SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarterly period ended December 26, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19873
BELL SPORTS CORP.
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(Exact name of registrant as specified in its charter)
Delaware 36-3671789
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
6350 San Ignacio Avenue, San Jose, California 95119
- --------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(408) 574-3400
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Date Number of Shares
- ----- ---- ----------------
Class A Common Stock, $.01 par value January 26, 1999 800,971
Class B Common Stock, $.01 par value January 26, 1999 none
Class C Common Stock, $.01 par value January 26, 1999 none
<PAGE>
BELL SPORTS CORP.
INDEX TO FORM 10-Q
PART I
Page
Number
------
Bell Sports Corp. and Subsidiaries Consolidated Balance Sheets
as of December 26, 1998, and June 27, 1998 3
Bell Sports Corp. and Subsidiaries Consolidated Statements of
Operations for the six months and three months ended
December 26, 1998, and December 27, 1997 4
Bell Sports Corp. and Subsidiaries Consolidated Statements of
Cash Flows for the six months ended December 26, 1998, and
December 27, 1997 5
Notes to Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 15
PART II
Items 1 to 6 16
Signatures 17
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 26, June 27,
1998 1998
---- ----
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 6,465 $ 45,093
Accounts receivable 51,492 63,472
Inventories 46,303 39,679
Deferred taxes and other current assets 13,200 12,234
--------- ---------
Total current assets 117,460 160,478
Property, plant and equipment 19,076 20,636
Goodwill 53,359 54,292
Intangibles and other assets 17,801 11,661
--------- ---------
Total assets $ 207,696 $ 247,067
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,766 $ 7,663
Accrued compensation and employee benefits 2,890 5,541
Accrued expenses 17,318 16,158
Notes payable and current maturities of
long-term debt and capital lease obligations 6,045 679
--------- ---------
Total current liabilities 34,019 30,041
Long-term debt 149,560 86,625
Capital lease obligations and other liabilities 4,261 2,142
--------- ---------
Total liabilities 187,840 118,808
--------- ---------
Commitments and contingencies
Stockholders' equity
Series A Preferred Stock; 6% cumulative, $.01 par
value; authorized 1,500,000 shares, 970,873
shares issued and outstanding at December 26, 1998 49,505 --
Preferred stock; $.01 par value; authorized
1,000,000 shares, none issued at June 27, 1998 -- --
Class A Common Stock; $.01 par value; authorized
900,000 shares; 800,971 shares issued and
outstanding at December 26, 1998 8 --
Class B Common Stock; $.01 par value; authorized
150,000 shares, none issued -- --
Class C Common Stock; $.01 par value; authorized
50,000 shares, none issued -- --
Common Stock; $.01 par value; authorized 25,000,000
shares; 14,410,508 shares issued and 13,915,436
shares outstanding at June 27, 1998 -- 144
Additional paid-in capital (8,169) 143,905
Accumulated other comprehensive income (1,663) (1,111)
Accumulated deficit (19,825) (9,461)
--------- ---------
19,856 133,477
Treasury stock, at cost, none at December 26, 1998,
and 495 shares at June 27, 1998 -- (5,218)
--------- ---------
Total stockholders' equity 19,856 128,259
--------- ---------
Total liabilities and stockholder's equity $ 207,696 $ 247,067
========= =========
See accompanying notes to these consolidated financial statements
3
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------------- -------------------------
December 26, December 27, December 26, December27,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 85,939 $ 86,222 $ 45,021 $ 42,590
Cost of sales 57,876 59,459 30,502 29,304
-------- -------- -------- --------
Gross profit 28,063 26,763 14,519 13,286
Selling, general and
administrative expenses 23,657 22,641 12,273 11,566
Amortization of goodwill
and intangible assets 1,061 1,202 499 566
Transaction costs 13,979 -- 2,505 --
Disposal of product line
adjustment -- (1,300) -- (1,300)
Restructuring charges -- 1,228 -- 1,228
Net investment income (810) (905) (209) (476)
Interest expense 6,742 2,350 4,204 1,183
-------- -------- -------- --------
(Loss) income before income taxes (16,566) 1,547 (4,753) 519
Benefit (provision) for income
taxes 3,315 (588) 1,949 (197)
-------- -------- -------- --------
(Loss) income before extraordinary
items (13,251) 959 (2,804) 322
Extraordinary item: Gain on early
extinguishment of debt, net of
taxes of $2,006 2,887 -- -- --
-------- -------- -------- --------
Net (loss) income $(10,364) $ 959 $ (2,804) $ 322
======== ======== ======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
December 26, December 27,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) before extraordinary item $ (13,251) $ 959
Adjustments to reconcile net income (loss) before
extraordinary items to net cash provided by (used in)
operating activities:
Amortization of goodwill and intangibles 1,061 1,199
Depreciation 2,825 2,785
Loss on disposal of property, plant, and equipment 1,155 133
Provision for doubtful accounts 377 (719)
Provision for inventory obsolescence 1,362 1,058
Deferred income taxes (459) --
Other 1,593 254
Changes in assets and liabilities:
Accounts receivable 11,640 23,273
Inventories (8,064) (8,199)
Other assets (830) 1,399
Accounts payable 48 (879)
Other liabilities (847) (6,100)
--------- --------
Net cash provided by (used in) operating activities (3,390) 15,163
--------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Capital expenditures (2,341) (2,206)
Proceeds from the sale of SportRack -- 13,427
--------- --------
Net cash provided by (used in) investing activities (2,341) 11,221
--------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 1,001
Proceeds from issuance of senior subordinated notes 110,000 --
Expenditures related to issuance of senior subordinated notes (4,700) --
Proceeds from issuance of senior discount notes 15,000 --
Proceeds from issuance of preferred stock 44,555 --
Repurchase of common stock (142,350) --
Tender of subordinated debentures (57,681) --
Payments on notes payable, long-term debt and capital leases (918) (358)
Net borrowings (payments) on line of credit agreement 5,404 (18,633)
Expenditures related to issuance of line of credit (1,381) --
--------- --------
Net cash used in financing activities (32,071) (17,990)
--------- --------
Effect of exchange rate changes on cash (826) (410)
--------- --------
Net increase (decrease) in cash and cash equivalents (38,628) 7,984
Cash and cash equivalents at beginning of period 45,093 29,008
--------- --------
Cash and cash equivalents at end of period $ 6,465 $ 36,992
========= ========
</TABLE>
See accompanying notes to these consolidated financial statements
5
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Bell Sports Corp. and its wholly-owned subsidiaries (collectively, 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.
The Company is also a leading supplier of auto racing helmets, a worldwide
supplier of bicycle accessories, and has recently begun marketing in-line
skating, snowboarding, snow skiing and water sport helmets.
On August 17, 1998, the Company consummated the Agreement and Plan of
Recapitalization and Merger with HB Acquisition Corporation, a Delaware
corporation ("HB Acquisition"), which provided for the merger of HB Acquisition
with and into Bell, with Bell continuing as the surviving corporation (the "Bell
Merger"). Additionally, the Company completed a tender offer (the "Tender
Offer") to purchase $62.5 million aggregate principal amount of its 4 1/4%
Convertible Subordinated Debentures due November 2000 (the "Debentures"). The
Company's wholly-owned subsidiary, Bell Sports, Inc., consummated the private
placement of $110.0 million of its 11% Series A Senior Subordinated Notes due
August 15, 2008 (the "Notes") and the Company completed the private placement of
$15.0 million of its 14% Senior Discount Notes due August 14, 2009 (the
"Discount Notes").
PRINCIPLES OF CONSOLIDATION AND ACCOUNTING PERIOD
The consolidated financial statements include the accounts of Bell Sports Corp.
and its wholly-owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation. The Company's fiscal year is
either a fifty-two or fifty-three week accounting period ending on the Saturday
that is nearest to the last day of June. The Company's fiscal second quarter in
both 1999 and 1998 had thirteen weeks.
UNAUDITED INFORMATION AND BASIS OF PRESENTATION
The consolidated balance sheet as of December 26, 1998 and statements of
operations and cash flows for all periods included in the accompanying financial
statements have not been audited. In the opinion of management these financial
statements include all normal and recurring adjustments necessary for a fair
presentation of such financial information. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the full year.
The financial information included herein has been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The interim financial
information and the notes thereto should be read in conjunction with the audited
financial statements for the fiscal years ended June 27, 1998, June 28, 1997 and
June 29, 1996 which are included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 27, 1998.
ACCOUNTS RECEIVABLE
Accounts receivable at December 26, 1998 and June 27, 1998 are net of allowances
for doubtful accounts of $1.6 million and $1.7 million, respectively.
6
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PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 26, 1998 and June 27, 1998 are net of
accumulated depreciation of $23.2 million and $21.8 million, respectively.
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.
NOTE 2 - COMPREHENSIVE INCOME
Effective June 28, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting and display of comprehensive income and its
components. Comprehensive income is generally defined as all changes in equity
during a period except those resulting from investments by owners or
distributions to owners. For the Company, comprehensive income for all periods
presented consisted solely of net earnings and foreign currency translation
adjustments as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------------- --------------------------
December 26, December 27, December 26, December 27,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(10,364) $ 959 $(2,804) $ 322
Foreign currency translation
adjustment, net of tax (552) (368) (831) (290)
-------- ----- ------- -----
Comprehensive income (loss) $(10,916) $ 591 $(3,635) $ 32
======== ===== ======= =====
</TABLE>
NOTE 3 - INVENTORIES
Inventories consist of the following components (in thousands):
December 26, June 27,
1998 1998
---- ----
Raw materials $ 5,677 $ 3,539
Work in process 2,035 2,010
Finished goods 38,591 34,130
------- -------
Total $46,303 $39,679
======= =======
NOTE 4 - PRODUCT LIABILITY AND CONTINGENCIES
PRODUCT LIABILITY
The Company is subject to various product liability claims and/or suits brought
against it for claims involving damages for personal injuries or deaths.
Allegedly, these injuries or deaths relate to the use by claimants of products
manufactured by the Company and, in certain cases, products manufactured by
others. The ultimate outcome of these existing claims and any potential future
claims cannot presently be determined. Management believes that existing product
liability claims/suits are defensible and that, based on the Company's past
7
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experience and assessment of current claims, the aggregate of defense costs and
any uninsured losses will not have a material adverse impact on the Company's
liquidity or financial position.
The cost of product liability insurance fluctuated greatly in past years and the
Company opted to self-insure claims for certain periods. The Company has been
covered by product liability insurance since July 1, 1991. This insurance is
subject to a self-insured retention. There is no assurance that insurance
coverage will be available or economical in the future.
The Company sold its motorcycle helmet manufacturing business in June 1991 in a
transaction in which the purchaser assumed all responsibility for product
liability claims arising out of helmets manufactured prior to the date of
disposition and the Company agreed to use its in-house defense team to defend
these claims at the purchaser's expense. If the purchaser is for any reason
unable to pay the judgment, settlement amount or defense costs arising out of
this or any other claim, the Company could be held responsible for the payment
of such amounts or costs. The Company believes that the purchaser does not
currently have the financial resources to pay any significant judgment,
settlement amount, or defense costs arising out of this or any other claim.
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 an appeal of the verdict.
In June 1998, a Wilmington, Delaware jury returned a verdict against the Company
relating to injuries sustained in a 1991 off-road motorcycle accident. The
judgment totaled $1.8 million, excluding any interest, fees or costs which may
be assessed. The claim is covered by insurance; however, the Company is
responsible for a $1.0 million self-insured retention. The Company has filed
post-trial motions to set aside the jury's verdict and to appeal any judgment
against the Company that might be entered in the action.
Based on management's extensive consultation with legal counsel prosecuting the
appeals and the Company's experience in pursuing reversals and settlements after
the entry of judgments against it, 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 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.
SHAREHOLDER LITIGATION
Following the announcement of the Bell Merger, 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 was consummated. The
complaints, which were filed by Jeffrey Kaplan, Jerry Krim and Cyrus Schwartz,
purported stockholders of the Company, named the Company, HB Acquisition, Chase
Capital Partners, CBCI and the Company's then current directors as defendants.
To the knowledge of the Company, none of the complaints has been served. The
complaints alleged, among other things, that the Bell Merger was unfair to the
Company's former public stockholders and that certain defendants who were
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
8
<PAGE>
had a conflict of interest which caused them, and the Company's the current
directors, to breach their fiduciary duties to the Company's former
stockholders. The complaints seek rescission of the Bell Merger or rescissory
damages and an "accounting", in addition to attorney's fees and costs. The
lawsuit filed by Jeffrey Kaplan was subsequently withdrawn, without prejudice to
refile. The Company believes that the allegations contained in the remaining two
complaints are without merit and intends to vigorously defend such actions.
ENVIRONMENTAL LITIGATION
In May 1998, the Company 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 ("Oil Site") in Monterey Park, California. CERCLA imposes
liability for the costs of cleaning up, and certain damages resulting from,
releases and threatened releases of hazardous substances. Although courts have
interpreted CERCLA liability to be joint and several, where feasible, the
liability typically is allocated among the responsible parties according to a
volumetric or other standard. USEPA apparently has identified the Company as a
DE MINIMIS potentially responsible party based on several waste shipments the
Company allegedly sent to the site in the late 1970s and in 1980. USEPA's
settlement offer to the Company is in the range of $29,000 to $36,000. The
settlement would cover all past and expected future costs at the Oil Site, and,
with limited exceptions, 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.
NOTE 5 - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
On August 17, 1998, the Company's wholly-owned subsidiary, Bell Sports, Inc.
issued Notes totaling $110.0 million, bearing interest at 11%. Interest on the
Notes is payable on February 15 and August 15 of each year. The Notes are
redeemable, in whole or in part, at the option of Bell Sports, Inc. at any time
on or after August 15, 2003, in cash, at specified redemption prices.
On August 17, 1998, the Company issued Discount Notes bearing interest at 14%
totaling $15.0 million in a private placement transaction. Interest on the
Discount Notes accrues on June 1 and December 1 of each year.
On August 17, 1998, the Company consummated the Tender Offer at a purchase price
of $905, plus accrued and unpaid interest from May 15, 1998 up to, but not
including, the date of payment for each $1,000 principal amount of the
Debentures. Accordingly, the Company realized an extraordinary gain, stated on
an after-tax basis and net of related fees and expenses, of $2.9 million. The
Debentures remaining outstanding of $23.8 million are redeemable at the
Company's option at any time on or after November 15, 1996, at specified
redemption prices.
In August 1998, the Company and its wholly-owned subsidiary, Bell Sports, Inc.
(the "Borrower") entered into a $60.0 million senior secured revolving credit
facility ("Credit Agreement").
The Credit Agreement is guaranteed by the Company and by certain of its
subsidiaries (collectively, the "Subsidiary Guarantors" and together with the
Company, the "Guarantors"). The Borrower's obligations under the Credit
Agreement are secured by (a) substantially all of the tangible and intangible
assets of the Borrower and each Guarantor, (b) the capital stock of the Borrower
and each Subsidiary Guarantor and (c) 65% of the capital stock of certain
foreign subsidiaries of the Company.
The Credit Agreement expires on August 17, 2003. The aggregate amount of
borrowings permitted under the Revolving Credit Facility is limited by a
borrowing base formula equal to a percentage of the eligible domestic accounts
receivable and inventory of the Borrower and the Subsidiary Guarantors plus an
amount allowed for the retirement of convertible debt. The Credit Agreement
provides for mandatory repayments from time to time to the extent the amount
outstanding thereunder exceeds the maximum amount permitted under the borrowing
base. Based on the provisions of the Credit Agreement, the Borrower could borrow
a maximum of $48.9 million as of December 26, 1998. As of December 26, 1998,
there were borrowings outstanding of $5.0 million under the Credit Agreement.
9
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The Credit Agreement provides the Company with the option of borrowing based
either on the U.S. prime plus a margin or LIBOR plus a margin. Through February
1999, the margins are set at 0.50% for U.S. prime and 1.50% for LIBOR.
Thereafter, the margin for the U.S. prime can fluctuate between 0.0% and 1.0%,
and the margin for LIBOR loans can fluctuate between 1.0% and 2.0% based on the
Company's earnings and debt. Under the credit agreement, the Borrower is
required to pay a quarterly commitment fee on the unused portion of the facility
at a rate that ranges from 0.375% to 0.50% per annum, based on a pricing ratio.
Through February 1999, the quarterly commitment fee is fixed at 0.50% per annum.
The Credit Agreement contains certain financial covenants, including a maximum
leverage ratio, a minimum fixed charge coverage ratio and a minimum cash
interest coverage ratio. It also contains covenants which restrict the ability
of the Company to pay dividends, incur liens, issue certain types of debt or
equity, engage in mergers, acquisitions or asset sales, or to make capital
expenditures. At December 26, 1998, the Company was in compliance with all bank
covenants.
Long-term debt consists of the following (in thousands):
December 26, June 27,
1998 1998
---- ----
11% Notes $ 110,000 $ --
4 1/4% Debentures 23,750 86,250
14% Discount notes 15,000 --
Borrowings under line of credit 5,000 --
Notes collateralized by certain equipment
due at various dates through December 2000
and bearing interest at fixed rates ranging
from 2.9% to 10.3% 1,186 936
--------- --------
154,936 87,186
Less: Current maturities (5,376) (561)
--------- --------
Total long-term debt $ 149,560 $ 86,625
========= ========
NOTE 6 - STOCKHOLDERS' EQUITY
PREFERRED STOCK
In connection with the Bell Merger, the Company issued Series A Preferred Stock,
par value $.01 (the "Series A Preferred Stock"). Each holder is entitled to
receive dividends on each share at the rate of six percent (6%) per annum
(computed on the basis of $50.99 per share), if, as and when declared by the
Board of Directors of the Company, subject to certain restrictions. Dividends on
the shares of Series A Preferred Stock are payable on June 30, September 30,
December 31, and March 31 of each year (a "Dividend Payment Date"), commencing
September 30, 1998. If, on any Dividend Payment Date, the holders of the Series
A Preferred Stock have not received the full dividends, then such dividends
shall accumulate, whether or not earned or declared, with additional dividends
thereon, compounded quarterly, at the dividend rate of six percent (6%) per
annum, for each succeeding full quarterly dividend period during which such
dividends remain unpaid.
STOCK OPTIONS
On August 17, 1998, the Company granted an option to purchase 20,511 shares of
Series A Preferred Stock at an exercise price of $36.15 per share and 16,921
shares of Class A Common Stock, $.01 par value at an exercise price of $.44 per
share (the "Options") to a member of management. The options are immediately
exercisable and must be exercised, if at all, on or before August 27, 2006.
Compensation expense of approximately $307,000 was recorded in selling, general
and administrative expenses during the first quarter of fiscal 1999 related to
the grant of the Options.
10
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INVESTMENT AND INCENTIVE PLAN
In November 1998, the Board of Directors approved two investment plans (the
"Plans") to allow selected employees, directors, consultants and/or advisors the
opportunity to make an equity investment in the Company. Under the Plans, up to
15,000 shares of Series A Preferred Stock, 12,500 shares of Class A Common
Stock, 132,100 shares of Class B Common Stock and 50,000 shares of Class C
Common Stock can be purchased by participants. As of December 26, 1998, no
shares had been purchased under the Plans.
NOTE 7 - SUBSEQUENT EVENTS
During January, 1999, the Company approved and announced a plan to restructure
it Giro U.S. operations. Over the next twelve months, the Company will
consolidate Giro's Santa Cruz, California manufacturing and distribution
operations with Bell's Rantoul, Illinois Facility. At this time costs associated
with the restructuring including severance benefits, facility closing costs and
capital asset disposal cannot be reasonably estimated.
11
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Bell Sports is the leading manufacturer and marketer of bicycle helmets
worldwide and a leading supplier of a broad line of bicycle accessories in North
America. The Company is also a leading supplier of auto racing helmets, a
worldwide supplier of bicycle accessories, and has recently begun marketing
in-line skating, snowboarding, snow skiing and water sport helmets. The Company
has developed a reputation over its 44-year history for innovation, design,
quality and safety.
On August 17, 1998, the Company consummated the Agreement and Plan of
Recapitalization and Merger with HB Acquisition Corporation, a Delaware
corporation ("HB Acquisition"), which provided for the merger of HB Acquisition
with and into Bell, with Bell continuing as the surviving corporation (the "Bell
Merger"). Additionally, the Company completed a tender offer (the "Tender
Offer") to purchase $62.5 million aggregate principal amount of its 4 1/4%
Convertible Subordinated Debentures due November 2000 (the "Debentures"). The
Company's wholly-owned subsidiary, Bell Sports, Inc., consummated the private
placement of $110.0 million of its 11% Series A Senior Subordinated Notes due
August 15, 2008 (the "Notes") and the Company completed the private placement of
$15.0 million of its 14% Senior Discount Notes due August 14, 2009 (the
"Discount Notes").
RESULTS OF OPERATIONS
NET SALES. Net sales for the second quarter of fiscal 1999 increased 6% to $45.0
million from $42.6 million in the fiscal 1998 second quarter, due primarily to
strong bicycle helmet and accessories sales in the U.S. in both the mass
merchant and independent bicycle dealer channels. Year to date, net sales
remained flat as compared to the prior year, primarily as a result of lower
helmet and accessories sales in the first quarter of fiscal 1999, which were
recovered in the second quarter.
The product line sales mix for the six month and three month periods are as
follows:
Six Months Ended Three Months Ended
-------------------------- ---------------------------
December 26, December 27, December 26, December 27,
1998 1997 1998 1997
---- ---- ---- ----
PRODUCT LINE SALES MIX:
Bicycle accessories 53% 54% 50% 50%
Bicycle helmets 45% 44% 48% 47%
Auto Racing helmets 2% 2% 2% 3%
GROSS MARGIN. Gross margins for the second quarter of fiscal 1999 increased to
32% of net sales, from 31% in the fiscal 1998 second quarter. Year to date,
gross margins increased to 33% in fiscal 1999 from 31% in fiscal 1998. The
increases are due to the continued improvement in the Company's manufacturing
and distribution efficiency.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative costs,
as a percentage of net sales, remained steady at 27% for the second quarter of
both fiscal 1999 and 1998. Year to date, selling, general, and administrative
costs increased to 28% of net sales from 26% in fiscal 1998. The increase is due
primarily to additional marketing costs for new winter sports products, and a
one-time compensation charge related to the issuance of stock options.
As a result of the seasonality of the Company's business, sales are generally
higher in the second half of the fiscal year. Although some selling, general and
administrative expenses are variable with sales, such as distribution expenses
and commissions, most expenses are incurred evenly throughout the year.
Accordingly, the Company expects selling, general and administrative expenses
will decrease as a percentage of net sales during the third and fourth quarters
of fiscal 1999.
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AMORTIZATION OF INTANGIBLES. Amortization of goodwill and intangible assets
decreased to $499,000 in the second quarter of fiscal 1999 compared to $566,000
for the comparable prior year period. Year to date, amortization of intangibles
decreased to $1.1 million in fiscal 1999 from $1.2 million in fiscal 1998. The
decrease is due to certain intangibles becoming fully amortized.
TRANSACTION COSTS. In the first quarter of fiscal 1999, the Company estimated
costs related to the Bell Merger at $11.5 million. In the second quarter of
fiscal 1999, the Company recorded an additional $2.5 million of costs related to
the merger.
GAIN ON DEBT TENDER. On August 17, 1998, the Company consummated the Tender
Offer at a purchase price of $905, plus accrued and unpaid interest from May 15,
1998 up to, but not including, the date of payment for each $1,000 principal
amount of Debentures. An extraordinary gain, stated on an after-tax basis and
net of related fees and expenses, of $2.9 million was recorded in connection
with the Tender Offer.
NET INVESTMENT INCOME AND INTEREST EXPENSE. Net investment income decreased to
$209,000 in the second quarter of fiscal 1999 compared to $476,000 in the second
quarter of fiscal 1998. Year to date net investment income decreased to $810,000
in fiscal 1999 from $905,000 in fiscal 1998. The decrease is due to lower cash
balances being invested resulting from the Bell Merger.
Interest expense increased to $4.2 million in the second quarter of fiscal 1999
from $1.2 million in the comparable prior year period. Year to date interest
expense increased to $6.7 million in fiscal 1999 from $2.4 million in fiscal
1998. The increase is due to the issuance of the Notes and Discount Notes,
partially offset by a $62.5 million reduction in debt resulting from the Tender
Offer.
INCOME TAXES. The effective tax rate was 41% for the second quarter of fiscal
1999 and 20% year to date for fiscal 1999. The effective tax rate was 38% for
both the second quarter of fiscal 1998 and the first six months of fiscal 1998.
The variance on the year to date rates is due to the non-deductibility of the
transaction costs. The Company anticipates the effective tax rate for the
remainder of fiscal 1999 to remain at 41%.
LIQUIDITY AND FINANCIAL 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 $83.4 million at December
26, 1998 from $130.4 million at June 27, 1998. The decrease is primarily
attributable to the use of cash in connection with the Bell Merger and the
Tender Offer coupled with the seasonal decrease in accounts receivable.
The Company's capital expenditures were $2.3 million for the first six months of
fiscal 1999. The Company estimates it will spend a total of approximately $5.1
million on capital expenditures in fiscal 1999 for product tooling and to
maintain and upgrade its facilities and equipment.
In August 1998, the Company and its wholly-owned subsidiary, Bell Sports, Inc.
entered into a $60.0 million senior secured revolving credit facility ("Credit
Agreement"). The Credit Agreement is guaranteed by the Company and by certain of
its subsidiaries (collectively, the "Subsidiary Guarantors" and together with
the Company, the "Guarantors"). The Borrower's obligations under the Credit
Agreement are secured by (a) substantially all of the tangible and intangible
assets of the Borrower and each Guarantor, (b) the capital stock of the Borrower
and each Subsidiary Guarantor and (c) 65% of the capital stock of certain
foreign subsidiaries of the Company.
The Credit Agreement also contains certain financial covenants, including a
maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum cash
interest coverage ratio. It also contains covenants which restrict the ability
of the Company to pay dividends, incur liens, issue certain types of debt or
equity, engage in mergers, acquisitions or asset sales, or to make capital
expenditures. At December 26, 1998, the Company was in compliance with all bank
covenants.
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The Credit Agreement expires in August 2003. As of December 26, 1998,
outstanding borrowings under the Credit Agreement totaled $5.0 million. Based on
the provisions of the Credit Agreement, the Company could have borrowed a
maximum of $48.8 million.
Management believes that cash flows from operations and borrowings available
under the Credit Agreement 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 does not anticipate paying dividends on its Preferred or Common Stock in
the foreseeable future.
YEAR 2000 COMPLIANCE
The year 2000 problem, which is common to most corporations, concerns the
inability of information systems, including computer software programs as well
as other systems dependent on computerized information such as phones,
voicemail, security systems and elevators (collectively, "Non-IT Systems"), to
properly recognize and process date sensitive information related to the year
2000 and beyond. The Company believes that it will be able to achieve year 2000
compliance by the end of 1999 and does not currently anticipate any material
disruption of its operations as a result of any failure by the Company to be
year 2000 compliant. However, to the extent the Company is unable to achieve
year 2000 compliance, the Company's business and results of operations could be
materially affected. This could be caused by computer-related failures in a
number of areas including, but not limited to, the Company's financial systems,
manufacturing and warehouse management systems, phone system and electricity
supply.
The Company has performed a preliminary examination of its major software
applications to determine whether each system is prepared to accommodate the
year 2000. In fiscal 1998, through routine upgrades, the Company made the
computer software programs used at the Company's domestic facilities and at Bell
Sports Canada year 2000 compliant. These upgrades include, but are not limited
to, the manufacturing, financial, customer and vendor purchase order processing
and warehouse management systems. In fiscal 1999, the Company expects to further
upgrade these programs to a year 2000 level certified by the Company's outside
software vendors. The computer software programs of Giro, Giro Ireland, EuroBell
and Bell Sports Australia are currently year 2000 compliant.
All year 2000 efforts with respect to the Company and its subsidiaries' computer
software programs are being made through internal resources and through routine
software upgrades provided by the Company's software vendors. The Company has
not incurred significant separately identifiable costs related to year 2000
issues through December 26, 1998 and does not expect to incur significant
additional costs in order to make its computer software programs year 2000
compliant. The Company's internal resources consist of an information technology
support team comprised of approximately fifteen full-time employees, covering
both technical and application areas. The Company has not hired additional
employees, either full-time or contract, in order to address year 2000 issues
and expects all such issues will be adequately addressed by the existing team.
The Company employs certain manufacturing processes that utilize computer
controlled manufacturing equipment. The Company believes such equipment is year
2000 compliant but has not completed its testing of such equipment. Testing is
expected to be completed by March 1999. In the event the Company determines that
such equipment cannot readily be made year 2000 compliant, the Company believes
that it could revert to the manual processes previously employed or outsource
such work with minimal incremental manufacturing cost.
The Company's facilities staff currently is investigating the status of the
Company's Non-IT Systems with respect to year 2000 compliance. The Company
expects that its Non-IT Systems will be year 2000 compliant before the end of
1999. The Company is utilizing internal resources to address the year 2000
compliance of its Non-IT Systems and has not incurred significant separately
identifiable costs related to the year 2000 issues through December 26, 1998 and
does not expect to incur significant additional costs in order to upgrade its
Non-IT Systems to year 2000 compliance.
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In addition to reviewing its internal systems, the Company has polled or is in
the process of polling its outside software and other vendors, customers and
freight carriers to determine whether they are year 2000 compliant and to
attempt to identify any potential issues. The Company's outside software vendors
have confirmed that they are year 2000 compliant, including the products
utilized by the Company. Based on the responses it has received from its
customers, the Company believes that its mass merchant customers will be year
2000 compliant before the end of 1999.
If the Company's customers and vendors do not achieve year 2000 compliance
before the end of 1999, the Company may experience a variety of problems which
may have a material adverse effect on the Company. Among other things, to the
extent the Company's customers are not year 2000 compliant by the end of 1999,
such customers may lose electronic data interchange capabilities at the
beginning of the year 2000. Where EDI communication would no longer be
available, the Company expects to utilize voice, facsimile and/or mail
communication in order to receive customer orders and process customer billings.
To the extent the Company's vendors are not year 2000 compliant by the end of
1999, such vendors may fail to deliver ordered materials and products to the
Company and may fail to bill the Company properly and promptly. Consequently,
the Company may not have the correct inventory to send to its customers and may
experience a shortage or surplus of inventory. Although the Company does not
currently have a plan for addressing these potential problems, with respect to
its vendors, the Company has alternative sources of supply.
INTRODUCTION OF THE EURO
The European Economic and Monetary Union and the introduction of a new currency
(the "Euro") began in Europe on January 1, 1999. The new currency enables the
European Union ("EU") to blend the economies of EU's member states into one
large market with unrestricted and unencumbered trade across borders. The change
of currencies in Europe may affect the Company's business operations in Europe
as well as having systems and accounting issues for the Company. The Company is
currently evaluating the impact of the Euro, if any, on the Company's financial
position, results of operation and cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
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 will be adopted by the Company at the end of fiscal 1999.
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 supercedes and amends a
number of existing standards. SFAS 133 is required to be adopted by the Company
at the beginning of fiscal 2000. 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 adoption of SFAS 133 is not expected to have a significant impact
on the financial results of the Company.
Certain matters contained herein are forward-looking statements that are based
on management's beliefs as well as on assumptions made by and information
currently available to management. When used herein, the words "expect,"
"anticipate," "intend," "plan," "believe," "estimate," and similar expressions
are intended to identify such forward-looking statements. Such statements
involve known and unknown risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking statements. These
include, but are not limited to: economic and market conditions, competitive
activities or other business conditions, dependence on key customers,
fluctuations in sales, profitability or working capital, weather conditions,
currency fluctuations, and results of pending litigation.
15
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BELL SPORTS CORP.
PART II
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index Page 18
(b) None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 2, 1999
-----------------
BELL SPORTS CORP.
/s/ Robert E. Collins Vice President, Chief Financial Officer and Treasurer
- ------------------------ (Principal financial and accounting officer)
Robert E. Collins
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BELL SPORTS CORP.
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10.1* Bell Sports Corp. Investment and Incentive Plan, dated
December 21, 1998
10.2* Bell Sports Corp. Class C Investment and Incentive Plan, dated
December 21, 1998
27* Financial Data Schedule
- ----------
* Filed herewith
18
BELL SPORTS CORP.
INVESTMENT AND INCENTIVE PLAN
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used
in the Plan and sets forth certain provisions relating to those terms.
2. IN GENERAL
The Plan has been established to advance the interests of Bell by
giving selected Employees, directors, consultants or advisers who are in a
position to make significant contributions to the success of Bell equity-based
incentives through the grant of Awards. No Awards may be granted under the Plan
after August 31, 2008, but Awards granted prior to that date may extend beyond
that date.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the
express provisions of the Plan, to interpret the Plan; determine eligibility for
and grant Awards; determine, modify or waive the terms and conditions of any
Award; prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once an
Award has been communicated in writing to a Participant, the Administrator may
not, without the Participant's consent, alter the terms of the Award so as to
affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so in writing at the time of
such communication.
4. SHARES SUBJECT TO THE PLAN
A maximum of 15,000 Series A Preferred Shares, 12,500 Class A Shares
and 132,100 Class B Shares may be issued under the Plan, subject to adjustment
under Section 10. For purposes of the preceding sentence, Shares that have been
forfeited or repurchased by the Bell Sports Corp. or its designee in accordance
with the terms of the applicable Award shall not be deemed to have been issued
under the Plan. The number of Shares issued under an Award shall be determined
net of any previously acquired Shares tendered by the Participant in payment of
the purchase price or of withholding taxes. No fractional Shares shall be issued
under the Plan.
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5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key
Employees, directors, consultants and advisers providing services to Bell who,
in the opinion of the Administrator, are in a position to make a significant
contribution to the success of Bell.
6. UNRESTRICTED AND RESTRICTED STOCK AWARDS
6.1. NATURE OF STOCK AWARD. An Award of Series A Preferred, Class A or
Class B Shares (a "Stock Award") entitles the recipient to acquire, for such
purchase price (if any) as the Administrator may determine, Shares subject to
the restrictions described in Section 6.4(a) or (b) and Section 8 below.
6.2. ACCEPTANCE AND PAYMENT. A Participant who is granted a Stock Award
will have no rights with respect to Shares subject to such Award unless he or
she accepts the Award in a manner acceptable to the Administrator, becomes a
party to the Shareholders Agreement, and pays in full the specified purchase
price, if any, of the Shares covered by the Award. Payment may be by cash, check
or promissory note acceptable to the Administrator, except as otherwise provided
in the Award or as otherwise determined by the Administrator.
6.3. RIGHTS AS A STOCKHOLDER. Subject to the restrictions described in
Sections 6.4, and 8 through 10, the terms of the Shareholders Agreement, and any
other conditions imposed by the Administrator in writing at the time the Award
is granted, including any written deadline for acceptance of such Award, a
Participant who receives Shares under the Plan shall have all rights of a
stockholder (including voting and distribution rights) with respect to such
Shares; PROVIDED, however, until a Participant's Shares are vested, in
accordance with the terms of the Plan, a Participant will not have the right to
vote such Shares. Cash or stock dividends and any other distribution received
with respect to Shares issued under the Plan shall be subject to the same terms,
conditions and restrictions as those to which those Shares are subject. Unless
the Administrator otherwise determines, certificates evidencing Shares subject
to a Stock Award will remain in the possession of Bell Sports Corp. until such
Shares are free of all restrictions under the Plan.
6.4. VESTING RESTRICTIONS AND OTHER TERMS OF STOCK AWARDS. Unless the
Administrator otherwise provides in writing at the time of grant, Series A
Preferred, Class A and Class B Shares are subject to the vesting restrictions
described in paragraphs (a) and (b) below. The Administrator may, in its
discretion, at any time accelerate the time at which the vesting restrictions on
all or any part of the Shares will lapse.
(a) SERIES A PREFERRED AND CLASS A SHARES. The Administrator
may make a Stock Award entitling the recipient to purchase, for Fair
Market Value, Class A and Series A Preferred Shares. Unless otherwise
determined by the Administrator at the time of purchase, one percent of
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the Fair Market Value at the time of grant of Shares purchased pursuant
to this Section 6.4(a) shall be Class A Shares and ninety-nine percent
of the Fair Market Value at the time of grant of the Shares purchased
pursuant to this Section 6.4(a) shall be Series A Preferred Shares. A
Participant will be fully vested in Class A and Series A Preferred
Shares as of the date on which payment is made for such Shares, subject
to Section 8.
(b) CLASS B RESTRICTED STOCK. The Administrator may make a
Stock Award entitling the recipient to purchase, for Fair Market Value
at the time of grant, Class B Shares. Unless otherwise determined by
the Administrator at the time of grant, forty percent (40%) of the
Shares awarded pursuant to this Section 6.4(b) shall be Time-Vested
Restricted Stock vesting (subject to Section 8) as described in (i)
below, and sixty percent (60%) shall be Performance-Vested Restricted
Stock vesting (subject to Sections 8 and 9) as described in (ii) below.
(i) TIME-VESTED RESTRICTED STOCK. Time-Vested
Restricted Stock will vest, subject to Section 8, as to 20% of
such Shares subject to the Award as of the day Bell Sports
Corp.'s first independent audit report for each of the Fiscal
Years ending in 1999-2003 is issued.
(ii) PERFORMANCE-VESTED RESTRICTED STOCK.
Performance-Vested Restricted Stock will vest, subject to
Sections 8 and 9, in full on the seventh anniversary of the
Award Date, but will have accelerated vesting as follows: (a)
if Bell achieves or exceeds the EBITDA Target Amount for any
Fiscal Year ending after the Award Date and before the fifth
anniversary of the Award Date, 20% of the Performance-Vested
Restricted Stock will vest as of the day Bell Sports Corp.'s
first independent audit report for such Fiscal Year is issued,
and (b) if the EBITDA Target Amount for the Fiscal Year ending
in 2003 is achieved or exceeded as of the last day of any
earlier Fiscal Year, 100% of the Performance-Vested Restricted
Stock will vest as of the day Bell Sports Corp.'s first
independent audit report for such earlier Fiscal Year is
issued.
7. LOANS IN CONNECTION WITH CLASS A AND SERIES A PREFERRED AWARDS
Bell Sports Corp. may, directly or by guaranty, provide for a loan, on
a full recourse basis and fully secured by the Shares purchased with the
proceeds of such loan, to a Participant ("Loan") in connection with the grant of
any Award of Series A Preferred and Class A Shares to the Participant under
Section 6.4(a) and with the purchase of Shares under such Award. The
Administrator will have full authority to decide whether to provide for a Loan
and to determine the amount, terms and conditions of the Loan, including the
interest rate, the terms on which the Loan is to be repaid and the conditions,
if any, under which it may be forgiven. However, no Loan may have a term
(including extensions) exceeding ten years in duration.
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8. TREATMENT OF STOCK AND LOAN AWARDS UPON TERMINATION OF EMPLOYMENT OR SERVICE
If the Participant suffers a termination of employment or service for
any reason, Bell Sports Corp. or its designee shall have the right (but not the
obligation) to purchase the Shares originally subject to a Stock Award, whether
or not then vested, and Loans may be accelerated, as provided below:
(1) In the case of termination of employment or service by
reason of death or Disability, the purchase price for the Shares, both
vested and unvested, shall be equal to the greater of (i) the price
paid for such Shares and (ii) the Fair Market Value of the Shares as of
the Date of Termination.
(2) In the case of termination of employment or service (i)
for Cause, or (ii) other than for Cause, where the Participant accepts
employment with a Competitor within one year of the Date of
Termination, the purchase price for the Shares, both vested and
unvested, shall be equal to the lesser of (x) the price paid for such
Shares and (y) the Fair Market Value of such Shares as of the Date of
Termination.
(3) In the case of all other terminations of employment or
service, (i) the purchase price for any Shares that are vested as of
the Date of Termination shall be the Fair Market Value of the Shares as
of the Date of Termination, and (ii) the purchase price for any Shares
that are unvested as of the Date of Termination, shall be the lesser of
(x) the price paid for the Shares and (y) the Fair Market Value of such
Shares as of the Date of Termination.
Bell Sports Corp. or its designee shall have the right to repurchase
Shares for 6 months after the Date of Termination, except in the case of a
termination by reason of Disability, in which case the right to repurchase shall
continue for 6 months after the end of the 180 day disability period. Payment
for any Shares so repurchased shall be made by Bell Sports Corp. or its designee
at or before the end of such six month period, with interest at the rate of 7%
per annum accruing from the date that notice of repurchase is provided to the
Participant.
In the event of any termination of employment or service, the balance
of any Loan outstanding and any accrued interest thereon shall reduce the
purchase price. If the balance of the Loans outstanding on the Date of
Termination, plus accrued interest thereon, exceeds the purchase price, such
excess shall be immediately due and payable.
Notwithstanding the foregoing, in the event of a Qualified Public
Offering occurring prior to the Date of Termination, the obligation of the
Participant to offer the Shares to Bell Sports Corp. for purchase pursuant to
this Section 8 shall terminate with respect to all vested Shares.
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9. BELL SPORTS CORP. CALL OPTION.
Notwithstanding anything in this Plan to the contrary, Bell Sports
Corp. or its designee shall have the right (but not the obligation) during the
Call Period to purchase any Class B Shares originally subject to a Stock Award
which are unvested as of the date during the Call Period that notice of such
repurchase is provided to the Participant. The purchase price for such Class B
Shares shall be equal to the Fair Market Value of such Class B Shares as of the
date that notice of repurchase is provided to the Participant. Payment for any
Class B Shares so repurchased shall be made by Bell Sports Corp. or its designee
at or before the end of the Call Period, with interest at the rate of 7% per
annum accruing from the date that notice of repurchase is provided to the
Participant.
10. EFFECT OF CERTAIN TRANSACTIONS
10.1. MERGERS, ETC. In the event of a Covered Transaction, all Stock
Awards, including for this purpose any property for which a Stock Award has been
exchanged or converted in the Covered Transaction, to the extent not fully
vested (including Stock Awards subject to performance conditions not yet
satisfied or determined) will become fully vested or be forfeited as follows:
(i) unvested Stock Awards will fully vest if (x) the Participant remains
employed by, or otherwise provides services to, an entity which is a surviving
or acquiring entity in the Covered Transaction or an affiliate of such an entity
for at least six months after the effective date of the Covered Transaction or
(y) the Participant ceases to be employed by or otherwise provide services to
such surviving or acquiring entity for Good Reason or as a result of death,
Disability or a termination by such surviving or acquiring entity other than for
Cause; and (ii) otherwise, unvested Stock Awards will be forfeited. In addition,
the following rules shall apply:
(1) Subject to paragraph (b) below, the Administrator may in
its sole discretion prior to the effective date of the Covered
Transaction, (1) remove the restrictions or conditions to vesting from
each outstanding Share, (2) forgive all or any portion of the principal
or interest on a Loan or (3) do both (1) and (2). If the Administrator
does not do so with respect to any Award, however, such Award will vest
or be forfeited, as described in the introductory paragraph to this
Section.
(2) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time
and continued employment) which will not have been satisfied at the
effective date of the Covered Transaction, the Administrator may in its
sole discretion remove such condition. If the Administrator does not do
so with respect to any Award, however, such Award will vest or be
forfeited, as described in the introductory paragraph to this Section.
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The Administrator may in good faith provide in the case of any Award
that the provisions of the preceding paragraph shall also apply to other
transactions, not constituting a Covered Transaction, that involve the
acquisition of Shares.
10.2. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO SHARES
(1) BASIC ADJUSTMENT PROVISIONS. In the event of a change in
the capital structure of Bell Sports Corp., the Administrator, subject
to Board approval, if required, may make appropriate adjustments to the
maximum number of Shares that may be issued under the Plan under
Section 4 and may also make appropriate adjustments to the number and
kind of Shares or securities subject to Awards then outstanding, any
purchase prices relating to Awards and any other provision of Awards
affected by such change.
(2) CERTAIN OTHER ADJUSTMENTS. The Administrator may also make
adjustments of the type described in paragraph (a) above to take into
account distributions to the holders of Shares other than normal
distributions of operating cash flow, mergers, consolidations,
acquisitions, dispositions or similar transactions, or any other event
(including a repurchase of Shares), if the Administrator determines
that adjustments are appropriate to avoid distortion in the operation
of the Plan and to preserve the value of Awards made hereunder.
(3) CONTINUING APPLICATION OF PLAN TERMS. References in the
Plan to Shares shall be construed to include any Shares or other
securities resulting from an adjustment pursuant to Section 10.2(a) or
10.2(b) above.
11. AMENDMENT AND TERMINATION. Subject to the last sentence of Section 3, the
Administrator, subject to Board approval, if required, may at any time or times
amend the Plan or any outstanding Award for any purpose which may at the time be
permitted by law, or may at any time terminate the Plan as to any further grants
of Awards.
12. GENERAL PROVISIONS
(1) PERFORMANCE OBJECTIVES. Where rights under an Award depend
in whole or in part on attainment of performance objectives, actions by
Bell or others that have an effect, however material, on such
performance objectives or on the likelihood that they will be achieved
will not be deemed an amendment or alteration of the Award unless
accomplished by a change in the express terms of the Award.
(2) ALTERNATIVE SETTLEMENT. The Administrator retains the
right, provided the holder of the Award consents, at any time to
extinguish rights under an Award in exchange for payment in cash or
other property on such terms as the Administrator determines.
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(3) TRANSFERABILITY OF AWARDS. Except as the Administrator
otherwise expressly provides, Awards may not be transferred other than
by will or by the laws of descent and distribution.
(4) TAXES. The Administrator will make such provision for the
withholding of taxes as it deems necessary or advisable. The
Administrator may, but need not, hold back Shares from an Award or
permit a Participant to tender previously owned Shares (at the then
Fair Market Value) in satisfaction of tax withholding requirements.
(5) RIGHTS LIMITED. Nothing in the Plan shall be construed as
giving any person the right to continued employment or service with
Bell, or any rights as a stockholder except as to Shares actually
issued under the Plan. The loss of existing or potential profit in
Awards will not constitute an element of damages in the event of
termination of employment or service for any reason, even if the
termination is in violation of an obligation of Bell to the
Participant.
(6) RIGHTS ENFORCEABLE AGAINST BELL. All rights to purchase
Shares under the Plan shall be exercisable or enforceable solely
against Bell.
(7) NON-LIMITATION OF BELL'S RIGHTS. The existence of the Plan
or the grant of any Award shall not in any way affect Bell's right to
award a person bonuses or other compensation in addition to Awards
under the Plan.
(8) GOVERNING LAW. The Plan shall be construed in accordance
with the laws of the State of Delaware.
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EXHIBIT A
DEFINITION OF TERMS
The following terms, when used in the Plan, shall have the meanings and
the Plan be subject to the provisions set forth below:
"ADMINISTRATOR": The Committee, if one has been appointed; otherwise
the Board.
"AFFILIATE": Any corporation or other entity in which Bell Sports Corp.
owns, directly or indirectly, 50% or more of the outstanding capital stock
(determined by aggregate voting rights) or other voting interests.
"AWARD": Stock Awards described in Section 6 or Loans described in
Section 7.
"AWARD DATE": The date on which an Award is granted.
"BELL": Bell Sports Corp. and the Affiliates, or any of them.
"BELL SPORTS CORP.": Bell Sports Corp., a Delaware corporation.
"BOARD": The Board of Directors of Bell Sports Corp.
"CALL PERIOD": The period beginning on the first day of the Fiscal Year
ending in 2005 and ending on the day before the seventh anniversary of the Award
Date.
"CAUSE": Any of the following as determined by the Board in its
reasonable judgment, (i) the Participant's failure to perform (other than by
reason of Disability), or material negligence in the performance of, the
Participant's duties and responsibilities to Bell, (ii) a material breach by the
Participant of any provisions of any employment or other agreement between the
Participant and Bell, or (iii) other conduct by the Participant that is
materially harmful to the business, interests or reputation of Bell.
"CLASS A SHARES": Shares of Class A Common Stock, par value $.01 per
share, of Bell Sports Corp.
"CLASS B SHARES": Shares of Class B Common Stock, par value $.01 per
share, of Bell Sports Corp.
"COMMITTEE": A committee of the Board charged with the responsibility
of administering the Plan.
<PAGE>
"COMPETITOR": As determined by the Administrator in its sole
discretion, a manufacturer of products manufactured or sold by the Company.
"COVERED TRANSACTION": (i) a consolidation, sale or merger in which
Bell Sports Corp. does not survive as an entity or which results in the
acquisition of substantially all of the Class A Shares by a single person or
entity or by a group of persons and/or entities acting in concert, provided that
such consolidation, sale or merger results in a change of at least 50.1% in
voting control of Bell Sports Corp. or (ii) a sale or transfer of all or
substantially all of Bell Sports Corp.'s assets.
"DATE OF TERMINATION": the last date a Participant was actively
employed or actively providing services to Bell.
"DISABILITY": Participant is totally disabled from working for a period
of 180 consecutive days; has become eligible for coverage under Bell's long-term
disability plan (as in effect from time to time) and such disability is
certified in writing by the Participant's attending physician and, if requested
by Bell, a physician selected by Bell.
"EBITDA": Income (loss) from operations plus (i) depreciation and
amortization (excluding amortization of deferred financing fees, which is
included in interest expense), (ii) write-up to fair value of finished goods
related to any merger or acquisition, (iii) loss on disposal of product lines
and sales of assets, (iv) such restructuring charges or one-time deal related
costs as are approved by the Board, and (v) annual management fees payable to
the Investors.
"EBITDA TARGET AMOUNT": (i) $30.1 million for the Fiscal Year ending in
1999, (ii) $44.4 million for the Fiscal Year ending in 2003 or such other amount
as determined by the Board in its sole discretion, and (iii) an amount
determined by the Board in its sole discretion for all other Fiscal Years.
"EMPLOYEE": Any person who is employed by Bell.
"FAIR MARKET VALUE": Fair market value as determined at least annually
by the Administrator in its sole discretion.
"FISCAL YEAR": Bell Sports Corp.'s fiscal year ending the last Saturday
in June of each year.
"GOOD REASON": The occurrence on or after a Covered Transaction of (i)
a material diminution of any of the Participant's significant duties immediately
prior to the Covered Transaction or the assignment to the Participant of any
duties materially inconsistent with his or her duties immediately prior to the
Covered Transaction; or (ii) a material reduction of any benefits or perquisite
<PAGE>
enjoyed by the Participant or the failure to continue the Participant's
participation in any incentive compensation plan, unless a plan providing a
substantially similar economic opportunity is substituted or all similarly
situated employees suffer a substantially similar reduction or failure.
"INVESTORS": Brentwood Associates Buyout Fund II, L.P. and Charlesbank
Equity Fund IV, Limited Partnership.
"LOAN": Loans made by Bell Sports Corp. to a Participant to purchase
Class A and Series A Preferred Shares, pursuant to Section 7.
"PARTICIPANT": An Employee, director, consultant or adviser who is
granted an Award under the Plan.
"PERFORMANCE-VESTED RESTRICTED STOCK": Class B Shares described in
Section 6.4(b)(ii).
"PLAN": Bell Sports Corp. Investment and Incentive Plan as from time to
time amended and in effect.
"QUALIFIED PUBLIC OFFERING": A registered public offering of shares of
the Bell Sports Corp.'s Class A Shares after which the Investors will have sold
30% of the Class A Shares for which they originally subscribed.
"SERIES A PREFERRED SHARES": Shares of Series A Preferred Stock, par
value $.01 per share, of Bell Sports Corp.
"SHAREHOLDERS AGREEMENT": Shareholders Agreement among Bell Sports
Corp. and the stockholders, named therein, as in effect from time to time.
"SHARES": Class A Shares, Series A Preferred Shares or Class B Shares.
"STOCK AWARD": Shares awarded pursuant to Section 6.
"TIME-VESTED RESTRICTED STOCK": Class B Shares described in Section
6.4(b)(i).
BELL SPORTS CORP.
CLASS C
INVESTMENT AND INCENTIVE PLAN
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used
in the Plan and sets forth certain provisions relating to those terms.
2. IN GENERAL
The Plan has been established to advance the interests of Bell by
giving selected Employees, directors, consultants or advisers who are in a
position to make significant contributions to the success of Bell equity-based
incentives through the grant of Awards. No Awards may be granted under the Plan
after August 31, 2008, but Awards granted prior to that date may extend beyond
that date.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the
express provisions of the Plan, to interpret the Plan; determine eligibility for
and grant Awards; determine, modify or waive the terms and conditions of any
Award; prescribe forms, rules and procedures (which it may modify or waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once an
Award has been communicated in writing to a Participant, the Administrator may
not, without the Participant's consent, alter the terms of the Award so as to
affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so in writing at the time of
such communication.
4. CLASS C SHARES SUBJECT TO THE PLAN
A maximum of 50,000 Class C Shares may be issued under the Plan,
subject to adjustment under Section 9. For purposes of the preceding sentence,
Class C Shares that have been forfeited or repurchased by the Bell Sports Corp.
or its designee in accordance with the terms of the applicable Award shall not
be deemed to have been issued under the Plan. The number of Class C Shares
issued under an Award shall be determined net of any previously acquired Class C
Shares tendered by the Participant in payment of the purchase price or of
withholding taxes. No fractional Class C Shares shall be issued under the Plan.
-1-
<PAGE>
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key
Employees, directors, consultants and advisers providing services to Bell who,
in the opinion of the Administrator, are in a position to make a significant
contribution to the success of Bell.
6. AWARDS
6.1. NATURE OF AWARD. An Award of Class C Shares (an "Award") entitles
the recipient to acquire, for such purchase price (if any) as the Administrator
may determine, Class C Shares subject to the restrictions described in Sections
6.4, 7 and 8 below.
6.2. ACCEPTANCE AND PAYMENT. A Participant who is granted an Award will
have no rights with respect to Class C Shares subject to such Award unless he or
she accepts the Award in a manner acceptable to the Administrator, becomes a
party to the Shareholders Agreement, and pays in full the specified purchase
price, if any, of the Class C Shares covered by the Award. Payment may be in
cash or by check acceptable to the Administrator, except as otherwise provided
in the Award or as otherwise determined by the Administrator.
6.3. RIGHTS AS A STOCKHOLDER. Subject to the restrictions described in
Sections 6.4 and 7 through 9, the terms of the Shareholders Agreement, and any
other conditions imposed by the Administrator in writing at the time the Award
is granted, including any written deadline for acceptance of such Award, a
Participant who receives Class C Shares under the Plan shall have all rights of
a stockholder (including voting and distribution rights) with respect to such
Class C Shares; PROVIDED, however, until a Participant's Class C Shares are
vested, in accordance with the terms of the Plan, a Participant will not have
the right to vote such Class C Shares. Cash or stock dividends and any other
distribution received with respect to Class C Shares issued under the Plan shall
be subject to the same terms, conditions and restrictions as those to which the
Class C Shares are subject. Unless the Administrator otherwise determines,
certificates evidencing Class C Shares subject to an Award will remain in the
possession of Bell Sports Corp. until such Class C Shares are free of all
restrictions under the Plan.
6.4. VESTING RESTRICTIONS. The Administrator may make an Award of Class
C Shares that will vest, subject to Sections 7 and 8, in the event of a Covered
Transaction or Qualified Public Offering that satisfies the Return Hurdle,
PROVIDED, HOWEVER, that such Class C Shares will vest in full on the seventh
anniversary of the Award Date. The Administrator may, in its discretion, at any
time accelerate the time at which the restrictions on all or any part of the
Class C Shares will lapse.
-2-
<PAGE>
7. TREATMENT OF AWARDS UPON TERMINATION OF EMPLOYMENT OR SERVICE
If the Participant suffers a termination of employment or service for
any reason, Bell Sports Corp. or its designee shall have the right (but not the
obligation) to purchase the Class C Shares originally subject to an Award,
whether or not then vested, as provided below:
(1) In the case of termination of employment or service by
reason of death or Disability, the price paid for the Class C Shares
shall be equal to the greater of (i) the price paid for the Class C
Shares and (ii) the Fair Market Value of the Class C Shares as of the
Date of Termination.
(2) In the case of termination of employment or service (i)
for Cause or (ii) other than for Cause, where the Participant accepts
employment with a Competitor within one year of the Date of
Termination, the purchase price Class C Shares shall be the lesser of
(x) the price paid for the Class C Shares and (y) the Fair Market Value
of the Class C Shares as of the Date of Termination.
(3) In the case of all other terminations of employment or
service, (i) the purchase price for any Class C Shares that are vested
as of the Date of Termination shall be the Fair Market Value of the
Class C Shares as of the Date of Termination, and (ii) the purchase
price for any Class C Shares that are unvested as of the Date of
Termination shall be the lesser of (x) the price paid for the Class C
Shares and (y) the Fair Market Value of the Class C Shares as of the
Date of Termination.
Bell Sports Corp. or its designee shall have the right to repurchase
Class C Shares for 6 months after the Date of Termination, except in the case of
a termination by reason of Disability, in which case the right to repurchase
shall continue for 6 months after the end of the 180 day disability period.
Payment for any Class C Shares so repurchased shall be made by Bell Sports Corp.
or its designee at or before the end of such six month period, with interest at
the rate of 7% per annum accruing from the date that notice of repurchase is
provided to the Participant.
Notwithstanding the foregoing, in the event of a Qualified Public
Offering occurring prior to the Date of Termination, the obligation of the
Participant to offer the Class C Shares to Bell for purchase pursuant to this
Section 7 shall terminate with respect to all vested Class C Shares.
8. BELL SPORTS CORP. CALL OPTION.
Notwithstanding anything in this Plan to the contrary, Bell Sports
Corp. or its designee shall have the right (but not the obligation) during the
Call Period to purchase any Class C Shares originally subject to an Award which
are unvested as of the date during the Call Period that notice of such
repurchase is provided to the Participant. The purchase price for such Class C
Shares shall be equal to the Fair Market Value of such Class C Shares as of the
-3-
<PAGE>
date that notice of repurchase is provided to the Participant. Payment for any
Class C Shares so repurchased shall be made by Bell Sports Corp. or its designee
at or before the end of the Call Period, with interest at the rate of 7% per
annum accruing from the date that notice of repurchase is provided to the
Participant.
9. EFFECT OF CERTAIN TRANSACTIONS
9.1. MERGERS, ETC. In the event of a Covered Transaction, all Awards,
including for this purpose any property for which an Award has been exchanged or
converted in the Covered Transaction, to the extent not fully vested or
exercisable (including Awards subject to performance conditions not yet
satisfied or determined) will be forfeited, as of the effective time of the
Covered Transaction, if the Return Hurdle is not satisfied and the following
rules shall apply:
(1) Subject to paragraph (b) below, the Administrator may in
its sole discretion prior to the effective date of the Covered
Transaction, remove the restrictions from each outstanding Share. If
the Administrator does not do so with respect to any Award, however,
such Award will terminate as of the date of the Covered Transaction.
(2) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time
and continued employment) which will not have been satisfied at the
time of the Covered Transaction, the Administrator may in its sole
discretion remove such condition. If the Administrator does not do so,
however, such Award will terminate as of the date of the Covered
Transaction.
The Administrator may in good faith provide in the case of any Award
that the provisions of the preceding paragraph shall also apply to other
transactions, not constituting a Covered Transaction, that involve the
acquisition of Class C Shares.
9.2. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO CLASS C SHARES
(1) BASIC ADJUSTMENT PROVISIONS. In the event of a change in
the capital structure of Bell Sports Corp., the Administrator, subject
to Board approval, if required, may make appropriate adjustments to the
maximum number of Class C Shares that may be issued under the Plan
under Section 4 and may also make appropriate adjustments to the number
and kind of Class C Shares or securities subject to Awards then
outstanding, any purchase prices relating to Awards and any other
provision of Awards affected by such change.
(2) CERTAIN OTHER ADJUSTMENTS. The Administrator may also make
adjustments of the type described in paragraph (a) above to take into
account distributions to the holders of Class C Shares other than
normal distributions of operating cash flow, mergers, consolidations,
-4-
<PAGE>
acquisitions, dispositions or similar transactions, or any other event
(including a repurchase of Class C Shares), if the Administrator
determines that adjustments are appropriate to avoid distortion in the
operation of the Plan and to preserve the value of Awards made
hereunder.
(3) CONTINUING APPLICATION OF PLAN TERMS. References in the
Plan to Class C Shares shall be construed to include any Class C Shares
or other securities resulting from an adjustment pursuant to Section
9.2(a) or 9.2(b) above.
10. AMENDMENT AND TERMINATION. Subject to the last sentence of Section 3, the
Administrator, subject to Board approval, if required, may at any time or times
amend the Plan or any outstanding Award for any purpose which may at the time be
permitted by law, or may at any time terminate the Plan as to any further grants
of Awards.
11. GENERAL PROVISIONS
(1) PERFORMANCE OBJECTIVES. Where rights under an Award depend
in whole or in part on attainment of performance objectives, actions by
Bell or others that have an effect, however material, on such
performance objectives or on the likelihood that they will be achieved
will not be deemed an amendment or alteration of the Award unless
accomplished by a change in the express terms of the Award.
(2) ALTERNATIVE SETTLEMENT. The Administrator retains the
right, provided the holder of the Award consents, at any time to
extinguish rights under an Award in exchange for payment in cash or
other property on such terms as the Administrator determines.
(3) TRANSFERABILITY OF AWARDS. Except as the Administrator
otherwise expressly provides, Awards may not be transferred other than
by will or by the laws of descent and distribution.
(4) TAXES. The Administrator will make such provision for the
withholding of taxes as it deems necessary or advisable. The
Administrator may, but need not, hold back Class C Shares from an Award
or permit a Participant to tender previously owned Class C Shares (at
the then Fair Market Value) in satisfaction of tax withholding
requirements.
(5) RIGHTS LIMITED. Nothing in the Plan shall be construed as
giving any person the right to continued employment or service with
Bell, or any rights as a stockholder except as to Class C Shares
actually issued under the Plan. The loss of existing or potential
profit in Awards will not constitute an element of damages in the event
-5-
<PAGE>
of termination of employment or service for any reason, even if the
termination is in violation of an obligation of Bell to the
Participant.
(6) RIGHTS ENFORCEABLE AGAINST BELL. All rights to purchase
Class C Shares under the Plan shall be exercisable or enforceable
solely against Bell.
(7) NON-LIMITATION OF BELL'S RIGHTS. The existence of the Plan
or the grant of any Award shall not in any way affect Bell's right to
award a person bonuses or other compensation in addition to Awards
under the Plan.
(8) GOVERNING LAW. The Plan shall be construed in accordance
with the laws of the State of Delaware. (1)
-6-
<PAGE>
EXHIBIT A
DEFINITION OF TERMS
The following terms, when used in the Plan, shall have the meanings and
the Plan be subject to the provisions set forth below:
"ADMINISTRATOR": The Committee, if one has been appointed; otherwise
the Board.
"AFFILIATE": Any corporation or other entity in which Bell Sports Corp.
owns, directly or indirectly, 50% or more of the outstanding capital stock
(determined by aggregate voting rights) or other voting interests.
"AWARD": Awards of Class C Shares described in Section 6.
"AWARD DATE": The date on which an Award is granted.
"BELL": Bell Sports Corp. and the Affiliates, or any of them.
"BELL SPORTS CORP.": Bell Sports Corp., a Delaware corporation.
"BOARD": The Board of Directors of Bell Sports Corp.
"CALL PERIOD": The period beginning on the first day of the Fiscal Year
ending in 2005 and ending on the day before the seventh anniversary of the Award
Date.
"CAUSE": Any of the following as determined by the Board in its
reasonable judgment, (i) the Participant's failure to perform (other than by
reason of Disability), or material negligence in the performance of, the
Participant's duties and responsibilities to Bell, (ii) a material breach by the
Participant of any provisions of any employment agreement between the
Participant and Bell, or (iii) other conduct by the Participant that is
materially harmful to the business, interests or reputation of Bell.
"CLASS A SHARES": Shares of Class A Common Stock, par value $.01 per
share, of Bell Sports Corp.
"CLASS C SHARES": Shares of Class C Common Stock, par value $.01 per
share, of Bell Sports Corp.
"COMMITTEE": A committee of the Board charged with the responsibility
of administering the Plan.
<PAGE>
"COMPETITOR": As determined by the Administrator in its sole
discretion, a manufacturer of products manufactured or sold by the Company.
"COVERED TRANSACTION": (i) a consolidation, sale or merger in which
Bell Sports Corp. does not survive as an entity or which results in the
acquisition of substantially all of the Class A Shares by a single person or
entity or by a group of persons and/or entities acting in concert, provided that
such consolidation, sale or merger results in a change of at least 50.1% in
voting control of Bell Sports Corp. or (ii) a sale or transfer of all or
substantially all of Bell Sports Corp.'s assets.
"DATE OF TERMINATION": the last date a Participant was actively
employed or actively providing services to Bell.
"DISABILITY": Participant is totally disabled from working for a period
of 180 consecutive days; has become eligible for coverage under Bell's long-term
disability plan (as in effect from time to time) and such disability is
certified in writing by the Participant's attending physician and, if requested
by Bell, a physician selected by Bell.
"EMPLOYEE": Any person who is employed by Bell.
"FAIR MARKET VALUE": Fair market value as determined at least annually
by the Administrator in its sole discretion.
"FISCAL YEAR": Bell Sports Corp.'s fiscal year ending the last Saturday
in June of each year.
"INVESTORS": Brentwood Associates Buyout Fund II, L.P. and Charlesbank
Equity Fund IV, Limited Partnership.
"IRR": an internal rate of return to the Investors equal to the
percentage per annum, compounded quarterly, on the total amount of capital
contributed (including capital provided in the form of an extension of credit or
an advance of funds) by the Investors to Bell, commencing on the date of the
Investors' first purchase of equity, extension of credit or advance of funds,
taking into account the timing and amounts of all dividends, interest payments
or other distributions from Bell, and all contributions to capital and
investments in Bell by the Investors, PROVIDED THAT such rate of return shall be
adjusted in good faith by the Board in its sole discretion in the event of any
merger, acquisition, consolidation, sale of assets, recapitalization,
contribution of capital to, or redemption of stock of, Bell, or any other event
that the Board deems relevant to the calculation of such return.
<PAGE>
"PARTICIPANT": An Employee, director, consultant or advisor who is
granted an Award under the Plan.
"PLAN": Bell Sports Corp. Class C Investment and Incentive Plan as from
time to time amended and in effect.
"QUALIFIED PUBLIC OFFERING": A public offering of shares of the Bell
Sports Corp.'s Class A Shares after which the Investors will have sold 30% of
the Class A Shares for which they originally subscribed.
"RETURN HURDLE": A return to the Investors of cash such that, taking
into account all contributions and payments made by or to the Investors through
the date of the Covered Transaction or Qualified Public Offering, the Investors
shall have (i) earned a 30% IRR AND (ii) a Return on Equity of 4.0x.
"RETURN ON EQUITY": net income DIVIDED BY average stockholders' equity.
"SHAREHOLDERS AGREEMENT": Shareholders Agreement among Bell Sports
Corp. and the stockholders, named therein, as in effect from time to time.
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> DEC-26-1998
<EXCHANGE-RATE> 1
<CASH> 6,465
<SECURITIES> 0
<RECEIVABLES> 53,064
<ALLOWANCES> 1,572
<INVENTORY> 46,303
<CURRENT-ASSETS> 117,460
<PP&E> 42,315
<DEPRECIATION> 23,239
<TOTAL-ASSETS> 207,696
<CURRENT-LIABILITIES> 34,019
<BONDS> 163,821
0
49,505
<COMMON> 8
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<TOTAL-LIABILITY-AND-EQUITY> 207,696
<SALES> 85,939
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<CGS> 57,876
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<OTHER-EXPENSES> 37,887
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<INTEREST-EXPENSE> 6,742
<INCOME-PRETAX> (16,566)
<INCOME-TAX> 3,315
<INCOME-CONTINUING> (13,251)
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<EXTRAORDINARY> 2,887
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<NET-INCOME> (10,364)
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</TABLE>
