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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 APRIL 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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. 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)
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 [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of each of the registrant's classes of
common stock, as of May 10, 2000:
Class Number of Shares
----- ----------------
Class A Common Stock, $.01 par value 869,606
Class B Common Stock, $.01 par value 133,750
Class C Common Stock, $.01 par value 44,350
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<PAGE>
BELL SPORTS CORP.
INDEX TO FORM 10-Q
PART I
Page Number
-----------
Bell Sports Corp. and Subsidiaries Consolidated Balance Sheets
as of April 1, 2000 and July 3, 1999............................... 3
Bell Sports Corp. and Subsidiaries Consolidated Statements
of Operations for the nine months and three months ended
April 1, 2000 and March 27, 1999................................... 4
Bell Sports Corp. and Subsidiaries Consolidated Condensed
Statements of Cash Flows for the nine months ended
April 1, 2000 and March 27, 1999................................... 5
Notes to Consolidated Financial Statements........................... 6 - 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 12 - 13
PART II
Items 1 to 6......................................................... 14 - 15
Signatures........................................................... 16
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
April 1, July 3,
2000 1999
--------- ---------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 14,447 $ 8,875
Accounts receivable 83,149 58,634
Inventories 51,275 43,664
Deferred taxes 8,828 11,366
Other current assets 7,737 6,134
--------- ---------
Total current assets 165,436 128,673
Property, plant and equipment 13,163 16,162
Long-term deferred taxes 12,500 12,500
Goodwill 51,477 52,429
Intangibles and other assets 9,568 9,170
--------- ---------
Total assets $ 252,144 $ 218,934
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,388 $ 9,249
Accrued compensation and employee benefits 4,377 2,580
Accrued expenses 23,102 31,682
Notes payable and current maturities of long-term
debt and capital lease obligations 46,717 10,433
--------- ---------
Total current liabilities 89,584 53,944
Long-term debt 149,711 148,270
Capital lease obligations and other liabilities 1,091 10,255
--------- ---------
Total liabilities 240,386 212,469
--------- ---------
Commitments and contingencies
Stockholders' equity:
Series A Preferred Stock; 6% cumulative, $.01 par
value; authorized 1,500,000 shares, 1,033,511
and 1,034,781 shares issued and outstanding at
April 1, 2000 and July 3, 1999, respectively 10 10
Class A Common Stock; $.01 par value; authorized
900,000 shares, 869,606 and 870,661 shares
issued and outstanding at April 1, 2000 and
July 3, 1999, respectively 9 9
Class B Common Stock; $.01 par value; authorized
150,000 shares, 131,750 and 128,200 shares issued
and outstanding at April 1, 2000 and July 3, 1999,
respectively 1 1
Class C Common Stock; $.01 par value; 57,500 and 50,000
shares authorized at April 1, 2000 and July 3, 1999,
respectively; 44,350 and 50,000 shares issued and
outstanding at April 1, 2000 and July 3, 1999,
respectively 1 1
Additional paid-in capital 53,240 53,210
Accumulated other comprehensive income (2,549) (1,925)
Accumulated deficit (38,954) (44,841)
--------- ---------
Total stockholders' equity 11,758 6,465
--------- ---------
Total liabilities and stockholders' equity $ 252,144 $ 218,934
========= =========
See accompanying notes to these consolidated financial statements.
3
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
---------------------- ----------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 166,705 $ 140,245 $ 68,883 $ 54,306
Cost of sales 108,298 94,749 44,441 36,873
--------- --------- --------- ---------
Gross profit 58,407 45,496 24,442 17,433
Selling, general and administrative expenses 37,101 34,931 12,613 11,631
Foreign exchange (gain) loss (57) 1,905 (69) (34)
Amortization of goodwill and intangible assets 1,609 1,589 530 528
Transaction costs -- 13,100 -- 703
Net investment income (258) (936) (83) (126)
Interest expense 13,065 11,153 4,644 4,411
--------- --------- --------- ---------
Income (loss) before income taxes 6,947 (16,246) 6,807 320
Provision for (benefit from) income taxes 2,848 (3,183) 2,791 132
--------- --------- --------- ---------
Income (loss) before extraordinary items 4,099 (13,063) 4,016 188
Extraordinary item: Gain on early extinguishment
of debt, net of taxes of $2,006 -- 2,887 -- --
--------- --------- --------- ---------
Net income (loss) $ 4,099 $ (10,176) $ 4,016 $ 188
========= ========= ========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
April 1, March 27,
2000 1999
--------- ---------
<S> <C> <C>
Cash Flows Provided By (Used In) Operating Activities:
Net cash provided by (used in) operating activities $ (27,616) $ (18,667)
--------- ---------
Cash Flows Provided By (Used In) Investing Activities:
Capital expenditures (3,150) (3,297)
Expenditures to acquire intangible assets (557) --
--------- ---------
Net cash provided by (used in) investing activities (3,707) (3,297)
--------- ---------
Cash Flows Provided By (Used In) Financing Activities:
Proceeds from issuance of senior subordinated notes -- 110,000
Expenditures related to issuance of senior subordinated notes -- (4,900)
Proceeds from issuance of senior discount notes -- 15,000
Proceeds from issuance of preferred stock 30 44,907
Proceeds from issuance of common stock -- 84
Repurchase of common stock -- (142,350)
Tender of subordinated debentures -- (57,681)
Net borrowings (payments) on notes payable, long-term debt and capital leases 567 (1,325)
Net borrowings (payments) on line of credit agreement 36,668 24,000
Expenditures related to issuance of line of credit -- (1,381)
--------- ---------
Net cash provided by (used in) financing activities 37,265 (13,646)
--------- ---------
Effect of exchange rate changes on cash (370) (302)
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,572 (35,912)
Cash and cash equivalents at beginning of period 8,875 45,093
--------- ---------
Cash and cash equivalents at end of period $ 14,447 $ 9,181
========= =========
</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 supplier of bicycle accessories worldwide.
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 third quarter in
both 2000 and 1999 had thirteen weeks.
UNAUDITED INFORMATION AND BASIS OF PRESENTATION
The consolidated balance sheet as of April 1, 2000 and statements of
operations and of condensed cash flows for all periods included in the
accompanying financial statements have not been audited. In the opinion of
management these financial statements include all normal and recurring
adjustments necessary for a fair presentation of such financial information. The
results of operations for the interim periods are not necessarily indicative of
the results of operations to be expected for the full year.
The financial information included herein has been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The interim financial
information and the notes thereto should be read in conjunction with the audited
financial statements for the fiscal years ended July 3, 1999, June 27, 1998 and
June 28, 1997 which are included in the Company's 1999 Annual Report on Form
10-K.
ACCOUNTS RECEIVABLE
Accounts receivable at April 1, 2000 and July 3, 1999 are net of allowances
for doubtful accounts of $1.7 million and $1.8 million, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at April 1, 2000 and July 3, 1999 are net of
accumulated depreciation of $21.6 million and $23.2 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.
6
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - COMPREHENSIVE INCOME
Comprehensive income for the periods presented is calculated as follows:
Nine Months Ended Three Months Ended
-------------------- --------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
-------- -------- -------- --------
Net income (loss) $ 4,099 $(10,176) $ 4,016 $ 188
Foreign currency translation
adjustment, net of tax (624) (456) (282) 96
-------- -------- -------- --------
Comprehensive income (loss) $ 3,475 $(10,632) $ 3,734 $ 284
======== ======== ======== ========
NOTE 3 - INVENTORIES
Inventories consist of the following components (in thousands):
April 1, July 3,
2000 1999
------- -------
Raw materials $ 5,036 $ 3,579
Work in process 1,973 1,089
Finished goods 44,266 38,996
------- -------
Total $51,275 $43,664
======= =======
NOTE 4 - COMMITMENTS 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.
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 auto racing helmet business in July 1999 and entered
into a long-term royalty-free licensing agreement with the purchaser for auto
racing helmets and automotive accessories to be marketed under the Bell brand
name. The Company retains responsibility for product liability claims relating
to auto racing helmets manufactured prior to the sale of the auto racing helmet
business. The Company believes that, by virtue of its status as a licensor, it
could be named as a defendant in actions involving liability for auto racing
helmets and automotive accessories manufactured by the purchaser of the
Company's auto helmet business.
In February 1998, a Wilkes-Barre, Pennsylvania jury returned a verdict
against the Company relating to injuries sustained in a 1993 motorcycle
accident. This claim arose during a period in which the Company was
self-insured. The Company filed a motion for a new trial which was denied. In
February 2000, the Company lost the case on appeal. In April 2000, the Company
settled the case for $8.9 million.
Based on management's extensive consultation with legal counsel, the
Company has established product liability reserves totaling $10.1 million. These
reserves are intended to cover the estimated costs for the defense, payment or
settlement of known claims. Management believes it will have adequate cash
balances and sources of capital available to satisfy any payments necessary.
7
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
ENVIRONMENTAL LITIGATION
In October 1998, the Company received a General Notice Letter from the
United States Environmental Protection Agency ("USEPA") under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), for the
Casmalia disposal site in Santa Barbara County, 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 during the 1980s. USEPA's settlement offer to
the Company is in the range of $27,000 to $36,000. The settlement would cover
all past and expected future costs at the Casmalia 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,
management does not expect this claim to have a material adverse effect on the
Company.
Besides the litigation described above, management is not aware of any
material litigation that, if adversely determined, would have a material effect
on the Company's financial position.
NOTE 5 - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
On August 17, 1998, the Company's wholly-owned subsidiary, Bell Sports,
Inc. ("BSI"), issued Notes totaling $110.0 million, bearing interest at 11%,
maturing on August 15, 2008. 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 BSI at any time on or after August 15, 2003, in cash, at specified
redemption prices. In addition, prior to August 15, 2001, BSI may redeem up to
35% of the Notes for 111% of their principal amount, plus accrued interest. The
Company has fully and unconditionally guaranteed the Notes. Separate financial
statements and other disclosures relating to BSI have not been made, as
management believes that such information is not material to holders of the
Notes.
Summarized financial information regarding BSI is as follows:
BELL SPORTS, INC.
April 1, 2000
-------------
SUMMARIZED BALANCE SHEET DATA: (Unaudited)
Current assets $182,833
Total assets 233,656
Current liabilities 88,849
Total liabilities 199,939
Stockholder's equity 33,717
Nine Months Ended
April 1, 2000
-------------
SUMMARIZED STATEMENT OF OPERATIONS DATA: (Unaudited)
Net sales $166,705
Gross profit 58,407
Net income 7,211
On August 17, 1998, the Company issued Discount Notes bearing interest at
14% totaling $15.0 million and maturing on August 14, 2009 to a related party in
a private placement transaction. Interest on the Discount Notes accrues on June
1 and December 1 of each year. On March 12, 1999, Discount Notes with an
accreted value of $2.4 million were exchanged for 47.6 thousand shares of Series
A Preferred Stock and 39.2 thousand shares of Class A Common Stock.
The Company has also issued 4 1/4% Convertible Subordinated Debentures
("Debentures") due November 2000, of which $23.8 million were outstanding at
April 1, 2000. The Debentures are redeemable at the Company's option at any time
at specified redemption prices.
In August 1998, the Company and BSI entered into a $60.0 million senior
secured revolving credit facility ("Credit Agreement") expiring on August 17,
2003. The Credit Agreement provides for mandatory repayments from time to time
8
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
to the extent the amount outstanding thereunder exceeds the maximum amount
permitted under the borrowing base. Based on the provisions of the Credit
Agreement, BSI could borrow a maximum of $60.0 million as of April 1, 2000. As
of April 1, 2000, there were borrowings outstanding of $46.0 million under the
Credit Agreement.
The Credit Agreement provides BSI with the option of borrowing based either
on the U.S. prime rate plus a margin or LIBOR plus a margin. The margin for the
U.S. prime rate 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. At April 1, 2000, the margin for U.S. prime was 0.25% and the margin for
LIBOR was 1.25%. Under the Credit Agreement, BSI 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. At April 1, 2000, the
quarterly commitment fee was 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 April 1, 2000, the Company was in compliance with or had
obtained waivers for all bank covenants.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
-------- --------
<S> <C> <C>
11% senior subordinated debentures maturing August 2008 $110,000 $110,000
4 1/4% convertible subordinated debentures maturing November 2000 23,750 23,750
14% senior discount notes due August 2009 15,961 14,434
Borrowings under line of credit 46,668 10,000
Notes collateralized by certain equipment -- 391
-------- --------
196,379 158,575
Less: current maturities 46,668 10,305
-------- --------
Total long-term debt $149,711 $148,270
======== ========
</TABLE>
NOTE 6 - DISPOSITIONS AND RESTRUCTURING
In September 1999, the Company sold its European manufacturing facility in
Roche La Moliere, France. In addition, the Company entered into an agreement
with the purchaser pursuant to which the purchaser has agreed to provide the
Company with helmets. The Company recorded a charge in fiscal 1999 of
approximately $2.5 million in connection with the sale and related
reorganization of the Company's European manufacturing facility. No material
gain or loss was recognized upon consummation of the sale in September 1999.
In the fourth quarter of fiscal 1999, the Company recorded charges of $16.5
million associated with the consolidation of manufacturing facilities, the
streamlining of administrative overhead, the divestiture of the Company's former
auto racing division and the closure of the Australian sales and marketing
office. At April 1, 2000, the remaining reserves related primarily to facilities
leases. Activity in these accruals for the first three quarters of fiscal 2000
was as follows:
9
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
July 3, Cash Non-cash April 1,
1999 Payments Charges 2000
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
ACCRUALS:
Manufacturing consolidation $9,102 $(4,913) $(1,982) $2,207
Overhead reductions 2,224 (1,044) (1,165) 15
Sale of auto racing and Australia 788 (531) (200) 57
Restructuring accruals from prior years 493 (290) - 203
---------- ---------- ---------- -----------
$12,607 $(6,778) $(3,347) $2,482
========== ========== ========== ===========
</TABLE>
NOTE 7 - SEGMENT INFORMATION
The Company has three reportable segments: products sold to domestic mass
merchants, products sold to domestic independent bicycle dealers (IBDs), and
products sold in international operations. The international operations have
been combined into one reportable segment as they share a majority of the
aggregation criteria and are not individually reportable. The Company's domestic
mass merchant segment markets a wide range of bicycle accessories and bicycle
helmets through the mass merchant channel, including retailers such as Wal-Mart
and K-Mart. The domestic IBD segment markets premium bicycle helmets and
accessories to independent bicycle dealers such as bicycle chains, independent
bicycle shops, specialized sporting goods stores, and mail order catalogs.
International operations include sales of bicycle accessories and helmets sold
to both mass merchant and IBD channels in Canada, Europe and, in fiscal 1999,
Australia, in addition to distributing third party products.
The Company evaluates the performance of, and allocates resources to, the
reportable segments based on net sales and EBITDA. For internal purposes, EBITDA
is defined as earnings before investment income and interest expense, income
taxes, depreciation, amortization, and certain one-time charges such as
transaction costs, product liability costs, restructuring charges, asset
write-offs, other costs, loss on disposal of product line and sale of assets and
other one-time costs such as foreign exchange loss and compensation expense
related to the grant of stock options.
<TABLE>
<CAPTION>
Mass Merchants Ibd International Other (1) Total
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED APRIL 1, 2000:
Sales to unaffiliated customers $ 93,468 $ 42,429 $ 30,808 $ -- $ 166,705
EBITDA 19,480 2,164 2,649 170 24,463
NINE MONTHS ENDED MARCH 27, 1999:
Sales to unaffiliated customers $ 66,800 $ 40,981 $ 32,464 $ -- $ 140,245
EBITDA 8,621 678 2,200 3,207 14,706
THREE MONTHS ENDED APRIL 1, 2000:
Sales to unaffiliated customers $ 40,844 $ 13,747 $ 14,292 $ -- $ 68,883
EBITDA 9,911 551 2,070 360 12,892
THREE MONTHS ENDED MARCH 27, 1999:
Sales to unaffiliated customers $ 27,062 $ 12,860 $ 14,384 $ -- $ 54,306
EBITDA 4,692 (478) 1,776 1,178 7,168
TOTAL ASSETS:
April 1, 2000 $ 71,664 $ 43,599 $ 20,021 $116,860 $ 252,144
July 3, 1999 59,176 27,996 29,335 102,427 218,934
</TABLE>
- ----------
(1) The "Other" designation includes corporate expenditures and expenditures
related to the Company's U.S. manufacturing facility.
10
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EBITDA for the periods shown is reconciled to net income before income taxes as
follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
--------------------- --------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EBITDA $ 24,463 $ 14,706 $ 12,892 $ 7,168
Less:
Depreciation 3,100 4,157 994 1,332
Amortization 1,609 1,589 530 528
One-time foreign exchange loss and
compensation expense for stock options -- 1,889 -- --
Transaction costs -- 13,100 -- 703
Net investment income (258) (936) (83) (126)
Interest expense 13,065 11,153 4,644 4,411
-------- -------- -------- --------
Net income (loss) before provision for
(benefit from) income taxes $ 6,947 $(16,246) $ 6,807 $ 320
======== ======== ======== ========
</TABLE>
11
<PAGE>
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 supplier of bicycle accessories worldwide. Over
its 45-year history, the Company has developed a reputation for innovation,
design, quality and safety.
RESULTS OF OPERATIONS
NET SALES. Net sales for the third quarter of fiscal 2000 of $68.9 million
increased 27% from $54.3 in the fiscal 1999 third quarter. Year to date net
sales of $166.7 million increased 19% from $140.2 million in fiscal 1999. The
quarterly and year to date increases are due primarily to strong U.S. sales in
the mass merchant channel. Additional increases have come from Giro and Canada
helmet sales.
The product line sales mix for the nine month and three month periods are
as follows:
Nine Months Ended Three Months Ended
---------------------- ----------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
-------- --------- -------- ---------
Bicycle accessories 55% 53% 55% 52%
Bicycle helmets 45% 45% 45% 46%
Auto Racing helmets -- 2% -- 2%
GROSS MARGIN. Gross margins for the third quarter of fiscal 2000 increased
to 35% of net sales from 32% in the prior year quarter. Year to date, gross
margins increased to 35% of net sales from 32% in the prior year. The increase
is mainly due to better sourcing of accessories and production efficiencies
resulting from the manufacturing consolidations completed by the Company in the
fiscal 1999 fourth quarter.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs as a percentage of net sales improved to 18% for the third quarter of
fiscal 2000 from 21% for the prior year third quarter. Year to date, selling,
general and administrative costs as a percentage of net sales have dropped to
22% in fiscal 2000 from 25% in fiscal 1999. The decrease is due to increased
efficiency due to the Company's restructuring accomplished in the fourth quarter
of fiscal 1999.
AMORTIZATION OF INTANGIBLES. Amortization of goodwill and intangible assets
increased slightly to $530,000 in the Company's third quarter of fiscal 2000
compared to $528,000 for the comparable prior year period. Year to date,
amortization remained constant at $1.6 million for both fiscal 2000 and fiscal
1999.
FOREIGN EXCHANGE. Foreign exchange gain of $69,000 for the third quarter
increased from the prior year quarter gain of $34,000. The year to date foreign
exchange gain of $57,000 increased from the prior year foreign exchange loss of
$1,905,000. The high foreign exchange losses in the prior year were due to the
unusually high level of cash movement related to the August 1998 merger of Bell
and HB Acquisition Corporation (the "Bell Merger").
NET INVESTMENT INCOME. Net investment income decreased to $83,000 in the
third quarter of fiscal 2000 compared to $126,000 in the third quarter of fiscal
1999. Year to date, net investment income decreased to $258,000 from $936,000.
The decrease was due to significantly lower cash balances in the current fiscal
year.
INTEREST EXPENSE. Interest expense for the third quarter of fiscal 2000 of
$4.6 million increased slightly from $4.4 million in the prior year quarter.
Year to date, interest expense increased to $13.1 million from $11.2 million in
the prior year. The year to date increase is due to the higher level of debt
outstanding for the entire period, as the increase in debt occurred midway
through the first quarter of fiscal 1999.
INCOME TAXES. The effective tax rate was 41% for the third quarter of both
fiscal 2000 and fiscal 1999. Year to date the effective tax rate was 41% for
fiscal 2000 compared to 20% for fiscal 1999. The increase is attributable to the
non-deductibility of certain costs associated with the Bell Merger incurred in
the prior year.
12
<PAGE>
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 increased to $83.9 million at April 1,
2000 from $74.7 million at July 3, 1999.
The Company's capital expenditures were $3.2 million for the first nine
months of fiscal 2000, compared to $3.3 million in fiscal 1999. The Company
estimates it will spend approximately $4.0 million on capital expenditures in
fiscal 2000 for product tooling and to maintain and upgrade its facilities and
equipment.
In August 1998, the Company and BSI entered into a $60.0 million senior
secured revolving credit facility ("Credit Agreement") expiring on August 17,
2003. 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 BSI could borrow a maximum of $60.0 million as of April 1, 2000.
As of April 1, 2000, there were borrowings outstanding of $46.0 million under
the Credit Agreement.
The Credit Agreement provides BSI with the option of borrowing based either
on the U.S. prime rate plus a margin or LIBOR plus a margin. The margin for the
U.S. prime rate 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. At April 1, 2000, the margin for U.S. prime was 0.25% and the margin for
LIBOR was 1.25%. Under the Credit Agreement, BSI 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. At April 1, 2000, the
quarterly commitment fee was 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 April 1, 2000, the Company was in compliance with or had
obtained waivers for all bank covenants.
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
claims. The Company does not anticipate paying dividends on its Preferred or
Common Stock in the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards 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 by the Company for fiscal year 2001. 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. As the Company does not
currently invest in derivatives, the adoption of SFAS 133 is not expected to
have a material effect on the results of operations or the consolidated
financial statements.
FORWARD-LOOKING STATEMENTS
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.
13
<PAGE>
BELL SPORTS CORP.
PART II
ITEM 1 LEGAL PROCEEDINGS
In February 1998, a Wilkes-Barre, Pennsylvania jury returned a verdict
against the Company relating to injuries sustained in a 1993 motorcycle
accident. This claim arose during a period in which the Company was
self-insured. The Company filed a motion for a new trial which was denied.
In February 2000, the Company lost the case on appeal. In April 2000, the
Company settled the case for $8.9 million.
ITEM 2 CHANGES IN SECURITIES
(a) On February 10, 2000 the Company's stockholders approved an amendment
to the Company's Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of Class C Common Stock from
50,000 shares to 57,500.
(b) Not applicable.
(c) On January 29, 1999, pursuant to the Company's Investment and
Incentive Plan and its Class C Investment and Incentive Plan
(collectively, the "Plans"), the Company issued 6,849 shares of Series
A Preferred Stock, 5,686 shares of Class A Common Stock, 118,700
shares of Class B Common Stock and 43,000 shares of Class C Common
Stock to various employees of the Company in exchange for
approximately $88,957 in cash and $337,872 in loans. These issuances
were made in compliance with Rule 506 under Regulation D of the
Securities Act of 1933, as amended (the "Act").
On February 1, 1999, the Company issued 16,921 shares of Class A
Common Stock to Mary J. George, the Chief Executive Officer of the
Company, upon the exercise of options previously granted to her. The
exercise price of such options was approximately $7,445 and was paid
in cash. This issuance was exempt from the registration requirements
of Section 5 of the Act by virtue of Section 4(2) of the Act.
On March 10, 1999, the Company issued 47,562 shares of Series A
Preferred Stock and 39,194 shares of Class A Common Stock to Brentwood
Associates Buyout Fund II, L.P., Charlesbank Bell Sports Holdings,
Limited Partnership and Charlesbank Coinvestment Partners, LLC in
exchange for the cancellation of senior discount notes with an
accreted value of approximately $2,449,487. These issuances were
exempt from the registration requirements of Section 5 of the Act by
virtue of Section 4(2) and Section 3(a)(9) of the Act.
On June 21, 1999, pursuant to the Plans, the Company issued 9,555
shares of Series A Preferred Stock, 7,937 shares of Class A Common
Stock, 12,500 shares of Class B Common Stock and 6,000 shares of Class
C Common Stock to Richard S Willis, Chief Financial Officer of the
Company, in exchange for approximately $500,000 in cash. This issuance
was exempt from the registration requirements of Section 5 of the Act
by virtue of Section 4(2) of the Act.
On June 23, 1999, pursuant to the Company's Class C Investment and
Incentive Plan, the Company issued 1,000 shares of Class C Common
Stock to Lori A. Sherwood, Secretary of the Company, in exchange for
approximately $10 in cash. This issuance was exempt from the
registration requirements of Section 5 of the Act by virtue of Section
4(2) of the Act.
On November 1, 1999, pursuant to the Plans, the Company issued 291
shares of Series A Preferred Stock, 242 shares of Class A Common
Stock, 19,500 shares of Class B Common Stock and 1,900 shares of Class
C Common Stock to various employees of the Company in exchange for
approximately $17,771 in cash and approximately $9,327 in loans. These
issuances were made in compliance with Rule 506 under Regulation D of
the Act.
14
<PAGE>
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of stockholders was held on February 10, 2000.
The Company has three classes of Common Stock, Class A Common Stock, Class
B Common Stock and Class C Common Stock. The three classes are voted
together as a single class unless otherwise required by law. They were
voted together as a single class on each matter presented at the meeting.
Approval of the amendment to the Company's Certificate of Incorporation
required approval of all stockholders entitled to vote voting as a single
class as well as the approval of the holders of the Class C Common Stock
voting as a separate class.
At the meeting, the board of directors as previously reported to the
Securities and Exchange Commission was re-elected in its entirety. The
voting for directors was as follows:
Director For Against Abstain
-------- ------- ------- -------
Terry G. Lee 788,081 -- --
Mary J. George 788,081 -- --
William M. Barnum, Jr. 788,081 -- --
Kim G. Davis 788,081 -- --
John F. Hetterick 788,081 -- --
Edward L. McCall 788,081 -- --
Tim R. Palmer 788,081 -- --
John M. Sullivan 788,081 -- --
Directors are elected by a plurality of votes cast. No other person
received any votes.
Stockholders approved an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Class C Common Stock from 50,000 shares to 57,500. Voting on this matter
was as follows:
Broker
For Against Abstain Non-vote
------- ------- ------- --------
All Common Stock 788,081 -- -- --
Class C Common Stock 33,000 -- -- --
Stockholders also ratified the appointment of PricewaterhouseCoopers LLP as
independent public accountants for the Company for its fiscal year ending
July 2, 2000. Voting on this matter was as follows:
Broker
For Against Abstain Non-vote
------- ------- ------- --------
All Common Stock 788,081 -- -- --
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index Page 17
(b) None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: May 15, 2000
BELL SPORTS CORP.
By: /s/ Richard S Willis
------------------------------------
Richard S Willis
Executive Vice President, Chief
Operating Officer and Chief
Financial Officer
16
<PAGE>
BELL SPORTS CORP.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
10.1* Promissory Note, dated April 17, 2000 between BSI and Mary J. George.
10.2* Collateral Pledge Agreement, dated April 17, 2000 between BSI and
Mary J. George
27* Financial Data Schedule
- ----------
* Filed herewith
17
PROMISSORY NOTE
(Interim Loan)
April 17, 2000
$600,000 San Jose, California
FOR VALUE RECEIVED, the undersigned promises to pay to Bell Sports, Inc., a
California corporation ("Payee"), the principal sum of Six Hundred Thousand
Dollars ($600,000). No interest shall accrue or be payable on the principal
balance provided that the principal balance is timely paid in accordance with
the following terms.
Interest will be imputed at the rate of six percent (6%) per annum, and
shall be added to the W-2 of the undersigned employee. The undersigned employee
will pay all taxes on interest so imputed.
The balance of the note is payable as follows:
(1) The first one hundred thousand dollars ($100,000) of any bonus awarded
under the Bell Sports Bonus Plan to the undersigned by Payee after the date
hereof shall be applied by Payee to reduce the balance hereof;
(2) The entire principal balance hereof is due and payable upon the earlier
of the following: (a) the termination, for whatever reason, of the undersigned
as an employee of the Payee; (b) the dissolution or liquidation of the Payee; or
(c) the bonus paid in the fiscal year of the sixth anniversary of this
promissory note as reflected by the date at the top hereof.
In the event that the note is not paid strictly in accordance with all of
the above terms, then and thereafter the principal balance will bear interest at
the maximum legal rate until paid in full.
This Note is secured by a Collateral Pledge Agreement of even date
herewith, the terms of which are incorporated herein by reference. This Note
shall for all purposes be governed by and construed in accordance with the laws
of the State of California.
IN WITNESS WHEREOF, the undersigned have caused this Promissory Note to be
executed as of the day and year first above written.
/s/ Mary J. George
----------------------------------------
Mary George
COLLATERAL PLEDGE AGREEMENT
THIS COLLATERAL PLEDGE AGREEMENT ("Agreement") is made this 17th day of
April, 2000, by and among Mary George, a resident of the State of California
("Pledgor") and BELL SPORTS, INC, a California corporation (BELL).
1. Pledge
As security for Pledgor's promissory note ("Note") to BELL of even date
herewith, which Note evidences the indebtedness of the Pledgor to BELL, Pledgor
hereby pledges, mortgages, hypothecates, assigns, transfers, delivers, sets over
and confirms unto BELL, its success and assigns, the following property, to wit:
Any and all options to purchase shares or equity investment in BELL or any
of its affiliates, however received or whenever granted, either registered
to or exercisable by the Pledgor, together with all proceeds thereof,
additions thereto and substitutions therefor, including without limitation
any other securities, cash, or other properties distributed with respect to
the foregoing options to purchase stock or equity investment other
securities subject to this Agreement, whether as a result of merger,
consolidation, dissolution, reorganization, recapitalization, interest
payment, stock split, stock dividend, reclassification or redemption or any
other change declared or made in the capital structure of BELL, or
otherwise,
as collateral security for the payment in full when due of any and all
obligations and indebtedness of Pledgor to BELL, whether direct, indirect or
contingent, whether now existing or hereafter incurred and whether or not
otherwise secured (hereinafter collectively referred to as the "Obligations"),
including without limitation, all obligations and indebtedness of Pledgor under
the Note and any extensions, amendments and renewals thereto. In the event of a
conflict or inconsistency between the terms hereof and the terms of the Note,
the terms of the Note shall control. Pledgor warrants and represents that
Pledgor has the right to pledge, mortgage, hypothecate, assign, transfer,
deliver, set over and confirm unto BELL all of the foregoing options to purchase
shares or equity investment free of any encumbrance subject only to the terms of
any plan or plans by or pursuant to which such options or investment were issued
or awarded.
Pledgor hereby agrees promptly to pledge and deposit hereunder with BELL
any stock, securities, or other property with respect to any of the options or
securities represented thereby, whether taken in substitution for or in addition
to the above described property. Such stock, other securities and property shall
stand pledged and assigned for the Obligations in the same manner as the
property described in the first paragraph hereof. All of the property described
in this Section 1 and in the first and second paragraphs hereof is hereinafter
called the "Pledged Property."
2. Voting Power, Dividends, Etc.
(a) Unless and until an Event of Default (as hereinafter defined) or
an event which, with the passage of time or giving of notice or both would
constitute an Event of Default, has occurred, the Pledgor shall have the right
to exercise all voting, consensual and other powers of ownership pertaining to
the Pledged property, and the Pledgor shall be entitled to receive and retain
any dividends on the Pledged Property paid in cash out of earned surplus on BELL
to the extent such dividends are reasonable in amount and paid in the ordinary
course of business. To the extent not so permitted, such sums shall be applied
to the amount owing under the Note.
(b) Pledgor hereby irrevocably appoints the Chief Operating Officer of
BELL as Pledgor's proxy holder with respect to the Pledged Property with full
power and authority to vote such Pledged Property and otherwise act with respect
to such Pledged Property on behalf of Pledgor, provided that this proxy shall be
operative only upon an Event of Default. This Proxy shall be irrevocable for so
long as any of the Obligations remain in existence, and shall be coupled with an
interest. If any Event of Default shall have occurred, then whether or not any
holder of the Note, or the Obligations, exercises any available options to
<PAGE>
declare the note or the Obligations due and payable or seeks or pursues any
other relief or remedy available to such holder under this Pledge Agreement or
Obligations:
(i) The Chief Operating Officer of BELL, or his nominee or
nominees, shall forthwith, without further action on the part of any person,
have the sole and exclusive right to exercise the proxy granted above and all
voting, consensual and other powers of ownership pertaining to the Pledged
Property and shall exercise such powers in such manner as such person, in his
sole reasonable discretion, shall determine to be necessary, appropriate or
advisable, and, if BELL shall so request in writing, the Pledgor agrees to
execute and deliver to BELL such other and additional powers, authorizations,
proxies, dividends and such other documents as BELL may reasonably request to
secure to BELL the rights, powers and authorities intended to be conferred upon
BELL by this Subsection (b); and
(ii) All dividends and other distribution on the Pledged Property
shall be deposited in a sinking fund to be established for the benefit of BELL,
and, if BELL shall so request in writing, the Pledgor agrees to execute and
deliver to BELL appropriate additional dividend, distribution and other orders
and documents to that end.
3. Sale of Pledged Property After an Event of Default.
If any Event of Default shall have occurred, then, unless the Note and the
Obligations shall have been paid in full at or before the time BELL gives
Pledgor the notice provided for in Subsection (a) of this Section 3 or at or
before the time the suit provided for in Subsection (b) of this Section 3 shall
be begun, BELL may, in its sole discretion, without further demand,
advertisement or notice, except as expressly provided for in Subsection (a) of
this Section 3, (i) apply the cash, if any, then held by him as collateral
hereunder, for the purposes and in the manner provided in Section 4 hereof, and
(ii) if there shall be no such cash or the cash so applied shall be insufficient
to make in full all payments provided in Subsections (a) and (b) of Sections 4
hereof:
(a) Sell the Pledged Property, or any part thereof, in one or more
sales, at public or private sale, conducted by an officer or agent or auctioneer
or attorney for, BELL, at BELL's place of business or elsewhere, for cash, upon
credit or future delivery, and at such price or prices as BELL shall, in its
sole discretion, determine, and BELL may be the purchaser of any or all of the
pledged Property so sold and shall hold the same thereafter in its own right,
free from any claims of Pledgor or any right of redemption of Pledgor. Upon any
such sale BELL shall have the right to deliver, assign and transfer to the
Purchase thereof the Pledged Property so sold. Each purchaser (including BELL)
at any such sale shall hold the Pledged Property so sold including, without
limitation, any equity or right of redemption of the Pledgor, which the Pledgor
hereby specifically waives, to the extent he may lawfully do so, and all rights
of redemption, stay or appraisal which he has or may have under any rule of law
of statute now existing or hereafter adopted. BELL shall give the Pledgor at
least five (5) days written notice, in case of public or private sale. Any such
public sale shall be held at such time or times within ordinary business hours
as BELL shall fix in the notice of such sale. At any such sale the Pledged
Property may be sold in one lot as an entity or in separate parcels. BELL shall
not be obligated to make any sale pursuant to any notice. BELL may, without
notice or publication, adjourn any public or private sale from time to time by
announcement at the time and place fixed for such sale, or any adjournment
thereof, and any such sale may be made at any time or place to which the same
may be so adjourned without further notice or publication. In case of any sale
of all or any part of the Pledged Property for credit or for future delivery,
the Pledged Property so sold may be retained by BELL until the selling price is
paid by the purchaser thereof, but BELL shall not incur any liability in case of
the failure of such purchaser to take up and pay for the Pledged Property so
sold, and in case of any such failure, such Pledged Property may again be sold
under and pursuant to the provisions hereof; or
(b) Proceed by a suit or suits at law or in equity to foreclose upon
this Agreement and sell the Pledged Property, or any portion therefor, under a
judgment or decree of a court or courts of competent jurisdiction.
<PAGE>
The Chief Operating Officer of BELL, as attorney-in-fact pursuant to
Section 5 hereof may, in the name and stead of the Pledgor, make and execute all
conveyances, assignments and transfers of the Pledged Property sold pursuant to
Subsection (a) or (b) of this Section 3. The Pledgor shall, if so requested by
BELL, ratify and confirm any sale or sales by executing and delivery to BELL or
to such purchaser or purchasers all such instruments as may, in the sole
judgement of BELL, be advisable.
4. Application of Proceeds.
If an Event of Default exists, the proceeds of any sale, or of collection,
of all or any part of the Pledged Property shall be applied by BELL, without any
marshaling of assets, in the following order:
(a) first, the payment of all of the costs and expenses of such sale,
including, without limitation, reasonable compensation to BELL and its agents,
attorneys and counsel, and all other reasonable expenses, liabilities and
advances made or incurred by BELL in connection therewith; and
(b) second to the payment of the principal of and premium, if any, and
interest on the Note, and all obligations of the Pledgor under the note and this
Agreement and then to pay any other Obligations; and
(c) finally, to the payment to the Pledgor, her successors or assigns,
or their respective heirs, executors or administrators, or to whomsoever may be
lawfully entitled to receive the same or as a court of competent jurisdiction
may direct, or any surplus remaining from such proceeds after payments of the
character referred to in Subsections (a) and (b) of this Section 4 shall have
been made.
5. Chief Operating Officer of BELL Appointed Attorney-in-Fact; Indemnity.
Upon an Event of Default, the Chief Operating Officer of BELL, his
successors and assigns, is hereby appointed attorney-in-fact, with full power of
substitution, of the Pledgor for the purpose of carrying out the provisions of
the Pledge Agreement and taking any action and executing any instruments which
such attorney-in-fact may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with an
interest. The Pledgor will indemnify and save harmless such person from and
against any liability or damage which he may incur, in good faith and without
gross negligence, in the exercise and performance of any of its or his powers
and duties specifically set forth herein.
6. No Waiver.
No failure on the part of BELL to exercise, and no delay on the part of
BELL in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by BELL of any right,
power or remedy hereunder preclude any other or further right, power or remedy.
The remedies herein provided are cumulative and are not exclusive of any
remedies provided by law or equity.
7. Termination of Pledge.
When all of the Obligations, including, without limitation, the
indebtedness evidenced or secured by the Note or this Agreement, shall have been
paid in full, this Agreement shall terminate. BELL shall forthwith assign,
transfer and deliver to the Pledgor or her assignees, without representation,
warranty or recourse, against appropriate receipts, all the Pledged Property, if
any, then held by him in pledge hereunder.
8. Representations and Warranties.
The Pledgor hereby represents and warrantees that, when the Pledged
Property is pledged hereunder:
<PAGE>
(a) Ownership of Pledged Property. Pledgor is the legal and equitable
owner of the Pledged Property free and clear of all liens, charges, encumbrances
and security interests of every kind and nature, other than those created
hereunder.
(b) Authority to Pledge. Pledgor has taken all action necessary to
make this Pledge and all obligations hereunder fully enforceable against
Pledgor.
(c) Continuous Security Interest. Pledgor hereby agrees that until
payment of principal, interest, and all other sums owing pursuant to the Note in
accordance with the terms thereof and performance in full of all of the
Obligations and the covenants, conditions and agreements to Pledgor hereunder,
all rights, powers and remedies grated to BELL hereunder shall continue to exist
and may be exercised by BELL.
(d) Right to Transfer. Pledgor hereby represents and warrants that on
the date of this Agreement he has the absolute right and authority to enter into
this Agreement and thereby to create in favor of BELL a valid and binding
security interest in the Pledged Property, subject to no liens, charges,
encumbrances or rights of others.
(e) No Transfer, Further Encumbering, Etc. Pledgor hereby agrees not
to directly or indirectly assign, transfer, or convey or further encumber the
Pledged Property or any part thereof or interest therein without the prior
written consent of BELL.
9. Governing Law.
This Agreement shall in all respects be construed and interpreted in
accordance with and governed by the laws of the State of California applicable
to agreements made and to be performed entirely in California by California
residents.
10. Successor and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
respective successors and assign of the Pledgor and BELL, and any subsequent
holder of the Note or the Obligations.
11. Additional Instruments and Assurance.
The Pledgor hereby agrees, at her own expense, to execute and deliver, from
time to time, any and all further or other instruments, and to perform such acts
as BELL may reasonable request for purposes of this Agreement and to secure to
BELL, and to all persons who may from time to time be the holder of the Note or
the Obligations, the benefits of all rights, authorities and remedies conferred
upon BELL by the terms of this Agreement.
12. Notices.
All notices and other communications provided for hereunder shall be in
writing (including telegraphic communication) and mailed or telegraphed or
delivered, if to the Pledgor, at her address, at 33822 Bridgehampton, Dana
Point, CA 92629, or if to BELL at 6350 San Ignacio, San Jose, CA 95119 ATTN:
Chief Financial Officer, or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party, complying with
the foregoing terms. All such notices and communications shall, when mailed or
telegraphed, be effective when deposited in the Untied States mail, postage
prepaid, certified, registered or express, return receipt requested, or
delivered to the telegraph company or overnight courier, charges prepaid,
respectively, addressed as aforesaid.
<PAGE>
13. Severability.
In case any one or more of the provisions of this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had not been included.
14. Events of Default.
The Pledgor shall be in default under this Agreement upon the occurrence of
any one of the following events (herein referred to as an "Event of Default"):
(a) Default by the Pledgor in the due observance or performance of any
covenant or agreement contained herein or breach by the Pledgor of any
representation or warranty herein contained; or
(b) any default by Pledgor in the payment or performance when due of
any of the Obligations, including, without limitation, the payment of the
principal of, or interest on, any indebtedness of Pledgor to BELL, as set forth
in the Note; or
(c) The occurrence of any Event of Default under the provisions of the
Note, and any other instrument, document or agreement securing the indebtedness
evidenced by the Note.
15. Heading.
The headings of the Sections of this Agreement have been inserted for
convenience of reference only and shall in no way affect the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have entered into this Collateral Pledge
Agreement as of the date first above written.
PLEDGOR:
/s/ Mary J. George
----------------------------------------
Mary George
BELL SPORTS, INC.
/s/ Tikie Holewski
----------------------------------------
Tikie Holewski
Sr. Vice President
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