo from 1994 to 1997 and as the Head of the Department of Business
Administration at the University of Illinois from 1986 to 1993. He specializes
in the areas of marketing management and marketing strategy. Mr. Winter is
also a Director of Alkon Corporation and Rand Capital Corp.

Class III--Serving Until 2000 Annual Meeting:

ARNOLD L. CHAVKIN, Director, age 47. Mr. Chavkin has been a Director of the
Company since July 1995. Mr. Chavkin is a General Partner of CCP and the
President of Chemical Investments, Inc. ("CII"), an affiliate of CCP,
positions he has held since January 1992 and March 1991, respectively. CII is
an affiliate of the Chase Manhattan Corporation. Mr. Chavkin is a Director of
Reading & Bates Corporation, American Radio Systems, Inc. and Wireless One,
Inc. and served as a Director of AMRE from April 1993 to July 1995.

PHILLIP D. MATTHEWS, Director, age 60. Mr. Matthews has been a Director of
the Company since November 1989. Mr. Matthews is a business consultant to the
Company and other companies. He served as Chairman of the Board of Wolverine
World Wide, Inc. (a footwear manufacturer and retailer) from 1993 to 1996 and
currently serves as its Lead Director and Chairman of the Executive Committee.
Mr. Matthews is also a Director of H.F. Ahmanson & Company, Home Savings of
America, Sizzler International, Inc. and several privately held companies.

CHRISTOPHER WRIGHT, Director, age 41. Mr. Wright has been a Director of the
Company since November 1989. Mr. Wright is a Director of Kleinwort Benson
Limited, an English merchant bank with which he has been employed since 1978,
and an Executive Vice President of Dresdner Kleinwort Benson North America. He
is General Manager of Kleinwort Benson (USA) Inc., the investment advisor to
The KB Mezzanine Fund, L.P. ("KB") which is a stockholder of the Company. Mr.
Wright is also a Director of Roper Industries, Inc. (a fluid handling and
controls company).

Upon consummation of the Bell Merger it is anticipated that the Board of
Directors of HB Acquisition, immediately prior to the Effective Time, will
become the Board of Directors of the Company.

Executive Officers of the Registrant

Information with respect to executive officers of the Company is set forth
below:

<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES
- ---- --- ---------------------
<S> <C> <C>
Terry G. Lee 49 Chairman and Chief Executive Officer
Harry H. Manko 71 Vice Chairman and Director
Mary J. George 48 President and Chief Operating Officer
William L. Bracy 56 U.S. Group President
Robert Alan McCaughen 44 President--Canada
Linda K. Bounds 43 Chief Financial Officer, Senior Vice President, Secretary and Treasurer
</TABLE>

TERRY G. LEE, Director, Chairman and Chief Executive Officer. Mr. Lee has
served the Company in various capacities since 1984. He joined Bell Helmets,
Inc. (a predecessor of the Company, "Bell Helmets") as Director and the
President and Chief Operating Officer in 1984, and became Chief Executive
Officer in 1986 and Chairman in 1989. He served as President of the Company
from 1984 until the consummation of the AMRE Merger in 1995. Mr. Lee was a
stockholder and consultant to Echelon Sports Corporation (a predecessor of the
Company) prior to its acquisition by the Company in 1989. Prior to joining
Bell Helmets in 1984, Mr. Lee was employed by Wilson Sporting Goods for 14
years, where his last position was Senior Vice President--Sales and
Distribution.

42
<PAGE>

HARRY H. MANKO, Vice Chairman and Director. Mr. Manko has been a Director
and the Vice Chairman of the Company since July 1995. Mr. Manko currently
serves as the Treasurer of BPSA, a position he has held since 1997. He served
as President of BPSA from 1995 to 1997 and also has served as President of the
Bicycle Institute of America. Mr. Manko has served as Chairman of the Board
and a Director of AMRE since April 1993. From 1984 to 1993, Mr. Manko was
President and Chief Executive Officer of American Recreation Group, L.P., a
predecessor of AMRE.

MARY J. GEORGE, President and Chief Operating Officer. Ms. George joined the
Company in October 1994 as the Senior Vice President of Marketing and
Strategic Planning, became President--Specialty Retail Division in July 1995,
became President--North America in December 1995, and became President and
Chief Operating Officer in April 1997. Prior to joining the Company, Ms.
George served as President of Denar Corporation from January 1993 to August
1994 and as President of the WestPointe Group from January 1991 to December
1992.

WILLIAM L. BRACY, U.S. Group President. Mr. Bracy joined Bell in January
1998 as U.S. Group President. 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.

ROBERT ALAN MCCAUGHEN, President--Canada. Mr. McCaughen joined the Company
in July 1995, in connection with the AMRE Merger as President of Denrich
Sporting Goods. Mr. McCaughen became President--Canada in August 1995.
Previously, Mr. McCaughen served as President of Denrich Sporting Goods
Canada, LTD. ("Denrich") since August 1991, when AMRE acquired Denrich. Mr.
McCaughen also served as President and was one of the founders of Denrich's
predecessor company which commenced operations in 1989. Mr. McCaughen plans to
leave his position in August 1998 and become an independent agent managing
sales and marketing activities for the Company's mass merchant channel.

LINDA K. BOUNDS, Chief Financial Officer, Senior Vice President, Secretary
and Treasurer. Ms. Bounds joined the Company in February 1990, became a Vice
President in 1993, and Chief Financial Officer, Executive Vice President,
Secretary and Treasurer in April 1997. From 1984 to 1990, she served in
various financial management positions for Celestial Seasonings, Inc. Ms.
Bounds is a Certified Public Accountant. Ms. Bounds has announced her
intention of leaving the Company by December 1998.

43
<PAGE>

ITEM 11. EXECUTIVE OFFICER COMPENSATION

SUMMARY COMPENSATION TABLE

The table below summarizes the annual and long-term compensation paid to
each of the Company's Chief Executive Officer, the four next most highly
compensated executive officers and one former executive officer (the "Named
Executive Officers") for all services rendered to the Company during its last
three fiscal years, in accordance with the Securities and Exchange Commission
("SEC") rules relating to disclosure of executive compensation.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- -----------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND FISCAL OTHER ANNUAL STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) AWARDS($)(2) OPTIONS(#) SATION(3)
------------------ ------ ------ ----- ---------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Terry G. Lee 1998 $410,962 $152,750 $200,000 $5,773
Chairman and Chief 1997 392,885 50,000 209,363 5,155
Executive Officer 1996 375,027 100,000 2,124
Harry H. Manko 1998 255,810 9,493
Vice Chairman (4) 1997 251,967 8,480
1996 352,296 $684,200 35,000 3,644
Mary J. George 1998 298,209 265,000 700,000 5,411
President and Chief 1997 239,962 50,000 148,500 3,193
Operating Officer 1996 207,069 167,726 125,000 1,626
Howard A. Kosick 1998 205,089 100,000 50,000 5,470
U.S. Group President 1997 195,039 50,000 111,855 4,581
1996 165,016 50,000 4,181
Robert Alan McCaughen 1998 150,000 75,000 10,000
President--Canada (5) 1997 128,573 34,357 79,531
1996 260,524 10,000
Linda Bounds 1998 161,847 100,800 119,012 50,000 20,000 4,579
Chief Financial Officer, 1997 120,539 12,000 30,000 2,255
Senior Vice President, 1996
Secretary and Treasurer
</TABLE>
- -------
(1) The Fiscal 1998 amount includes, in part, relocation reimbursements paid
by the Company to Ms. Bounds of $104,042. The Fiscal 1997 amount
includes, in part, relocation reimbursements paid by the Company to Mr.
McCaughen of $79,531. The Fiscal 1996 amount includes, in part,
relocation reimbursements paid by the Company to Ms. George of $163,326.
(2) Fiscal 1998 awards consist solely of restricted phantom stock units.
Phantom stock units were granted as of August 28, 1997 to the Named
Executive Officers as follows: Mr. Lee 21,763 units, Ms. George
10,881 units, Mr. Kosick 5,441 units and Ms. Bounds 5,441 units. Such
phantom stock unit awards vest incrementally in two equal installments on
August 28, 1998 and August 28, 1999, subject to accelerated vesting in
full in connection with a change in control of the Company (including the
Bell Merger). In addition, in accordance with the terms of her employment
agreement with the Company, 32,324 and 30,769 phantom stock units were
granted to Ms. George on August 23, 1997 and September 12, 1997,
respectively. Such additional phantom stock units will vest in full upon
a termination of Ms. George's employment with the Company (other than for
cause) and upon a change in control of the Company (including the Bell
Merger). During Fiscal 1997, each of Mr. Lee, Ms. George and Mr. Kosick
were awarded 7,082 shares of restricted stock. Each restricted stock
award will vest incrementally in equal installments on the first three
anniversaries of the date of award or upon a change in control of the
Company (including the Bell Merger). At the end of Fiscal 1998, Mr. Lee
held 21,763 phantom stock units and 4,721 shares of restricted stock with
an aggregate value of $248,506, Ms. George held 73,974 phantom stock
units and 4,721 shares of restricted stock with an aggregate value of
$738,156 and Ms. Bounds held 5,441 phantom stock units with an aggregate
value of $51,027. In connection with his termination of employment with
the Company, the Company agreed that Mr. Kosick's restricted stock and
phantom stock units would vest. The holder of a Company phantom stock
unit is entitled to be paid in full therefor when such phantom stock unit
vests. Mr. Kosick received a payment of $50,705 in connection with the
vesting of his phantom stock units.

44
<PAGE>

(3) The Fiscal 1998 amounts include the following annual Company contributions
to the Bell Sports Corp. Employees' Retirement and 401(k) Plan: Mr. Lee
$5,077, Mr. Manko $4,807, Ms. George $4,715, Mr. Kosick $5,062, and Ms.
Bounds $4,387. The Fiscal 1998 amounts also include the following life
insurance premiums paid by the Company: Mr. Lee $696, Mr. Manko $4,686,
Ms. George $696, Mr. Kosick $408 and Ms. Bounds $192.
(4) Mr. Manko became an employee of the Company on July 3, 1995, upon
consummation of the AMRE Merger. Pursuant to a prior employment agreement
with AMRE, the Company paid Mr. Manko $684,200 in lieu of annual bonuses
through June 30, 1996 and all future installments of the signing bonus.
(5) Mr. McCaughen's Fiscal 1997 and Fiscal 1996 salary includes $2,625 and
$90,585, respectively, of sales commissions paid pursuant to an agreement
entered into by AMRE in connection with the acquisition of Denrich
Sporting Goods by AMRE in 1991. Mr. McCaughen became an employee of the
Company on July 3, 1995, upon consummation of the AMRE Merger.

OPTION GRANTS IN LAST FISCAL YEAR

The table below provides information relating to grants of stock options by
the Company during Fiscal 1998 to each of the Named Executive Officers. The
Company has never granted any stock appreciation rights.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES STOCK OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO TEN-YEAR OPTION TERM (2)
OPTIONS EMPLOYEES EXERCISE EXPIRATION ----------------------------
NAME GRANTED (#)(1) IN FISCAL YEAR PRICE DATE 5% 10%
- ---- -------------- -------------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. McCaughen..... 10,000 5% $9.19 08/28/07 $ 57,795 $146,465
Linda K. Bounds......... 20,000 9% 9.19 08/28/07 115,591 292,930
Increase in market value of Common Stock for all stockholders at assumed
annual rates of stock price appreciation over 10-year period above. (3).. $82.3 million $208.6 million
</TABLE>
- -------
(1) These awards were made pursuant to the 1992 Plan. Under this plan, the
exercise price per share must not be less than 100% of the fair market
value of one share of Common Stock on the date of grant of option. The
options vest ratably in one-third increments over a three-year period and
may not be exercised ten years after the date of grant. In the event of a
change in control, the Board of Directors may accelerate the vesting of
these options.
(2) The gains shown in these columns result from calculations assuming 5% and
10% growth rates as set by the SEC and are not intended to forecast future
stock price performance.
(3) These amounts represent the increase in the market value of outstanding
shares of Common Stock (approximately 13.9 million) as of June 27, 1998
that would result from the same stock price assumptions used to show the
Potential Realizable Values for the Named Executive Officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

The table below provides certain information relating to the stock options
held by each of the Named Executive Officers at the end of Fiscal 1998. No
stock options were exercised by the Named Executive Officers during Fiscal
1998.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
THE-MONEY OPTIONS AT FY-
NUMBER OF SECURITIES END
UNDERLYING UNEXERCISED (BASED UPON $9.313 PER
OPTIONS AT FY-END SHARE)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Terry G. Lee................ 224,983 0 $491,166 $ 0
Harry Manko................. 63,744 11,666 310,890 0
Mary George................. 99,500 49,000 224,011 10,584
Robert A. McCaughen......... 6,666 13,334 4,920 3,080
Linda Bounds................ 33,125 20,000 74,700 4,320
</TABLE>

45
<PAGE>

DIRECTOR COMPENSATION

In Fiscal 1998, each non-employee director received 2,212 options at $4.52
per share in lieu of a cash retainer fee and 2,000 options at $9.03 per share
for continuing service on the Board.

In Fiscal 1998, Mr. Matthews received aggregate compensation of $45,600 for
consulting services provided to the Company. See also "Compensation Committee
Interlocks and Insider Participation".

EMPLOYMENT AGREEMENTS

The Company has an employment agreement with Mr. Lee which provides that he
will serve as Chairman of the Board and Chief Executive Officer of the Company
which, as described below, will be replaced following consummation of the Bell
Merger. The employment agreement is for a term expiring on June 30, 1999
unless terminated earlier in the event of the employee's death or disability,
termination by the Company with or without cause (as defined in the agreement)
or termination by the employee with or without good reason (as defined in the
agreement), with automatic renewals for successive one-year periods after the
initial term thereof unless either the Company or Mr. Lee terminates such
renewal provision at least one year prior to any such renewal. The agreement
provides for an initial annual base salary of $375,000, annual salary
increases and annual cash bonuses based on actual operating income as compared
to projected operating income targets approved by the Board of Directors, up
to a maximum annual bonus of 125% of Mr. Lee's then existing base salary.
Under the employment agreement, Mr. Lee is entitled to participate in the
Company's benefit plans and programs and to reimbursement for any deductibles
and co-payments related to medical expenses. In the event of a change in
control of the Company during the two year period ending June 30, 1999, the
terms of the employment agreement will automatically be extended for a two-
year period following such change in control. Under the employment agreement,
in the event of early termination of employment by the Company without cause
or by Mr. Lee for good reason, the Company will continue to pay Mr. Lee his
base salary, bonus and all other benefits payable for two years or until the
end of the term of the employment agreement, whichever is longer. In the event
of early termination of employment due to the disability of Mr. Lee, the
Company will continue to pay Mr. Lee his base salary until the end of the term
of the agreement, less all payments under any disability plan covering Mr.
Lee. In the event of early termination of employment due to the death of Mr.
Lee, the Company will pay Mr. Lee's executor or administrator four months of
base salary and bonus. In the event that the Company terminates the automatic
renewal provision, the Company will continue to pay Mr. Lee his base salary,
bonus and all other benefits otherwise payable for six months following the
expiration of the term of the employment agreement. The agreement provides for
a noncompetition period following termination of employment prior to a change
in control of the Company which will extend for two years or the period of
salary continuation payments, whichever is longer.

The Company has entered into a noncompetition agreement with Mr. Lee which
provides that if Mr. Lee's employment with the Company is terminated upon
certain circumstances and subject to certain limitations, Mr. Lee will not
compete against the Company for a two-year period after a change in control of
the Company (as defined in the noncompetition agreement) in any place in which
the Company has engaged in such business during the term of Mr. Lee's
employment. In consideration of the foregoing, Mr. Lee will be entitled to
receive from the Company, within 5 days following the date of the commencement
of such two-year period, a lump-sum cash amount equal to (i) three times Mr.
Lee's highest annual base salary in effect during the 12-month period prior to
the date of termination of Mr. Lee's employment, plus (ii) three times Mr.
Lee's average annual bonus paid or payable, including by reason of deferral,
from the Company over the five fiscal years of the Company immediately
preceding the fiscal year in which the change in control occurs.

The Company has an employment agreement with Mr. Manko, which provides that
Mr. Manko will serve as Vice Chairman of the Board of Directors of the Company
and as Chairman of AMRE and of the specialty retail division of the Company.
The employment agreement is for a term ending on December 31, 1998, unless
terminated earlier for any reason which is the same as those provided in the
employment agreement with Mr. Lee. The employment agreement provides for an
annual base salary of $250,000 through June 28, 1996 and

46
<PAGE>

thereafter, annual salary increases, and annual cash bonuses for fiscal years
ending on or after June 30, 1997 based on actual operating income as compared
to projected operating income targets approved by the Board of Directors, up
to a maximum annual bonus of 125% of his then existing base salary. Under the
employment agreement, Mr. Manko is entitled to participate in the Company's
benefit plans and programs. The employment agreement provides that in the
event of early termination of employment by the Company without cause (as
defined in the agreement) or by Mr. Manko for good reason (as defined in the
agreement), the Company will continue to pay Mr. Manko his base salary and all
other benefits otherwise payable until the end of the term of the employment
agreement, and if such termination occurs following a change in control of the
Company, Mr. Manko will be entitled to receive a lump sum amount equal to the
present value of such payments. In the event of early termination of
employment due to the disability or death of Mr. Manko, the Company will
continue to pay Mr. Manko, or his executor or administrator in the event of
his death, his base salary, bonus and all other benefits otherwise payable for
a period of four months following such termination of employment. Mr. Manko's
employment agreement also provides for a noncompetition period following
termination of employment which would extend for two years or the period of
salary continuation payments, whichever is longer.

The Company has an employment agreement with Ms. George which provides that
she will serve as President and Chief Operating Officer of the Company. The
employment agreement is for a term ending on February 15, 2000 unless
terminated earlier in the event of Ms. George's death or disability,
termination by the Company with or without cause (as defined in the agreement)
or termination by Ms. George. The agreement, which was amended effective July
1, 1997, provides for an annual base salary of $300,000, subject to annual
increases in the discretion of the Company, annual cash bonuses in accordance
with the Company's management incentive program and grants of restricted
phantom stock units if the Common Stock trades at specified prices, the number
of such Units to be based upon a multiple of one or two times the amount of
Ms. George's base salary divided by the market price of the Common Stock. Such
restricted phantom stock units vest upon the earlier of the termination of Ms.
George's employment or a Change in Control of the Company (as defined in the
agreement), provided that unvested restricted phantom stock units are
forfeited if Ms. George's employment is terminated by the Company for cause or
voluntarily by Ms. George. Under the agreement, as amended, Ms. George is
entitled to participate in the Company's benefit plans and programs,
reimbursement for any deductibles and co-payments related to medical expenses
and reimbursement of automobile expenses and her expenses for commuting to San
Jose. In the event of early termination of Ms. George's employment by the
Company without cause or voluntarily by Ms. George, the Company will continue
to pay Ms. George her base salary and all other benefits, excluding bonus, for
18 months and, in the case of termination of her employment by the Company
without cause, Ms. George's restricted phantom stock units vest and her
unexercisable stock options become exercisable.

Ms. George has also entered into a letter agreement with HB Acquisition (the
"George Equity Agreement") pursuant to which she will exchange a portion of
her options to purchase Common Stock for options to purchase capital stock of
the Company after the Bell Merger. Each share of Common Stock subject to an
option held by Ms. George that will be exchanged will be, for purposes of such
exchange, valued at the cash conversion price specified in the Merger
Agreement (exclusive of indemnification rights limited to an amount necessary
to avoid adverse tax consequences to Ms. George arising from such exchange).

In connection with the relocation of the Company's corporate offices to San
Jose, California during 1997, Mr. Kosick and the Company agreed that Mr.
Kosick would serve as U.S. Group President of the Company and that the Company
would reimburse Mr. Kosick for his commuting expenses and his living expenses
in San Jose. Mr. Kosick and the Company also agreed that, due to such
relocation, Mr. Kosick could elect to terminate his employment with the
Company and that such termination would constitute a "termination of his
employment for good reason" within the meaning of his employment agreement
with the Company. Mr. Kosick subsequently determined to terminate his
employment with the Company for that reason. In accordance of the terms of his
employment agreement, Mr. Kosick became entitled to receive his base salary,
bonus and all other benefits payable for a two year period following the
termination of his employment with the Company. The Company and Mr. Kosick
agreed that his Company stock options would become exercisable in full and
remain exercisable

47
<PAGE>

during such two year period and for 90 days thereafter. In addition, the
Company agreed that his unvested restricted stock and phantom stock units
would become fully vested. Mr. Kosick agreed that a bonus payment of $100,000
made to him on December 5, 1997 would be in lieu of any further bonus payments
to which he would have been entitled pursuant to his employment agreement.

The Company has a memorandum of understanding with Mr. McCaughen which
provides that he will serve as President of the Company's Canadian operations
for a term ending on June 30, 1999. Effective July 1, 1997, Mr. McCaughen
became entitled to an annual base salary of $150,000 and is eligible to
receive an annual cash bonus of up to 50% of such base salary in accordance
with the Company's management incentive programs.

The Company has an employment agreement with Ms. Bounds which provides that
she will serve as the Senior Vice President, Chief Financial Officer,
Treasurer and Secretary of Bell Sports Corp. and Bell Sports, Inc. The
employment agreement is for a term ending on March 31, 2000 unless terminated
earlier in the event of Ms. Bounds' death or disability, termination by the
Company with or without cause (as defined in the agreement) or by Ms. Bounds.
The agreement provides for an annual base salary of $160,000, subject to
annual increases in the discretion of the Company, annual bonuses in
accordance with the Company's management incentive program, with Ms. Bounds
participating in such program at a level which would result in a performance
bonus equal to 50% of her base salary if the target level of performance were
achieved. Ms. Bounds is entitled to a cash automobile allowance in the amount
of $400 per month. In the event of an early termination of the employment
agreement by the Company without cause or by Ms. Bounds for good reason (as
defined in the agreement), the Company will continue to pay Ms. Bounds her
base salary and all other benefits, excluding bonus, for 18 months and her
coverage under the medical, dental, life and long-term disability insurance
policies maintained by the Company will remain in effect during such period
and all of her Company stock options will become exercisable in full. The
Company and Ms. Bounds have agreed that her employment with the Company will
terminate on December 31, 1998 or such earlier date as the Company shall
determine, and that she will be entitled to the benefits described in the
immediately preceding sentence. The agreement provides for an employee
noncompetition/nonsolicitation period continuing until two years after the
termination of Ms. Bounds' employment thereunder.

The Company has entered into a severance agreement with Mr. Lee which
provides that if Mr. Lee's employment with the Company is terminated upon
certain circumstances (a "Qualifying Termination") during the two-year period
after a change in control (as defined in the agreement), Mr. Lee will receive
a severance payment and certain insurance benefits. A Qualifying Termination
includes a termination of employment with the Company, except for cause, death
or disability, or by Mr. Lee during such two-year period for good reason (as
defined in the agreement) or for any reason during the 30-day period
commencing ninety days after the change in control. The severance payments and
other benefits to be provided to Mr. Lee upon a Qualifying Termination would
be determined in accordance with his severance agreement and not his
employment agreement.

Upon a Qualifying Termination, Mr. Lee will be entitled to receive any
earned unpaid base salary, deferred compensation and accrued vacation pay and
the value of any unvested employer contributions for his benefit under the
Company's 401(k) Plan. For the one-year period commencing with the Qualifying
Termination, Mr. Lee will be entitled to cause the Company to repurchase
certain shares of Common Stock owned by him in the same manner as provided in
his employment agreement. Mr. Lee will also be entitled to receive certain
insurance benefits for the three-year period commencing with the date of the
termination.

If it is determined that payments made to Mr. Lee under his severance
agreement or otherwise would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") and it is
determined that the payments made to Mr. Lee after imposition of such excise
tax would be less than the amount he would receive if he received the maximum
amount that could be paid to him without the imposition of such excise tax,
then the amount paid under his severance agreement will be reduced so that the
payments made to him will be one dollar less than the amount that would
require payment of such excise tax.

48
<PAGE>

The Company has also entered into a severance agreement with Mr. McCaughen
which provides that if Mr. McCaughen's employment with the Company is
terminated upon certain circumstances (a "Qualifying Termination") during the
two-year period after a Change in Control (as defined in the agreement),
Mr. McCaughen will receive a severance payment and certain insurance benefits.
A Qualifying Termination includes the termination of employment with the
Company, except for cause, death or disability, or by Mr. McCaughen during
such two-year period (as defined in the agreement). The severance payments and
other benefits to be provided to Mr. McCaughen upon a Qualifying Termination
would be determined in accordance with his severance agreement and not his
employment agreement.

Upon a Qualifying Termination, Mr. McCaughen will be entitled to receive any
earned unpaid base salary, deferred compensation and accrued vacation pay. Mr.
McCaughen will also be entitled to receive from the Company, within 30 days
following the date of termination of Mr. McCaughen's employment, a lump sum
amount in an amount equal to Mr. McCaughen's highest annual base salary in
effect during the 12-month period prior to such date of termination and
reimbursement for certain outplacement expenses. Mr. McCaughen will also be
entitled to receive certain insurance benefits for the one-year period
commencing with the date of termination.

In the case of a merger, consolidation, dissolution or liquidation of the
Company, or in any other case in which the Management Stock Incentive
Committee determines that it is in the Company's best interest, the Management
Stock Incentive Committee may accelerate the exercisability of any outstanding
stock options issued under the 1991 Plan, the 1992 Plan or the 1996 Plan. Each
option to purchase Common Stock previously issued by the Company that is
outstanding immediately prior to the consummation of the Bell Merger (other
than options subject to the George Equity Agreement) will become fully vested
and exercisable immediately prior to the consummation of the Bell Merger. The
holder of any such option 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 the per share Merger Consideration over the applicable per share
exercise price.

In connection with the Bell Merger, Mr. Lee entered into an amended and
restated employment agreement with the Company (the "Lee Employment
Agreement") which will become effective upon the consummation of the Bell
Merger and which will replace his current employment, severance and
noncompetition agreements with the Company. 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 Company on a full-time basis for six months beginning at the
consummation of the Bell Merger 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, the Company will pay Mr. Lee a one-time cash bonus equal to
$860,800 upon the consummation of the Bell Merger. Mr. Lee will also be
eligible for an annual performance bonus if certain pre-established net income
criteria are met by the Company. The potential amount of this performance
bonus ranges from 25% to 125% of Mr. Lee's base salary during fiscal 1998 and
from 12.5% to 62.5% of his base salary during fiscal 1999.

In the event Mr. Lee's employment is terminated by the Company 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 the Company granted to Mr. Lee after the
consummation of the Bell Merger will vest and become immediately exercisable.
If, however, Mr. Lee's employment is terminated by the Company for cause or by
Mr. Lee for any reason other than good reason, the Company will not be
obligated to pay Mr. Lee any prorated bonus or continue his salary or bonus
opportunities past the date of termination. In the event termination of Mr.
Lee's employment is due to Mr. Lee's death or disability, the Company will be
obligated to pay certain additional amounts past the date of such event. The
Lee Employment Agreement contains a customary provision providing for the non-
disclosure of confidential information. The Lee Employment Agreement also
contains a noncompetition and nonsolicitation agreement for five years
following the consummation of the Bell Merger in consideration for which Mr.
Lee will be paid a total of $1,500,000 in three equal annual installments,
commencing upon the consummation of the Bell Merger.

49
<PAGE>

In connection with the Bell Merger, Ms. George entered into an amended and
restated employment agreement with the Company (the "George Employment
Agreement") which will become effective upon the consummation of the Bell
Merger and which will replace her current employment agreement with the
Company. 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
Company following the Bell Merger. 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 the Company's
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 the
Company's return on assets. In addition, the Company will grant stock options
to Ms. George upon the consummation of the Bell Merger equal to 41.76% of the
management option pool which will be comprised of 12% of the fully-diluted
common equity of the Company existing immediately after the Bell Merger. Fifty
percent of such stock options will vest and become exercisable equally over a
five-year period beginning on the date that is one year from the consummation
of the Bell Merger. 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 of
Directors of the Company. The terms and conditions of the awards to be
received by Ms. George may change upon development and implementation by the
Company of an equity-based management incentive program (described below).

In the event Ms. George's employment is terminated by the Company 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. Additionally, if Ms. George's
employment is terminated by the Company 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. If, however, Ms. George's employment is
terminated by the Company for cause, the Company will not be obligated to pay
Ms. George any prorated bonus or continue her salary past the date of
termination. In the event that the termination of Ms. George's employment is
due to Ms. George's death or disability, the Company will not be obligated to
pay additional salary past the date of such event, but Ms. George's stock
options will vest and become immediately exercisable and a prorated bonus may
be payable. Upon termination of Ms. George's employment prior to an initial
public offering of the Company's equity securities, the Company or its
designee will have the right to purchase and Ms. George will have the
obligation to sell any equity interests in the Company 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 the Company or its designee will
have the obligation to purchase all or any portion of any equity interests in
the Company 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 the
Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Lee and Mr. Matthews are the general partners of Mission Leasing and
Hayden Leasing ("Hayden Leasing"), general partnerships. On November 1, 1995,
the Company entered into a lease agreement with Hayden Leasing pursuant to
which the Company leased an airplane for a monthly fee of $3,000 during fiscal
1998. This lease agreement terminates on June 30, 1999. The Company also
leases automobiles for certain of its employees from Hayden Leasing. Payments
under these leases, excluding operating expenses, approximated $8,990 during
fiscal 1998. Operating expenses approximated $62,759 during fiscal 1998.

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52
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53
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of July 17, 1998 concerning
beneficial ownership of Common Stock by each person known by the Company to
own beneficially more than five percent of the outstanding shares of Common
Stock, each director, each Named Executive Officer and all directors and
executive officers of the Company as a group. Unless otherwise noted, the
listed persons have sole voting and dispositive power with respect to the
shares of Common Stock held in their names, subject to community property laws
if applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
OF COMMON STOCK OUTSTANDING
NAME OF BENEFICIAL HOLDER BENEFICIALLY OWNED SHARES
- ------------------------- ------------------ ----------------
<S> <C> <C>
Terry G. Lee (1)........................... 396,450 2.8%
Harry H. Manko (2)......................... 372,216 2.7%
Mary J. George (3)......................... 131,082 *
Howard A. Kosick (4)....................... 130,657 *
Robert Alan McCaughen (5).................. 24,640 *
Linda K. Bounds (6)........................ 40,292 *
W. Leo Kiely III (7)....................... 13,213 *
Kenneth K. Harkness (8).................... 16,913 *
Frederick D. Winter (8).................... 16,913 *
Phillip D. Matthews (9).................... 28,727 *
Christopher Wright (10).................... 256,349 1.8%
Michael R. Hannon (11)..................... 2,293,493 16.5%
Arnold L. Chavkin (11)..................... 2,293,493 16.5%
CB Capital Investors, Inc. (12)............ 2,281,080 16.4%
Dimensional Fund Advisors Inc. (13)........ 873,179 6.3%
Loomis, Sayles & Company, L.P. (14)........ 847,758 5.8%
All directors and executive officers as a
group (15 persons)(14).................... 3,737,837 25.6%
</TABLE>
- --------
*Less than one percent.
(1) The shares of Common Stock beneficially owned by Mr. Lee include 224,983
shares issuable upon the exercise of options which are exercisable or
which will become exercisable within 60 days following the date of this
Annual Report and 7,082 shares with respect to which Mr. Lee has sole
voting power but not dispositive power.
(2) The shares of Common Stock beneficially owned by Mr. Manko include 75,410
shares issuable upon the exercise of options which are exercisable or
which will become exercisable within 60 days following the date of this
Annual Report.
(3) The shares of Common Stock beneficially owned by Ms. George include
124,000 shares issuable upon the exercise of options which are
exercisable or which will become exercisable within 60 days following the
date of this Annual Report and 7,082 shares with respect to which Ms.
George has sole voting power but not dispositive power.
(4) The shares of Common Stock beneficially owned by Mr. Kosick include
123,575 shares issuable upon the exercise of options which are
exercisable or which will become exercisable within 60 days following the
date of this Annual Report and 7,082 shares with respect to which Mr.
Kosick has sole voting power but not dispositive power.
(5) The shares of Common Stock beneficially owned by Mr. McCaughen include
9,999 shares issuable upon the exercise of options which are exercisable
or which will become exercisable within 60 days following the date of
this Annual Report.
(6) The shares of Common Stock beneficially owned by Ms. Bounds include
39,792 shares issuable upon the exercise of options which are exercisable
or which will become exercisable within 60 days following the date of
this Annual Report.
(7) The shares of Common Stock beneficially owned by Mr. Kiely include 12,413
shares issuable upon the exercise of options which are exercisable or
which will become exercisable within 60 days following the date of this
Annual Report.
(8) The shares of Common Stock beneficially owned are shares issuable upon
the exercise of options which are exercisable or which will become
exercisable within 60 days following the date of this Annual Report.
(9) The shares of Common Stock beneficially owned by Mr. Matthews include
14,413 shares issuable upon the exercise of options which are exercisable
or which will become exercisable within 60 days following the date of
this Annual Report.

54
<PAGE>

(10) Mr. Wright is the general manager of the investment advisor to KB. Mr.
Wright beneficially owns 14,413 shares issuable upon the exercise of
options which will be exercisable or which will become exercisable within
60 days following the date of this Annual Report. The remaining 241,936
shares of Common Stock shown above are owned by KB; however, by reason of
his position with respect to the investment advisor to KB, Mr. Wright may
be deemed to beneficially own all of the shares owned by KB, with shared
voting and investment power over the shares. Mr. Wright disclaims
beneficial ownership of shares owned by KB.
(11) These shares of Common Stock beneficially owned by Messrs. Chavkin and
Hannon include, for each, 12,413 shares each issuable upon the exercise
of options which are exercisable or which will become exercisable within
60 days following the date of this Annual Report. Mr. Chavkin and Mr.
Hannon are General Partners of CCP, an affiliate of CB Capital Investors,
L.P. ("CBCI"). Accordingly, Messrs. Chavkin and Hannon may be deemed to
be the beneficial owners of the 2,281,080 shares of Common Stock held by
CBCI. Each of Messrs. Chavkin and Hannon disclaims beneficial ownership
of shares owned by CBCI.
(12) Based on a Schedule 13G/A filed with the SEC as of April 9, 1998. Such
Schedule 13G/A reports that CBCI is the assignee of CB Capital Investors,
Inc. and that as part of an internal reorganization, all of the
investment holdings of CB Capital Investors, Inc. were contributed to
CBCI. In connection with the Bell Merger, CBCI is expected to exchange
$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 the Company in the Bell Merger,
and does not necessarily represent a market valuation for such shares.
The address of CBCI is 380 Madison Avenue, 12th Floor, New York, New
York, 10017.
(13) Based on a Schedule 13G/A filed with the SEC as of February 10, 1998
which reports sole voting power with respect to 583,167 shares of Common
Stock and sole dispositive power with respect to 873,179 shares of Common
Stock. Such Schedule 13G/A reports that the securities reported are owned
by advisory clients of Dimensional Fund Advisors Inc. and that
Dimensional Fund Advisors Inc. disclaims beneficial ownership of all such
securities. The address of Dimensional Fund Advisors Inc. is 1299 Ocean
Ave., 11th Floor, Santa Monica, California 90401.
(14) Based on a Schedule 13G filed with the SEC as of February 12, 1998 which
reports sole voting power with respect to 715,685 shares of Common Stock,
shared voting power with respect to 118,663 shares of Common Stock and
shared dispositive power with respect to 847,758 shares of Common Stock.
Such Schedule 13G reports that it was filed with respect to shares of
Common Stock that Loomis, Sayles & Company, L.P. has a right to acquire
as a result of its beneficial ownership of convertible securities of the
Company. The address of Loomis, Sayles & Company, L.P. is One Financial
Center, Boston, Massachusetts, 02111.
(15) The shares of Common Stock beneficially owned include 697,650 shares
issuable upon the exercise of options to purchase Common Stock which are
exercisable or which will become exercisable within 60 days following the
date of this Annual Report as well as the shares beneficially owned by KB
or CBCI.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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 to
Mr. Bracy, which remains outstanding as of July 17, 1998. The loan is due upon
the earlier of (i) termination of employment, (ii) dissolution or liquidation
of Bell Sports, Inc., 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.
The loan is secured by a collateral pledge agreement with respect to security
with includes Common Stock issuable upon the exercise of options granted to
Mr. Bracy.

During fiscal 1997, the Company made a non-interest bearing secured loan of
$65,000 to Ms. George, which remains outstanding as of October 1, 1997. The
loan is due upon the earlier of (i) termination of employment,
(ii) dissolution or liquidation of Bell Sports, Inc., or (iii) September 24,
1999. Half of any cash bonus award earned by Ms. George will be applied to
reduce the outstanding balance of such loan. The loan is secured by a
collateral pledge agreement with respect to security which includes Common
Stock issuable upon the exercise of options granted to Ms. George.

See "Compensation Committee Interlocks and Insider Participation" and
"Employment Agreements."

55
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The consolidated financial statements, other financial data and consolidated
financial schedules of the Company and its subsidiaries, listed below are
included as part of this report:

<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S>
18 Report of independent accountants on consolidated financial
statements
19 Consolidated balance sheets--June 27, 1998 and June 28, 1997.
20 Consolidated statements of operations--years ended June 27, 1998,
June 28, 1997, and June 29, 1996.
22 Consolidated statements of cash flows--years ended June 27, 1998,
June 28, 1997, and June 29, 1996.
23 Notes to consolidated financial statements
61 Schedule II--Valuation and qualifying accounts
62 Report of independent accountants on financial statement schedule
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

(a)(3) Exhibits

Except for the documents that are marked with an asterisk, each of the
documents listed below has heretofore been filed (file number 0-19873) by the
Company with the Securities and Exchange Commission (the "Commission") and
each such document is incorporated herein by reference. The documents that are
marked with an asterisk are filed herewith.

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3(i) Restated Certificate of Incorporation of the Registrant, as amended
by the Certificate of Designation of Series A Junior Participating
Preferred Stock of the Registrant and as further amended on June
27, 1995 (Exhibit 4 (1) to the Registrant's Registration Statement
on Form S-8, File No. 33-94296)
3(ii) Bylaws of the Registrant (Exhibit 4 (2) to the Registrant's
Registration Statement on Form S-8, File No. 33-94296)
4.1 Certificate of Designation of Series A Junior Participating
Preferred Stock of Bell Sports Corp. (Exhibit 4 (2) to the
Registrant's Registration Statement on Form S-4, File No. 33-92344)
4.2 Stockholders Rights Agreement (the "Stockholders Rights Agreement")
dated as of September 22, 1994 between the Registrant and Harris
Trust & Savings Bank, as Rights Agent (Exhibit 1 of the
Registrant's Registration Statement on Form 8-A dated September 27,
1994)
4.3 First Amendment dated February 15, 1995 to the Stockholders Rights
Agreement (Exhibit 4 of the Registrant's Current Report on Form 8-K
dated February 15, 1995)
4.4 Second Amendment to Stockholders Rights Agreement dated February
17, 1998 (Exhibit 4 to the Registrant's Current Report on Form 8-K
dated February 17, 1998)
4.5 Indenture, dated as of November 15, 1993, between the Registrant
(Exhibit 4 (1) to the Registrant's Current Report on Form 8-K dated
October 26, 1993)
</TABLE>

56
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
4.6 Agreement and Plan of Recapitalization and Merger between the
Registrant and HB Acquisition Corporation dated February 17, 1998
(Exhibit 2 to the Registrant's Current Report on Form 8-K dated
February 17, 1998)
4.7 First Amendment to Agreement and Plan of Recapitalization and
Merger between the Registrant and HB Acquisition Corporation dated
April 8, 1998 (Exhibit 2 to the Registrant's Current Report on Form
8-K dated April 8, 1998)
10.1 Employment Agreement dated as of June 13, 1995 among Registrant,
Bell Sports, Inc. and Terry G. Lee (Exhibit 10 (1) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 1, 1995)
10.2 Severance Agreement dated as of January 3, 1995 among Registrant,
Bell Sports, Inc. and Terry G. Lee (Exhibit 10 (2) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994)
10.3 Amendment to Severance Agreement dated December 8, 1997 between the
Registrant, Bell Sports, Inc. and Terry G. Lee (Exhibit 10 (1) to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 27, 1997)
10.4 Phantom Stock Unit Agreement dated as of September 23, 1997 between
Registrant and Terry G. Lee (Exhibit 10 (3) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 28, 1997)
10.5 Noncompetition Agreement dated December 8, 1997 between the
Registrant, Bell Sports, Inc. and Terry G. Lee (Exhibit 10 (2) to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 27, 1997)
10.6 Amended and Restated Employment Agreement dated as of February 17,
1998 among Registrant, Bell Sports, Inc. and Terry G. Lee (Exhibit
10 (1) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 28, 1998)
10.7 Memorandum reference Employment Outline for Bill Bracy dated
November 26, 1997 (Exhibit 10 (6) to Registrant's Quarterly Report
of Form 10-Q for the quarter ended December 27, 1997)
10.8 Severance Agreement dated December 1, 1997 between the Registrant,
Bell Sports, Inc. and Bill Bracy (Exhibit 10 (7) to the
Registrant's Quarterly Report of Form 10-Q for the quarter ended
December 27, 1997)
10.9 Promissory Note dated April 8, 1998 between Bell Sports, Inc., and
Bill Bracy (Exhibit 10 (4) to Registrant's Quarterly Report of Form
10-Q for the quarter ended March 28, 1998)
10.10 Collateral Pledge Agreement dated April 8, 1998 between Bell
Sports, Inc. and Bill Bracy (Exhibit 10 (5) to the Registrant's
Quarterly Report of Form 10-Q for the quarter ended March 28, 1998)
10.11 Employment Agreement dated as of June 13, 1995 among Registrant,
American Recreation Company Holdings, Inc. and Harry H. Manko
(Exhibit 10 (1) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended July 1, 1995)
10.12 Employment Agreement dated as of February 15, 1997 among
Registrant, Bell Sports, Inc. and Mary J. George (Exhibit 10 (1) to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 29, 1997)
10.13 Amendment to Employment Agreement dated as of August 29, 1997 among
Registrant, Bell Sports, Inc. and Mary J. George (Exhibit 10 (9) to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended July 28, 1997)
10.14 Promissory Note between Bell Sports, Inc. and Mary George dated
September 24, 1996 (Exhibit 10 (1) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 27, 1997)
</TABLE>

57
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.15 Collateral Pledge Agreement between Bell Sports, Inc. and Mary
George dated September 24, 1996 (Exhibit 10 (2) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 27,
1997)
10.16 Phantom Stock Unit Agreement dated as of September 23, 1997 between
Registrant and Mary J. George (Exhibit 10 (10) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 28, 1997)
10.17 Amended and Restated Employment Agreement dated as of February 17,
1998 among Registrant, Bell Sports, Inc. and Mary J. George
(Exhibit 10 (2) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 28, 1998)
10.18 Employment Agreement dated as of April 25, 1997 among Registrant,
Bell Sports, Inc. and Linda K. Bounds (Exhibit 10 (2) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 29, 1997)
10.19 Phantom Stock Unit Agreement dated as of September 23, 1997 between
Registrant and Linda K. Bounds (Exhibit 10 (12) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 28, 1997)
10.20 Memorandum of Understanding dated January 28, 1998 between
Registrant and Linda K. Bounds (Exhibit 10 (3) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 28, 1998)
10.21 Memorandum reference Employment Contract Outline for Robert A.
McCaughen dated April 10, 1997 (Exhibit 10 (14) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 28, 1997)
10.22 Severance Agreement dated September 24, 1997 between Registrant,
Bell Sports, Inc. and Robert Alan McCaughen (Exhibit 10 (13) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 28, 1997)
10.23 Amendment to Severance Agreement dated December 8, 1997 between the
Registrant, Bell Sports, Inc. and Robert Alan McCaughen (Exhibit 10
(5) to Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 27, 1997)
10.24 Employment Agreement dated as of June 13, 1995 among Registrant,
Bell Sports, Inc. and Howard A. Kosick (Exhibit 10 (1) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 1, 1995)
10.25 Amendment to Severance Agreement dated December 8, 1997 between the
Registrant, Bell Sports, Inc. and Howard A. Kosick (Exhibit 10 (3)
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 27, 1997)
10.26 Memorandum of Understanding dated December 10, 1997 between
Registrant, Bell Sports, Inc. and Howard A. Kosick (Exhibit 10 (4)
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 27, 1997)
10.27 Restated and Amended 1991 Management Stock Incentive Plan (Exhibit
10 (24) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 27, 1992)
10.28 Restated and Amended 1992 Management Stock Incentive Plan (Exhibit
4 (3) to the Registrant's Registration Statement on Form S-8, File
No. 33-94296)
10.29 American Recreation Company Holdings, Inc. Stock Option Plan
(Exhibit 4 (3) to the Registrant's Registration Statement on Form
S-8, File No. 33-94298)
10.30 Restated and Amended 1992 Outside Directors Stock Option Plan,
(Exhibit 10 (25) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 27, 1992)
10.31 Restated and Amended 1993 Outside Directors Stock Option Plan,
(Exhibit 10 (1) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 28, 1996)
</TABLE>

58
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.32 1996 Stock Option Plan (Exhibit 4 (c) to the Registrant's
Registration Statement on Form S-8, File No. 333-4468)
10.33 U.S. $100,000,000 Multicurrency Credit Agreement dated as of
February 15, 1996 Among Bell Sports Corp., the guarantors party
thereto, the banks party thereto, and Harris Trust and Savings Bank
as Agent (Exhibit 10 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 30, 1996)
10.34 First Amendment to Credit Agreement dated April 22, 1996 between
Bell Sports Corp., the guarantors party thereto, the banks party
thereto, and Harris Trust and Savings Bank as Agent (Exhibit 10
(14) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 29, 1996)
10.35 Second Amendment to the Credit Agreement dated August 9, 1996
between Bell Sports Corp., the guarantors party thereto, the banks
party thereto, and Harris Trust and Savings Bank as Agent (Exhibit
10 (15) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 29, 1996)
10.36 Third Amendment to the Credit Agreement dated April 28, 1997
between Bell Sports Corp., the guarantors party thereto, the banks
party thereto, and Harris Trust and Savings Bank as Agent (Exhibit
10 (5) to the Registrant's Current Report on Form 8-K dated April
29, 1997)
10.37 Form of Vehicle Lease Agreement between Bell Sports, Inc. and
Mission Leasing, (Exhibit 10 (77) to the Registrant's Registration
Statement on Form S-1, File No. 33-45868)
10.38 Form of Equipment Lease Agreement between Bell Sports, Inc. and
Mission Leasing, (Exhibit 10 (78) to the Registrant's Registration
Statement on Form S-1, File No. 33-45868)
10.39 Lease of Aircraft between Bell Sports, Inc. and Hayden Leasing,
L.C. dated November 1, 1995
21* Subsidiaries of the Registrant
23* Consent of PricewaterhouseCoopers LLP
27.1* Financial data schedule for 1998
27.2* Restated financial data schedule for 1997
</TABLE>
- --------
*Filed herewith

Exhibits 10.1 through 10.32 listed are the management contracts and
compensatory plans or arrangements required to be filed as exhibits hereto
pursuant to the requirements of Item 601 of Regulation S-K.

59
<PAGE>

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THIS 27TH DAY OF JULY, 1998.

<TABLE>
<CAPTION>
NAME
----

<S> <C>
/s/ Terry G. Lee Chairman and Chief Executive Officer
___________________________________________ (principal executive officer)
Terry G. Lee

/s/ Linda K. Bounds Chief Financial Officer, Secretary and
___________________________________________ Treasurer (principal financial and
Linda K. Bounds accounting officer)

/s/ Harry H. Manko Director and Vice Chairman
___________________________________________
Harry H. Manko

/s/ Phillip D. Matthews Director
___________________________________________
Phillip D. Matthews

/s/ Arnold L. Chavkin Director
___________________________________________
Arnold L. Chavkin

/s/ Michael R. Hannon Director
___________________________________________
Michael R. Hannon

/s/ Kenneth K. Harkness Director
___________________________________________
Kenneth K. Harkness

/s/ W. Leo Kiely, III Director
___________________________________________
W. Leo Kiely, III

/s/ Frederick W. Winter Director
___________________________________________
Frederick W. Winter

/s/ Christopher Wright Director
___________________________________________
Christopher Wright
</TABLE>

60
<PAGE>

BELL SPORTS CORP.

SCHEDULE II--VALUATION
AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE FISCAL YEARS
IN THE PERIOD ENDED JUNE 27, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
June 27, 1998
Deferred tax asset
valuation allowance.... $1,970 $ 172 $1,798
Allowance for doubtful
accounts............... $5,021 $(1,077)(b) $(1,300) $3,108 $1,690
Inventory valuation
allowance.............. $3,326 $ 2,340 $3,367 $2,299
June 28, 1997
Deferred tax asset
valuation allowance.... $1,305 $ 655 $1,970
Allowance for doubtful
accounts............... $3,448 $ 4,553 $2,980 $5,021
Inventory valuation
allowance.............. $6,599 $ 2,876 $6,149 $3,326
June 29, 1996
Deferred tax asset
valuation allowance.... $2,001 $ (362) $ (334) $1,305
Allowance for doubtful
accounts............... $ 647 $ 2,481 $ 1,996 (a) $1,676 $3,448
Inventory valuation
allowance.............. $1,298 $ 3,602 $ 9,696 (a) $7,997 $6,599
</TABLE>
- --------
(a) Acquisition accrual recorded to goodwill.
(b) Reversal to Loss on Disposal of Product Line.

61
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
and Stockholders of
Bell Sports Corp.

Our audits of the consolidated financial statements referred to in our
report dated July 27, 1998 appearing on page 17 of this Form 10-K also
included an audit of the Financial Statement Schedule listed in Item 14 of
this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

San Francisco, California
July 27, 1998

<PAGE>

EXHIBIT 21

BELL SPORTS CORP.

SUBSIDIARIES OF THE REGISTRANT

1. Bell Sports, Inc., a California corporation (a wholly owned subsidiary)

2. Euro Bell S.A., a French corporation (99% owned by Bell Sports, Inc.)

3. American Recreation Company Holdings, Inc. ("AMRE"), a Delaware corporation
(a wholly owned subsidiary)

4. American Recreation Company, Inc., a Delaware corporation (a wholly owned
subsidiary of AMRE)

5. Bell Sports Canada, Inc., a Canadian corporation (50% owned subsidiary of
Bell Sports, Inc. and 50% owned by American Recreation Company, Inc.)

6. Giro Sport Design International, Inc., a California corporation (a wholly
owned subsidiary of Bell Sports, Inc.)

7. Giro Ireland Limited, an Ireland corporation (a wholly owned subsidiary of
Giro Sport Design International, Inc.)

8. Bell Sports Australia Pty Limited, an Australian corporation (a wholly
owned subsidiary of Bell Sports, Inc.)

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-53634, No. 33-53636, No. 33-53638, No. 33-
56366, No. 33-56368, No. 33-77134, No. 33-77136, No. 33-94296, No. 33-94298,
No. 333-4468, No. 333-4470, No. 333-4472, and No. 333-22879) of Bell Sports
Corp. of our report dated July 27, 1998 appearing on page 17 of this Form 10-
K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 61 of the Form 10-K.

PRICEWATERHOUSECOOPERS LLP

San Francisco, California
July 27, 1998

<PAGE>

<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JUN-27-1998 JUN-27-1998 JUN-27-1998 JUN-27-1998
<PERIOD-START> JUN-29-1997 JUN-29-1997 JUN-29-1997 JUN-29-1997
<PERIOD-END> JUN-27-1998 MAR-28-1998 DEC-27-1997 SEP-27-1997
<CASH> 45,093 25,265 36,992 46,177
<SECURITIES> 0 0 0 0
<RECEIVABLES> 65,162 67,639 50,154 46,277
<ALLOWANCES> 1,690 2,321 2,404 4,367
<INVENTORY> 39,679 52,601 49,143 44,546
<CURRENT-ASSETS> 160,478 154,412 148,471 147,721
<PP&E> 42,426 40,696 39,728 38,636
<DEPRECIATION> 21,790 20,471 19,302 17,918
<TOTAL-ASSETS> 247,067 247,330 242,478 242,453
<CURRENT-LIABILITIES> 30,041 31,884 29,781 29,165
<BONDS> 88,767 91,853 92,261 93,083
0 0 0 0
0 0 0 0
<COMMON> 144 144 143 143
<OTHER-SE> 128,115 123,449 120,293 120,062
<TOTAL-LIABILITY-AND-EQUITY> 247,067 247,330 242,478 242,453
<SALES> 207,236 138,554 86,222 43,632
<TOTAL-REVENUES> 207,236 138,554 86,222 43,632
<CGS> 137,672 93,591 59,459 30,155
<TOTAL-COSTS> 137,672 93,591 59,459 30,155
<OTHER-EXPENSES> 52,669 34,781 22,866 11,282
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 4,715 3,539 2,350 1,167
<INCOME-PRETAX> 13,896 6,643 1,547 1,028
<INCOME-TAX> 5,318 (2,524) (588) (391)
<INCOME-CONTINUING> 8,578 4,119 959 637
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 8,578 4,119 959 637
<EPS-PRIMARY> 0.62 .30 .07 .05
<EPS-DILUTED> 0.61 .29 .07 .05

</TABLE>

<PAGE>

<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JUN-28-1997 JUN-28-1997 JUN-28-1997 JUN-28-1997
<PERIOD-START> JUN-30-1996 JUN-30-1996 JUN-30-1996 JUN-30-1996
<PERIOD-END> JUN-28-1997 MAR-29-1997 DEC-28-1996 SEP-28-1996
<CASH> 29,008 26,755 28,424 24,951
<SECURITIES> 0 0 0 5,118
<RECEIVABLES> 80,935 94,780 70,091 63,515
<ALLOWANCES> 5,020 5,474 2,906 3,086
<INVENTORY> 46,549 76,863 75,951 61,321
<CURRENT-ASSETS> 167,520 211,325 186,921 170,502
<PP&E> 40,825 42,421 42,933 40,969
<DEPRECIATION> 17,087 16,843 16,889 15,476
<TOTAL-ASSETS> 268,754 309,776 302,106 285,960
<CURRENT-LIABILITIES> 36,843 41,014 29,913 29,176
<BONDS> 112,946 154,498 135,909 120,282
0 0 0 0
0 0 0 0
<COMMON> 143 142 142 142
<OTHER-SE> 118,822 114,122 136,142 136,360
<TOTAL-LIABILITY-AND-EQUITY> 268,754 309,776 302,106 285,960
<SALES> 259,534 189,267 118,691 62,068
<TOTAL-REVENUES> 259,534 189,267 118,691 62,068
<CGS> 183,098 135,037 85,177 44,560
<TOTAL-COSTS> 183,098 135,037 85,177 44,560
<OTHER-EXPENSES> 67,876 74,826 33,121 17,499
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 7,289 5,467 3,526 1,796
<INCOME-PRETAX> (21,151) (26,063) (841) 5
<INCOME-TAX> 2,963 (3,649) (369) (2)
<INCOME-CONTINUING> (18,188) (22,414) (472) 3
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (18,188) (22,414) (472) 3
<EPS-PRIMARY> (1.33) (1.63) (.03) .00
<EPS-DILUTED> (1.33) (1.63) (.03) .00

</TABLE>