-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BYcAjuNFxx45OLwQmHN2mLBz3neXv+HxsI+p06qSarejtvkKP+GrTK8mdW/ODaLT woO14Kpinm5smTMMh+35yw== 0000950147-99-000076.txt : 19990203 0000950147-99-000076.hdr.sgml : 19990203 ACCESSION NUMBER: 0000950147-99-000076 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981226 FILED AS OF DATE: 19990202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL SPORTS CORP CENTRAL INDEX KEY: 0000884063 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 363671789 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19873 FILM NUMBER: 99519222 BUSINESS ADDRESS: STREET 1: 6350 SAN IGNACIO AVENUE STREET 2: STE I-100 CITY: SAN JOSE STATE: CA ZIP: 95119 BUSINESS PHONE: 4085743400 MAIL ADDRESS: STREET 1: 10601 N. HAYDEN ROAD STREET 2: SUITE I-100 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 10-Q 1 QUARTERLY REPORT FOR THE QTR ENDED 12/26/98 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 --------------------- 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) N/A --------------------------------------------------- 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 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 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 BELL SPORTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands)
Six Months Ended Three Months Ended -------------------------- ------------------------- December 26, December 27, December 26, December27, 1998 1997 1998 1997 ---- ---- ---- ---- 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 ======== ======== ======== ========
See accompanying notes to these consolidated financial statements. 4 BELL SPORTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
Six Months Ended ---------------------------- December 26, December 27, 1998 1997 ---- ---- 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 ========= ========
See accompanying notes to these consolidated financial statements 5 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 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):
Six Months Ended Three Months Ended -------------------------- -------------------------- December 26, December 27, December 26, December 27, 1998 1997 1998 1997 ---- ---- ---- ---- 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 ======== ===== ======= =====
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 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 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 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 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 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. 12 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. 13 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. 14 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 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 16 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 17 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 EX-10.1 2 INVESTMENT AND INCENTIVE PLAN 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. -1- 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 -2- 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. -3- 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. -4- 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. -5- 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. -6- (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. -7- 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. "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 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). EX-10.2 3 CLASS C INVESTMENT AND INCENTIVE PLAN 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- 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- 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- 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- 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- 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- 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. "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. "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. EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 U.S DOLLARS 6-MOS JUL-03-1999 JUN-28-1998 DEC-26-1998 1 6,465 0 53,064 1,572 46,303 117,460 42,315 23,239 207,696 34,019 163,821 0 49,505 8 (29,657) 207,696 85,939 85,939 57,876 57,876 37,887 0 6,742 (16,566) 3,315 (13,251) 0 2,887 0 (10,364) 0 0
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