<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-15017
BARRY'S JEWELERS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3746316
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 WEST LEMON AVENUE, MONROVIA, CA 91016
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 303-4741
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered:
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock
(Title of class)
Warrants
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
<PAGE> 2
PART II
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company (through
the effective date of the Reorganization Plan, referred to as "Predecessor") as
of and for the years ended May 31, 1992 and 1991, and the month ended June 30,
1992, and the Company (referred to as such following the effective date of the
Reorganization Plan) as of and for the year ended May 31, 1995 and 1994, and
the eleven months ended May 31, 1993. The data should be read in conjunction
with the financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
Company Predecessor
------------------------------------- ---------------------------------
Eleven
Year Year Months Month
Ended Ended Ended Ended
May May 31, May 31, June 30, Year Ended May 31,
1995 1994 1993 1992 1992 1991
---- ---- ------ ------ ------ ------
(As Restated)
(4)
(in thousands, except per share data and number of
common stock outstanding)
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $136,055 $114,023 $99,270 $7,070 $112,384 $140,156
Finance and credit
insurance charges................. 15,681 14,487 13,037 1,229 16,155 18,269
Selling, general
and administrative
expenses (1)...................... 50,966 46,341 41,863 3,859 53,667 68,058
Operating income
(loss) ........................... 11,670 10,294 5,764 (541) (5,917) (12,246)
Interest expense................... 9,764 7,746 6,401 644 13,906 18,877
Income (loss) before
extraordinary item ............... 1,906 1,539 (637) (1,185) (19,823) (29,175)
Net income (loss)(2) .............. 1,906 1,539 (637) 48,044 (19,823) (29,175)
Net income (loss)
per share (2) (3) ................ 0.48 0.53 (0.32) 48.02 (19.79) (29.12)
Weighted average number of
common shares outstanding (3)..... 3,968,998 2,902,359 2,008,182 1,000,413 1,001,651 1,001,763
Total assets ...................... 144,650 122,252 119,200 116,448 130,939 159,761
Total debt......................... 92,368 75,935 90,251 91,417 142,152 150,243
</TABLE>
2
<PAGE> 3
(1) Selling, general and administrative expenses for the eleven months
ended May 31, 1993, the month ended June 30, 1992, the twelve months
ended May 31, 1992 and the twelve months ended May 31, 1991 include
$100,000, $450,000, $4,200,000 and $8,000,000, respectively, of
nonrecurring restructuring expenses. See Note 4 to the Financial
Statements in "Financial Statements - Notes to Financial Statements."
(2) The month ended June 30, 1992 includes an extraordinary gain of
$49,229,000 ($49.20 per share), which represents the gain on
cancellation of Predecessor 12-5/8% Subordinated Notes and related
accrued interest, net of write-off of deferred debt expenses, in
connection with the Reorganization Plan.
(3) In November 1994, a one-for-five reverse stock split of the Common
Stock was effected; share and per share data have been restated to
reflect such reverse stock split.
(4) Subsequent to the original filing of the May 31, 1995 Form 10-K, the
Company identified a mathematical error in the accumulation of its
merchandise inventories as of May 31, 1995. The error was detected
during the reconciliation of the physical inventory results for March
1996. The effect of the restatement was to decrease inventory by
$1,547,000 at May 31, 1995 and net income by $883,000 or $.22 per
common share for the year ended May 31, 1995. See Note 8 to the
Financial Statements in "Financial Statements - Notes to Financial
Statements."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain items included in Item 6, "Selected Financial Data." Data in this
table and in the balance of Item 7 for the year ended May 31, 1993 include
results of the Predecessor for the month ended June 30, 1992 and of the Company
for the eleven months ended May 31, 1993. Results of operations for the year
ended May 31, 1995, reflect the restatement as described in Note 8 to the
Financial Statements included in "Financial Statements - Notes to Financial
Statements."
<TABLE>
<CAPTION>
Year Ended May 31
----------------------------------
1995 1994 1993
---- ---- -------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Finance and credit
insurance charges 11.5 12.7 13.4
Selling, general
and administrative
expenses (1) 37.5 40.6 43.0
Operating income 8.6 9.0 4.9
Interest expense 7.2 6.8 6.6
Income(loss) before
extraordinary item 1.4 1.3 (1.7)
</TABLE>
(1) See Note (1) on Page 3.
3
<PAGE> 4
Fiscal Year Ended May 31, 1995 (As Restated) Compared with Fiscal Year Ended
May 31, 1994
Net sales in fiscal 1995 were $136,055,000, an increase of $22,032,000, or 19%,
from net sales of $114,023,000 in fiscal 1994. Sales of comparable stores
(those open for the same period in both the current and preceding years) also
increased, by 11%, versus the prior year. Increased sales reflect the benefits
from the 23 new stores opened during fiscal year 1995 and higher inventories
that include an expanded merchandise mix to appeal to a larger, more diverse
share of the market.
Finance and credit insurance charges on credit sales in fiscal 1995 were
$15,681,000, an increase of $1,194,000, or 8%, from the prior year primarily
due to an increase in the average total outstanding accounts receivable.
Cost of goods, buying and occupancy expenses were 58% of net sales for fiscal
1995 compared to 55% for the prior year. The gross margin percentage declined
in fiscal 1995 primarily due to the Company's new value pricing strategy
instituted in response to increased competitive pressure in the retail jewelry
industry and an increase in the Company's inventory shrinkage.
Selling, general and administrative expenses were $50,966,000, an increase of
$4,625,000, or 10%, from the prior year, primarily due to opening and operating
the 23 new stores. Such increases were more than offset by the increase in net
sales. Selling, general and administrative expenses declined as a percentage
of net sales to 38% from 41% of the prior year.
The provision for doubtful accounts was $10,193,000, an increase of $470,000
from the prior year. The provision was 8% of net sales for fiscal 1995
compared with 9% for the prior year. The lower provision in fiscal 1995
reflects improved collection results realized from the installation of
automated credit systems in fiscal 1993, lower write-offs of accounts
receivable balances, and improving economic conditions.
Interest expense was $9,764,000, an increase of $2,018,000, or 26% from the
prior year. This was a result of a higher average interest rate on the
Company's long-term debt resulting from recapitalization transactions completed
in December 1993 and due to higher average borrowing to finance the new stores
and additional inventory per store.
No provision for income taxes was recorded in the current year. The provision
for income taxes for the prior year was $1,009,000. The decline in provision
is due to a decrease in pre-tax income and the reduction of valuation
allowances on certain deferred tax assets as management believes it is more
likely than not that these assets will be realized. As described more fully
below under "Liquidity and Capital Resources," the Company has available net
operating loss carryovers to offset future taxable income. Since the
carryovers utilized arose prior to the Reorganization Plan, for financial
reporting purposes the reduction of tax payments for the year ended May 31,
1995 was reflected as a credit to common stock.
4
<PAGE> 5
Fiscal Year Ended May 31, 1994 Compared with Fiscal Year Ended May 31, 1993
Net sales in fiscal 1994 were $114,023,000, an increase of $7,683,000, or 7%,
from net sales of $106,340,000 in fiscal 1993. Sales of comparable stores
(those open for the same period in both the current and preceding years) also
increased 7%.
Finance and credit insurance charges on credit sales in fiscal 1994 were
$14,487,000, an increase of $221,000, or 2%, from the prior year primarily due
to an increase in the average total outstanding accounts receivable.
Cost of goods, buying and occupancy expenses were 55% of net sales for fiscal
1994 and 1993.
Selling, general and administrative expenses were $46,341,000, an increase of
$619,000, or 1%, from the prior year. Such expenses were 41% of net sales in
fiscal 1994 and 43% in fiscal 1993. Excluding approximately $550,000 of
nonrecurring restructuring expenses in fiscal 1993, selling general and
administrative expenses increased $1,169,000 due to higher store operating
costs, principally wages and advertising, resulting from increased sales
volume.
The provision for doubtful accounts was $9,723,000, a decrease of $1,220,000
from the prior year. The provision was 9% of net sales for fiscal 1994
compared with 10% for the prior year. The lower provision in fiscal 1994
reflects improved collection results realized from the installation of
automated credit systems in fiscal 1993, lower write-offs of accounts
receivable balances, and improving economic conditions.
Interest expense was $7,746,000, an increase of $701,000, or 10% from the prior
year. Total long-term debt was reduced $15 million by the recapitalization
transactions completed on December 22, 1993, but the effect of that reduction
was more than offset by higher average interest rates.
The provision for income taxes in fiscal 1994 was $1,009,000. No provision
(benefit) for income taxes was recorded for fiscal 1993 since the Company
incurred a pre-tax loss for which no benefit could be recorded for financial
reporting purposes. As described more fully below under "Liquidity and Capital
Resources," the Company had available net operating loss carryovers to offset
future taxable income. The utilization of these carryovers substantially
eliminated income tax payments for the year ended May 31, 1994. Since the
carryovers utilized arose prior to the Reorganization Plan, for financial
reporting purposes the reduction of tax payments for the year ended May 31,
1994 was reflected as a credit to common stock.
LIQUIDITY AND CAPITAL RESOURCES
General
Net cash provided by (used in) operating activities in fiscal 1995, 1994 and
1993 was ($9,598,000), $4,261,000 and $1,844,000 respectively. The increase in
net cash used in operating
5
<PAGE> 6
activities in fiscal 1995 was primarily due to opening the 23 new stores and an
increase of average inventory per store compared to the prior year.
Sales under the Company's credit program accounted for approximately 61% of
fiscal 1995 sales, net of down payments. The Company's policy is to attempt to
obtain a cash down-payment on all credit sales, with monthly payments
established such that the payment of the credit balance will occur, generally,
over a period ranging from 9 to 24 months. None of the receivables are of the
installment variety with a fixed maturity; rather, all of the Company's
customer receivables are revolving charge accounts. The Company currently
collects (and has historically collected) approximately 9% of its accounts
receivable balances each month. As of May 31, 1995, May 31, 1994, and May 31,
1993, the aggregate customer receivables balances were $81,054,000, $74,361,000
and $72,680,000, respectively. Aggregate credit collections during the twelve
months ended May 31, 1995 were $85,004,000. A change in its customers' payment
patterns could affect the Company's working capital requirements. Customers
may also purchase jewelry for cash and by using major national credit cards.
The Company's operations require working capital to fund the purchase of
inventory and growth of customer receivables. Also, the seasonality of the
Company's business requires a significant build-up of inventory for the
December holiday selling period. These additional inventory needs must be
funded during the late summer and fall months because of the necessary lead
time to obtain additional inventory. The heavy holiday selling period leads to
a seasonal build-up of customer receivables that must be funded during the
winter and spring months.
In addition, the Company requires working capital to fund capital expenditures.
Capital expenditures for fiscal 1995, 1994 and 1993 were $6,516,000, $2,848,000
and $1,488,000, respectively. Historically, such expenditures have been made
in connection with store openings and acquisitions, store remodeling, and the
centralization and automation of the Company's information systems. The
Company intends to continue improving its existing operations through increased
inventory investment in existing high-volume locations while also carrying out
a planned new store expansion. As part of this strategy the Company opened or
acquired 23 new stores during fiscal 1995.
Securitization
On December 21, 1995, the Company completed the Securitization Facility
hereinafter described. In the Securitization Facility, among other things, the
Company (I) entered into the Originator Purchase Agreement, dated December 21,
1995, with Barry's Funding Corp. ("BFC"), a wholly-owned, special-purpose
subsidiary of the Company, whereby BFC agreed to purchase from the Company,
from time to time, all of the Company's right, title and interest in all
customer accounts receivable generated by the Company ("Receivables") (the
"Originator Agreement") and (II) entered into the Receivables Purchase
Agreement, dated December 21, 1995, with BFC, Triple-A One Funding Corporation
("Triple-A One") and Capital Markets Assurance Corporation ("CapMAC"), as agent
for Triple-A One ("Agent"), whereby Triple-A One agreed to make purchases from
BFC of undivided ownership interests in the Receivables so purchased and owned
by BFC, and the Company agreed to act as the servicer for purposes of
collecting the Receivables. The Securitization Facility provides for a maximum
funding commitment of $80
6
<PAGE> 7
million to BFC, subject to the asset-based funding formula and other terms and
conditions of the Securitization Facility. Triple-A One generates cash to
purchase its undivided ownership interest in the Receivables by issuing
investment grade commercial paper. BFC purchases the Receivables from the
Company in consideration of the cash paid by Triple-A One and a subordinated
note (the "Intercompany Note") issued by BFC to the Company. On December 22,
1995, Triple-A One completed the initial issuance of commercial paper and paid
BFC $48 million in cash. BFC made its initial purchase of Receivables from the
Company in December 1995, in the aggregate amount of approximately $79.5
million, for a purchase price of approximately $60 million, which was paid
$47.95 million in cash and $12.1 million in the form of the Intercompany Note.
In addition to the Receivables purchased by BFC from the Company, the Company
initially capitalized BFC with $4.5 million of Receivables. As a result of the
initial purchase transactions and throughout the term of the Securitization
Facility, Triple-A One has and is expected to continue to have a 100% undivided
ownership interest in all Receivables generated by the Company and purchased by
BFC.
In connection with the Securitization Facility, the Company also entered into
an amended and restated revolving credit facility with the First National Bank
of Boston, as lender and agent thereunder ("Bank of Boston"), pursuant to an
amended and restated Revolving Credit Agreement that provides for maximum
aggregate loans and letters of credit at any time outstanding of not more than
$20,000,000 (the "Revolving Credit Agreement"). As amended and restated, the
Revolving Credit Agreement provides for the making of loans based upon the
amount of the Company's eligible inventory from time to time. The Company has
granted the lender under the Revolving Credit Agreement a lien on substantially
all of its assets and properties. Both the Securitization Facility and the
Revolving Credit Agreement are three-year facilities.
In accordance with the requirements of the Securitization Facility, each of the
Company and BFC has agreed to conduct its affairs in relation to the other
corporation in an arm's length manner reflecting terms and conditions that
independent third parties would agree upon. In addition, each corporation has
agreed not to guarantee or otherwise become responsible for the debts of the
other. Among other things, the Company is not responsible for BFC's
obligations to Triple-A One under the Securitization Facility documents, and
BFC has not guaranteed and is not otherwise responsible for the Company's
obligations to the bank(s) under the Revolving Credit Agreement.
Proceeds of the initial purchase from the Company of Receivables by BFC were
used in part to repay at par $20 million of the Company's $70 million in
outstanding 11% Senior Secured Notes due 2000 (the "Notes") plus accrued and
unpaid interest thereon to the date of repayment.
The Notes bear interest at 11% per annum payable semiannually on April 30 and
October 31, and are secured by an interest in the Company's assets that is
second in priority to the obligations pursuant to the Revolving Credit
Agreement. In connection with the Securitization Facility, the indenture
governing the Notes was amended to remove from the collateral thereunder
accounts receivable of the Company sold to BFC in accordance with the
Securitization Facility.
7
<PAGE> 8
As a result of the matter referred to in Note 8 of the Financial Statements
included elsewhere herein, the Company was in violation of various covenants
under its previous credit facility with Bank of Boston, the Securitization
Facility and the Revolving Credit Agreement, and the Company's wholly-owned
subsidiary, BFC, was in violation of various covenants under the Securitization
Facility. Subsequently, on July 12, 1996, the Company and BFC obtained
waivers of such violations and related amendments.
On July 26, 1996, the Company was notified that the Agent of the Securitization
Facility desires to extinguish the commitment under the facility. On August
15, 1996, the Company entered into a commitment letter with Bank of Boston
relating to an $85 million revolving credit facility that would replace the
existing Revolving Credit Agreement and the commitment under the Securitization
Facility. The Company is currently working with the Bank of Boston with
respect to definitive documentation of such new facility and with the Note
holders for their consent to such transactions and anticipates the consummation
thereof in the near future. The new revolving credit facility will be
collateralized by the Company's inventory and accounts receivable.
The Company believes that funds available under the Securitization Facility and
the Revolving Credit Agreement or, upon the refinancing thereof, under the new
revolving credit facility and funds generated from operations will provide
sufficient working capital for the financing of inventory and accounts
receivable as well as for the Company's expansion plans and other purposes, for
the foreseeable future.
As of May 31, 1995, the Company has available approximately $7,800,000 of
remaining useable aggregate net operating loss carryovers for federal income
tax return purposes expiring through 2008. As a result of the Company's
Chapter 11 reorganization, an ownership change occurred and the utilization of
the loss carryovers of the predecessor company was limited to approximately
$1,160,000 of taxable income annually for up to 15 years, commencing June 1992.
An ownership change occurs if, immediately after any owner shift or equity
structure shift, the percentage of stock owned by one or more "5-percent
shareholders" has increased by more than 50 percentage points over the lowest
percentage held by such shareholders at any time during the testing period.
Additionally, recapitalization transactions completed on December 22, 1993
resulted in the issuance of approximately 49 percent of the aggregate
outstanding shares of Common Stock of the Company, and therefore resulted in
approximately 49 percentage points of change of ownership for federal income
tax purposes. Further, during 1994, a private investor purchased in excess of
5 percent of the Company's outstanding Common Stock in the open market,
resulting in an additional 5 percentage points of change. Consequently, a
third ownership change has occurred, which further limited the Company's
ability to utilize its net operating loss and tax credit carryovers (including
any net operating losses and tax credits generated since the first ownership
change). For financial reporting purposes, utilization of net operating loss
carryovers of the predecessor company is reflected as a credit to Common Stock.
8
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QUARTERLY RESULTS OF OPERATION
The following is a summary of the unaudited quarterly results of operations for
the years ended May 31, 1995 and 1994. The following share and income per
share data have been restated to reflect a one-for-five reverse stock split:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
May 31, February 28, November 30, August 31,
1995 1995 1994 1994
---- ---- ---- ----
(As Restated)
(1)
1995
- -------------
<S> <C> <C> <C> <C>
Net sales $29,149,000 $50,948,000 $31,410,000 $24,548,000
Cost of goods
sold, buying
and occupancy 17,513,000 28,024,000 18,534,000 14,836,000
Income (loss)
before income taxes (1,612,000) 5,971,000 (985,000) (1,468,000)
Net income
(loss) (205,000) 3,583,000 (591,000) (881,000)
Income (loss)
per share $(.05) $.90 $(.15) $(.22)
Weighted average number
of common shares outstanding 3,968,976 3,968,980 3,969,019 3,969,019
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------
May 31, February 28, November 30, August 31,
1994 1994 1993 1993
---- ---- ---- ----
1994
- -------------
<S> <C> <C> <C> <C>
Net sales $24,850,000 $41,407,000 $26,139,000 $21,627,000
Cost of goods
sold, buying
and occupancy 13,999,000 21,472,000 14,195,000 12,486,000
Income (loss)
before income taxes (612,000) 4,553,000 (143,000) (1,250,000)
Net income
(loss) (401,000) 3,333,000 (143,000) (1,250,000)
Income (loss)
per share $(.10) $.95 $(.07) $(.62)
Weighted average number
of common shares outstanding 3,969,019 3,516,068 2,027,800 2,030,000
</TABLE>
(1) Subsequent to the original filing of the May 31, 1995 form 10-K, the
Company identified a mathematical error in the accumulation of its
merchandise inventories as of May 31, 1995. The error was detected
during the reconciliation of the physical inventory results for March
1996. The effect of the restatement was to decrease inventory by
$1,547,000 at May 31, 1995 and net income by $883,000 or $.22 per
common share for the year ended May 31, 1995. See Note 8 to the
Financial Statements in "Financial Statements - Notes to Financial
Statements."
9
<PAGE> 10
INFLATION
The impact of inflation on the cost of merchandise (including gems and metals),
labor, occupancy and other operating costs can affect the Company's results.
For example, most of the Company's leases require the Company to pay taxes,
maintenance, insurance, repairs and utility costs, all of which are subject to
inflationary pressures. To the extent permitted by competition, in general the
Company passes increased costs to the customer by increasing sales prices over
time.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K.
<TABLE>
<CAPTION>
1. Financial statements: Page Number
-----------
<S> <C>
Report of Independent Auditors - Deloitte & Touche LLP F-1
Report of Independent Auditors - Ernst & Young LLP F-2
Balance Sheets as of May 31, 1995 (As Restated) and 1994 F-3
For the Years Ended May 31, 1995 (As Restated) and May 31, 1994
(Company), Eleven Months Ended May 31, 1993 (Company), and Month
Ended June 30, 1992 (Predecessor):
Statements of Operations F-5
Statements of Shareholders'
Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-9
</TABLE>
2. Financial Statement Schedules For the Years Ended May 31, 1995
(As Restated) and May 31, 1994 (Company), Eleven Months Ended
May 31, 1993 (Company), and Month Ended June 30, 1992
(Predecessor):
<TABLE>
<S> <C> <C>
Schedule II - Valuation and Qualifying
Accounts and Reserves F-24
</TABLE>
All financial statement schedules, other than the above, for which provision is
made in the applicable accounting regulation of the Securities and Exchange
Commission are not required and therefore have been omitted.
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3. Index to Exhibits:
<TABLE>
<CAPTION>
(a) Exhibit No. Description
----------- -----------
<S> <C>
3.1* Restated Articles of Incorporation filed June 30, 1992
3.2* Restated Bylaws adopted as of June 30, 1992
3.3x Restated Articles of Incorporation filed November 16, 1994 in connection with the Reverse Stock
Split.
4.1** Amended Plan of Reorganization, as modified, confirmed by entry of order on June 19, 1992
4.2* Indenture dated as of June 30, 1992 between Barry's Jewelers, Inc. and Bankers Trust Company, as
Trustee, with respect to 12-5/8% Senior Subordinated Amortizing Notes due May 15, 1996
("Subordinated Notes")
4.3* Warrant Agreement dated as of June 30, 1992 between Barry's Jewelers, Inc. and Bankers Trust
Company, as Warrant Agent, with respect to Warrants to acquire Common Stock
4.4* Form of Common Stock certificate
4.5* Form of Subordinated Notes certificate
4.6* Form of Warrant certificate
4.7* Grant of Registration Rights dated June 30, 1992
4.8**** Indenture, dated as of December 22, 1993, between Barry's Jewelers, Inc. and First Trust National
Association, as trustee (the "Trustee"), with respect to the 11% Senior Secured Notes due December
22, 2000, including form of Note certificate
4.8(a)x Amendment No. 1 to Indenture, dated as of February 14, 1994, between Barry's Jewelers, Inc. and the
Trustee
4.8(b)x Amendment No. 2 to Indenture, dated March 18, 1994, between Barry's Jewelers, Inc. and the Trustee
4.9**** Exchange Agreement, dated as of December 22, 1993, by and among the Company and the holders
signatories thereto
</TABLE>
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<TABLE>
<S> <C>
4.10**** Senior Secured Notes Registration Rights Agreement, dated as of December 22, 1993, by and among the
Company and the holders signatories thereto
4.11**** Common Stock Registration Rights Agreement, dated as of December 22, 1993, by and among the Company
and the holders signatories thereto
4.12 Collateral Agency and Intercreditor Agreement (See Exhibit 10.2)
4.13 Revolving Credit Agreement (See Exhibit 10.1)
4.14 Security Agreement (See Exhibit 10.3)
4.15 Trademark Collateral Security and Pledge Agreement
(See Exhibit 10.4)
4.16o Amendment No. 3, dated as of December 21, 1995, to Indenture dated as of December 22, 1993 by and
between the Company and the Trustee
4.17o Amendment Agreement No. 1, dated as of December 21, 1995, to Collateral Agency and Intercreditor
Agreement dated as of December 22, 1993 among Bank of Boston, the Trustee and the Company
10.1**** Revolving Credit Agreement, dated as of December 22, 1993, by and among the Company, FNBB, as lender
and as agent thereunder
10.2**** Collateral Agency and Intercreditor Agreement, dated as of December 22, 1993, among The First
National Bank of Boston ("FNBB"), as collateral agent for the secured parties and as agent for the
lenders (under the New Credit Agreement), the Trustee, on behalf of the holders of the Notes, and
the Company
10.3**** Security Agreement, dated as of December 22, 1993, between the Company and FNBB, as collateral agent
for the secured parties
10.4**** Trademark Collateral Security and Pledge Agreement, dated as of December 22, 1993, between the
Company and FNBB, as collateral agent for the secured parties
10.5*** Lease dated February 1, 1990, between the El Monte Partnership as Landlord and Barry's Jewelers,
Inc. as Tenant
10.6* Employee Incentive Stock Plan adopted June 30, 1992
</TABLE>
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<TABLE>
<S> <C>
10.7* Employee Stock Option Plan adopted June 30, 1992
10.8***** Employment Agreement dated March 1, 1993, between the Company and Terry L. Burman
10.8(a)****** Amendment to Employment Agreement dated November 2, 1993 between the Company and Terry L. Burman
10.9***** Consulting Agreement dated March 1, 1993, between the Company and Gerson I. Fox
10.10***** Consulting Agreement dated March 1, 1993, between the Company and David Blum
10.10(a)x Consulting Agreement between the Company and Alan R. Hoefer
10.11***** Executive Incentive Bonus Plan for the year ended May 31, 1994.
10.11(a)x Executive Incentive Bonus Plan for the year ended May 31, 1995.
10.12***** Lease dated December 1, 1990, between Gerson I. Fox and David Blum, as Lessors, and BBF Jewelers
Management, Inc., as Lessee.
10.13**** Revolving Credit Agreement dated as of December 22, 1993 among Barry's Jewelers, Inc., The First
National Bank of Boston as Agent and as the lender thereunder
10.13(a)x Amendment No. 1 to Credit Agreement and Waiver
10.13(b) Amendment No. 1 and Waivers of Certain Events of Default
10.14**** Security Agreement dated as of December 22, 1993 among Barry's Jewelers, Inc. and The First National
Bank of Boston
10.15**** Trademark Collateral Security and Pledge Agreement dated as of December 22, 1993 among Barry's
Jewelers, Inc. and The First National Bank of Boston
10.16**** Collateral Agency and Intercreditor agreement dated as of December 22, 1993 among The First National
Bank of Boston, as Agent, First Trust National Association, as Trustee, and Barry's Jewelers, Inc.
10.17(check) Deferred Compensation Plan
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
10.18(check) Executive Deferral Plan
10.19(check) Executive Bonus Plan - Master Plan Document
10.20(check) Executive Bonus Plan - Trust Agreement
10.21x Employee Stock Purchase Plan
10.22o Originator Purchase Agreement dated as of December 21, 1995 among the Company and Funding
10.22(a) Waiver No.1 to Originator Purchase Agreement Dated as of December 21, 1995
10.23o Receivables Purchase Agreement dated as of December 21, 1995 among Funding, Triple-A One, CapMAC and
the Company
10.23(a) Amendment No.3 and Waiver to Receivables Purchase Agreement
Dated as of December 21, 1995
10.24o Intercreditor Agreement dated as of December 21, 1995 by and among Bank of Boston, Funding, the
Company, Triple-A One, CapMAC and the Trustee
10.25o Amended and Restated Revolving Credit Agreement dated as of December 21, 1995 among the Company,
Bank of Boston and the Lenders party hereto
10.26o Form of Amended and Restated Security Agreement dated as of December 21, 1995 among the Company and
Bank of Boston
10.27o Amended and Restated Trademark Collateral Security and Pledge Agreement dated as of December 21,
1995 among the Company and Bank of Boston
10.28o Stock Pledge Agreement dated as of December 21, 1995 by and between the Company and Bank of Boston
21 Barry's Jewelers, Inc. has a subsidiary, Barry's Funding Corp.
23 Consents of Independent Auditors
99.1 Press Release dated July 12, 1996
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
* Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits,"
of the Company's Annual Report on Form 10-K for the year ended May 31, 1992.
** Incorporated herein by reference to Current Report on Form 8-K filed
June 23, 1992.
*** Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits,"
of the Company's Annual Report on Form 10-K for the year ended May 31, 1990.
**** Incorporated herein by reference to Current Report on Form 8-K filed December 23, 1993.
***** Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits,"
of the Company's Annual Report on Form 10-K for the year ended May 31, 1993.
****** Incorporated herein by reference to the indicated exhibits filed in response to Item 6, "Exhibits,"
of the Company's Quarterly Report on Form 10-Q for the Quarter ended November 30, 1993.
(check) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits,"
of the Company's Annual Report on Form 10-K for the year ended May 31, 1994.
X Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits,"
of the Company's Annual Report on Form 10-K for the year ended May 31, 1995.
o Incorporated herein by reference to Current Report on Form 8-K filed
December 21, 1995.
</TABLE>
(b) Reports on Form 8-K
Incorporated herein by reference to the Form 8-K
dated November 1, 1994 in response to Item 4, Changes
in Registrant's Certifying Accountant.
15
<PAGE> 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.
BARRY'S JEWELERS, INC.
August 30, 1996 By: /S/ROBERT W. BRIDEL
-----------------------
ROBERT W. BRIDEL
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
16
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Barry's Jewelers Inc.
Monrovia, California
We have audited the accompanying balance sheet of Barry's Jewelers Inc. (the
"Company") as of May 31, 1995, and the related statements of operations,
shareholders' equity, and cash flows for the year then ended. Our audit also
included the financial statement schedule listed in the Index at Item 14a.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Barry's Jewelers Inc. as of May 31, 1995,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 8, the accompanying 1995 financial statements have been
restated.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
August 3, 1995, except for Note 8, as to which the date is August 15, 1996.
F-1
<PAGE> 18
Report of Independent Auditors
Board of Directors and Shareholders
Barry's Jewelers, Inc.
We have audited the accompanying balance sheet of Barry's Jewelers, Inc. as of
May 31, 1994 and the related statements of operations, shareholders' equity,
and cash flows for the year ended May 31, 1994 (Company), for the eleven month
period ended May 31, 1993 (Company) and one month period ended June 30, 1992
(Predecessor). These financial statements are the responsibility of the
Company's management. Our audit also included the financial statement schedule
listed in the Index at Item 14(a). Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Barry's Jewelers, Inc. at
May 31, 1994, and the results of its operations and its cash flows for the year
ended May 31, 1994 (Company), the eleven month period ended May 31, 1993
(Company) and the one month period ended June 30, 1992 (Predecessor) in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Los Angeles, California
August 8, 1994
F-2
<PAGE> 19
BARRY'S JEWELERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
1995 1994
-------------- ------------
(As Restated)
(Note 8)
<S> <C> <C>
ASSETS
(Notes 1 and 2)
Current assets:
Cash $ 954,000 $ 1,098,000
Customer receivables, net of allowance for doubtful
accounts of $11,662,000 (1995) and $11,162,000 (1994) 69,392,000 63,199,000
Merchandise inventories 53,835,000 42,575,000
Deferred taxes (Note 5) 1,000,000 118,000
Prepaid expenses and other current assets 2,027,000 886,000
------------ ------------
Total current assets 127,208,000 107,876,000
Property and equipment:
Leasehold improvements, furniture and fixtures 20,275,000 15,253,000
Machinery and equipment 3,438,000 2,612,000
------------ ------------
23,713,000 17,865,000
Less accumulated depreciation and amortization 8,013,000 5,741,000
------------ ------------
Net property and equipment 15,700,000 12,124,000
Other assets, net of amortization of deferred debt
issuance costs of $552,000 (1995) and $237,000 (1994) 1,742,000 2,252,000
------------ ------------
Total assets $144,650,000 $122,252,000
============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 20
BARRY'S JEWELERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
1995 1994
-------------- --------------
(AS RESTATED)
(Note 8)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
(Note 1)
Current liabilities:
Current portion of long-term debt (Notes 2 and 3) $ 488,000 $ 466,000
Accounts payable - trade 10,133,000 7,430,000
Accrued wages and benefits 2,649,000 2,507,000
Accrued interest 786,000 679,000
Other accrued liabilities 2,970,000 2,134,000
--------------- --------------
Total current liabilities 17,026,000 13,216,000
Long-term debt, less current maturities
(Notes 2 and 3) 91,880,000 75,469,000
Lease commitments and contingencies
(Note 6)
Shareholders' equity (Notes 2, 3 and 7)
Common stock, no par value: authorized - 8,000,000
shares; issued and outstanding, 3,968,975 shares (1995)
and 3,969,019 shares (1994) 32,936,000 32,715,000
Retained earnings 2,808,000 902,000
Deferred compensation - (50,000)
--------------- --------------
Total shareholders' equity 35,744,000 33,567,000
--------------- --------------
Total liabilities and shareholders' equity $ 144,650,000 $ 122,252,000
=============== ==============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 21
BARRY'S JEWELERS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------------- ---------------
YEAR YEAR ELEVEN MONTHS MONTH ENDED
ENDED MAY 31, ENDED MAY 31, ENDED MAY 31, JUNE 30,
1995 1994 1993 1992
--------------- --------------- ----------------- ---------------
(AS RESTATED)
(Note 8)
<S> <C> <C> <C> <C>
Net sales $136,055,000 $114,023,000 $99,270,000 $7,070,000
Finance and credit insurance charges 15,681,000 14,487,000 13,037,000 1,229,000
--------------- --------------- ----------------- ---------------
151,736,000 128,510,000 112,307,000 8,299,000
Costs and expenses:
Cost of goods sold, buying and
occupancy 78,907,000 62,152,000 54,493,000 4,225,000
Selling, general and administrative
expenses (Note 4) 50,966,000 46,341,000 41,863,000 3,859,000
Provision for doubtful accounts 10,193,000 9,723,000 10,187,000 756,000
--------------- --------------- ----------------- ---------------
140,066,000 118,216,000 106,543,000 8,840,000
--------------- --------------- ----------------- ---------------
Operating income (loss) 11,670,000 10,294,000 5,764,000 (541,000)
Interest expense, net 9,764,000 7,746,000 6,401,000 644,000
--------------- --------------- ----------------- ---------------
Income (loss) before income taxes 1,906,000 2,548,000 (637,000) (1,185,000)
Provision for income taxes (Note 5) - 1,009,000 - -
--------------- --------------- ----------------- ---------------
Income (loss) before extraordinary item 1,906,000 1,539,000 (637,000) (1,185,000)
Extraordinary item (Note 3) - - - 49,229,000
--------------- --------------- ----------------- ---------------
Net income (loss) $1,906,000 $1,539,000 ($637,000) $48,044,000
=============== =============== ================= ===============
Income (loss) per share:
Income (loss) before extraordinary item $0.48 $0.53 ($0.32) ($1.18)
Extraordinary item - - - 49.20
--------------- --------------- ----------------- ---------------
Net income (loss) per share $0.48 $0.53 ($0.32) $48.02
=============== =============== ================= ===============
Weighted average number of
common shares outstanding 3,968,998 2,902,359 2,008,182 1,000,413
=============== =============== ================= ===============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 22
BARRY'S JEWELERS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
---------------------------- EARNINGS
SHARES AMOUNT (DEFICIT)
------------- ------------- ---------------
<S> <C> <C> <C>
Balance at May 31, 1992 (Predecessor) 1,000,413 $12,248,000 ($44,528,000)
Net income for the month ended June 30, 1992 - - 48,044,000
Elimination of retained earnings at Effective Date - 3,516,000 (3,516,000)
Cancellation of common stock (1,000,413) (15,764,000) -
------------- ------------- ---------------
Balance at June 30, 1992 (Predecessor) - - -
============= ============= ===============
Balance at June 30, 1992 (Company) - - -
Issuance of common stock at reorganization
value at Effective Date 2,000,000 $16,899,000 -
Net loss for the eleven months ended May 31, 1993 - - ($637,000)
Collections on notes due from former directors - - -
Shares issued pursuant to restricted stock plan 30,000 150,000 -
------------- ------------- ---------------
Balance at May 31, 1993 (Company) 2,030,000 17,049,000 (637,000)
Net income for the year ended May 31, 1994 - - 1,539,000
Shares issued pursuant to recapitalization 1,941,219 14,735,000 -
Utilization of Predecessor net operating
loss carryovers - 931,000 -
Collections on notes due from former directors - - -
Shares cancelled pursuant to restricted stock plan (2,200) - -
Amortization of deferred compensation - - -
------------- ------------- ---------------
Balance at May 31, 1994 (Company) 3,969,019 32,715,000 902,000
Net income for the year ended May 31, 1995 (As Restated) (Note 8) - - 1,906,000
Utilization of Predecessor net operating
loss carryovers - 221,000 -
Shares cancelled pursuant to reverse stock split (44) - -
Amortization of deferred compensation - - -
------------- ------------- ---------------
Balance at May 31, 1995 (Company) (As Restated) 3,968,975 $32,936,000 $2,808,000
============= ============= ===============
<CAPTION>
NOTES DUE
FROM FORMER DEFERRED
DIRECTORS COMPENSATION TOTAL
------------- ------------- --------------
<S> <C> <C> <C>
Balance at May 31, 1992 (Predecessor) ($215,000) - ($32,495,000)
Net income for the month ended June 30, 1992 - - 48,044,000
Elimination of retained earnings at Effective Date - - -
Cancellation of common stock - - (15,764,000)
------------- ------------- --------------
Balance at June 30, 1992 (Predecessor) ($215,000) - ($215,000)
============= ============= ==============
Balance at June 30, 1992 (Company) ($215,000) - ($215,000)
Issuance of common stock at reorganization
value at Effective Date - - 16,899,000
Net loss for the eleven months ended May 31, 1993 - - (637,000)
Collections on notes due from former directors 77,000 - 77,000
Shares issued pursuant to restricted stock plan - ($100,000) 50,000
------------- ------------- --------------
Balance at May 31, 1993 (Company) (138,000) (100,000) 16,174,000
Net income for the year ended May 31, 1994 - - 1,539,000
Shares issued pursuant to recapitalization - - 14,735,000
Utilization of Predecessor net operating
loss carryovers - - 931,000
Collections on notes due from former directors 138,000 - 138,000
Shares cancelled pursuant to restricted stock plan - - -
Amortization of deferred compensation - 50,000 50,000
------------- ------------- --------------
Balance at May 31, 1994 (Company) - (50,000) 33,567,000
Net income for the year ended May 31, 1995 (As Restated) (Note 8) - - 1,906,000
Utilization of Predecessor net operating
loss carryovers - - 221,000
Shares cancelled pursuant to reverse stock split - - -
Amortization of deferred compensation - 50,000 50,000
------------- ------------- --------------
Balance at May 31, 1995 (Company) (As Restated) $ - $ - $35,744,000
============= ============= ==============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 23
BARRY'S JEWELERS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------ -------------
ELEVEN
YEAR YEAR MONTHS ENDED MONTH ENDED
ENDED MAY 31, ENDED MAY 31, MAY 31, JUNE 30,
1995 1994 1993 1992
------------- -------------- -------------- --------------
(AS RESTATED)
(Note 8)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $1,906,000 $1,539,000 ($637,000) $48,044,000
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Extraordinary gain - - - (49,229,000)
Depreciation and amortization 3,854,000 3,257,000 2,730,000 218,000
Compensation on issuance of common stock 50,000 50,000 50,000 -
Provision for doubtful accounts 10,193,000 9,723,000 10,187,000 756,000
Loss on sale or abandonment of property and equipment 101,000 13,000 - -
Deferred income taxes (882,000) (118,000) - -
Changes in operating assets and liabilities:
Customer receivables (16,386,000) (11,742,000) (12,199,000) 392,000
Merchandise inventories (11,260,000) 677,000 (3,800,000) 452,000
Prepaid expenses and other current assets (1,141,000) (42,000) 294,000 583,000
Other assets (42,000) (2,000) 71,000 (33,000)
Accounts payable - trade 2,703,000 (1,432,000) 3,798,000 475,000
Accrued liabilities 1,306,000 2,338,000 630,000 (938,000)
------------- -------------- -------------- --------------
Net cash provided by (used in) operating activities (9,598,000) 4,261,000 1,124,000 720,000
INVESTING ACTIVITIES
Purchase of property and equipment (6,516,000) (2,848,000) (1,488,000) -
Proceeds on sale of assets 24,000 - 70,000 -
------------- -------------- -------------- --------------
Net cash used in investing activities (6,492,000) (2,848,000) (1,418,000) -
FINANCING ACTIVITIES
Implementation of Reorganization Plan:
Pay pre-petition trade accounts payable - - - (4,516,000)
Payment on 12-5/8% Subordinated Notes - - - (2,550,000)
Cash applied to revolving facility - - - (2,841,000)
------------- -------------- -------------- --------------
Net cash used in Reorganization Plan - - - (9,907,000)
Net proceeds from revolving facility 16,507,000 7,186,000 5,476,000 -
Principal payments on long-term debt (561,000) (5,269,000) (6,642,000) (11,000)
Cash in escrow - - - (333,000)
Reduction of long-term debt pursuant to Recapitalization - (1,498,000) - -
Recapitalization costs - (2,412,000) - -
Decrease in notes due from former directors - 138,000 77,000 -
------------- -------------- -------------- --------------
Net cash provided by (used in) financing activities 15,946,000 (1,855,000) (1,089,000) (10,251,000)
------------- -------------- -------------- --------------
Increase (decrease) in cash (144,000) (442,000) (1,383,000) (9,531,000)
Cash at beginning of period 1,098,000 1,540,000 2,923,000 12,454,000
------------- -------------- -------------- --------------
Cash at end of period $954,000 $1,098,000 $1,540,000 $2,923,000
============= ============== ============== ==============
</TABLE>
See notes to financial statements.
F-7
<PAGE> 24
BARRY'S JEWELERS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------- -------------
ELEVEN
YEAR YEAR MONTHS ENDED MONTH ENDED
ENDED MAY 31, ENDED MAY 31, MAY 31, JUNE 30,
1995 1994 1993 1992
------------- -------------- -------------- -------------
(AS RESTATED)
(Note 8)
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $9,105,000 $7,106,000 $6,458,000 $695,000
Income taxes $976,000 $56,000 - -
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During 1995, a capital lease obligation of $487,000 was incurred when the
Company entered into a lease for new equipment. During fiscal 1995 and
1994, the Company recognized the utilization of the Predecessor's net
operating loss carryovers for tax purposes of $221,000 and $931,000,
respectively, as an increase to common stock and a reduction to current
taxes payable (see Note 5).
See notes to financial statements.
F-8
<PAGE> 25
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1995 (AS RESTATED) AND 1994,
ELEVEN MONTHS ENDED MAY 31, 1993 AND MONTH ENDED JUNE 30, 1992.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FRESH START REPORTING
The American Institute of Certified Public Accountants has issued Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"). Pursuant to SOP 90-7, the Company qualified
for fresh start reporting as of June 30, 1992. Under this concept, all assets
and liabilities are restated to current value of the reorganized entity, which
approximates the Company's fair value at the date of reorganization. Barry's
Jewelers, Inc. is referred to as the Predecessor through and including June 30,
1992 and as the Company subsequent to June 30, 1992.
The Company obtained a valuation of the reorganized entity from its financial
consultant to determine an estimate of the Company's reorganization value. The
valuation estimated the reorganization value (total assets less noncurrent
liabilities of the Company) to be approximately $17 million. The Company
performed a final valuation at year-end of existing assets and liabilities and
recorded adjustments to the historical book value at June 30, 1992 of certain
leasehold improvements and furniture and fixtures of $1,135,000. The Company
determined that the fair value of remaining assets and liabilities approximated
their historical carrying value, and as such, no further valuation adjustments
were recorded.
In addition, the accumulated surplus of $3,516,000 of the Predecessor was
eliminated and its capital structure was adjusted to conform with the approved
reorganization plan described in Note 3.
BUSINESS DESCRIPTION
Barry's Jewelers, Inc. (the "Company") operates a chain of retail stores that
sell fine jewelry and watches and utilize credit financing to enhance
sales. The Company operated 162 stores on May 31, 1995, and 144 stores
on May 31, 1994 and 1993.
REVENUE RECOGNITION
The Company recognizes revenue upon delivery of merchandise to the customer and
either the receipt of a cash payment or approval of a credit agreement.
F-9
<PAGE> 26
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER RECEIVABLES
Customer receivables consist solely of revolving charge accounts with monthly
payment amounts established such that the payment of the credit balance will
occur, generally, over a period of nine to twenty-four months. In accordance
with usual trade practice, customer receivables are included in current assets.
The Company performs a credit evaluation using a point scoring system and other
factors and grants credit to customers meeting the Company's requirements.
Down payments are required on most credit sales. Additionally, the Company
routinely assesses the collectibility of its customer receivables.
The Company's receivables are with customers residing principally in California
and Texas. The Company does business in 16 states, primarily Arizona,
California, Colorado, Texas and Utah, as well as in Ohio, Indiana and North and
South Carolina.
MERCHANDISE INVENTORIES
Merchandise inventories, substantially all of which represent finished goods,
are stated at the lower of weighted average cost or market. Weighted average
cost is determined on the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment in existence at June 30, 1992 were stated at fair values
as of that date pursuant to fresh start reporting. Additions since June 30,
1992 are stated at cost.
Depreciation and amortization of equipment and leasehold improvements are
computed by the straight-line method over the shorter of the following periods
or the life of the leases for leasehold improvements:
<TABLE>
<CAPTION>
Years
-------
<S> <C>>
Leasehold improvements 10 - 15
Furniture and fixtures 5 - 10
Machinery and equipment 5
</TABLE>
F-10
<PAGE> 27
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs are amortized using the straight-line method over
the terms of the various related financing agreements.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under the liability method, deferred taxes are
determined based on the difference between the financial statement and tax
bases of assets and liabilities and are measured at the enacted tax rates that
will be in effect when these differences reverse.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of common
stock and common stock equivalents outstanding during the periods presented.
Common stock equivalents consist of shares issuable upon the exercise of stock
options and warrants, and are included in the calculation of the weighted
average number of shares outstanding when their effect is dilutive.
On November 1, 1994, the Company's Board of Directors declared a 1-for-5
reverse stock split of the Company's common stock and decreased authorized
common shares to 8,000,000, effective November 16, 1994. All references in the
financial statements to the number of shares and per share amounts have been
retroactively adjusted for the reverse stock split and the decrease in the
number of authorized shares.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
F-11
<PAGE> 28
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. RECAPITALIZATION AND DEBT
On December 22, 1993, the Company completed certain recapitalization
transactions (the "Recapitalization") pursuant to which the lenders under the
then-existing revolving facility (the "Old Revolving Facility") and the
then-existing term loan (the "Old Term Loan") exchanged the bank debt
outstanding thereunder (approximately $86,498,000 at December 22, 1993 (the
"Old Bank Debt")) for, in the aggregate, (i) 1,941,219 shares (as adjusted for
the reverse stock split on November 1, 1994) of Common Stock (issued in
exchange for $15 million debt conversion), (ii) $70,000,000 aggregate
principal amount of 11% Senior Secured Notes (the "Senior Secured Notes")
(issued at par), and (iii) cash of approximately $1,498,000. In addition, all
accrued interest with respect to the Old Bank Debt was paid on such date.
Simultaneously on December 22, 1993, the Company entered into a new revolving
credit facility with a new bank (the "New Credit Agreement"). The New Credit
Agreement, which has been subsequently amended among other things, to add
Shawmut Bank, N.A. as a lender thereby, provides for revolving loans and
undrawn letters of credit of up to $40 million (subject to limitations as
provided under the New Credit Agreement) with formulas limiting borrowing
availability based on the Company's eligible accounts receivable and
merchandise inventories.
Loans under the New Credit Agreement mature on January 31, 1997, are secured by
substantially all of the Company's assets, and contain covenants and events of
default which, among other things, limit capital expenditures, indebtedness and
payment of dividends and require maintenance of certain financial ratios.
Loans bear interest at a per annum rate calculated as (x) the higher of (a) the
annual rate of interest announced from time to time by the lender as its "base
rate," and (b) 0.5% above the Federal Funds Effective Rate (as defined in the
New Credit Agreement) from time to time, plus (y) 1.5%. Eurodollar Rate Loans
under the New Credit Agreement bear interest at a per annum rate calculated as
the sum of the Eurodollar Rate (as defined in the New Credit Agreement) plus
2.75%. Loans outstanding of $21,625,000 at May 31, 1995 bear a weighted
average interest rate of 9.21%.
The Senior Secured Notes are due and payable on December 22, 2000, bear
interest at 11% per annum, payable semiannually on April 30 and October 31, and
have a security interest in the Company's assets that is effectively second in
priority to the obligations pursuant to the New Credit Agreement.
F-12
<PAGE> 29
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. RECAPITALIZATION AND DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
1995 1994
----------- -----------
<S> <C> <C>
New Credit Agreement $21,625,000 $ 5,117,000
11% Senior Secured Notes 70,000,000 70,000,000
Equipment loans 23,000 178,000
12-5/8% Senior Subordinated Notes 320,000 640,000
Capital Lease 400,000 -
----------- -----------
92,368,000 75,935,000
Less current portion 488,000 466,000
----------- -----------
Long-term debt $91,880,000 $75,469,000
=========== ===========
</TABLE>
Payments of $80,000 plus interest are due quarterly through May 1996 on the
12-5/8% Senior Subordinated Notes (see note 3).
The aggregate maturities of long-term debt for the years subsequent to May 31,
1995 are as follows:
<TABLE>
<S> <C>
1996 $ 488,000
1997 21,801,000
1998 79,000
Thereafter 70,000,000
-----------
Total $92,368,000
===========
</TABLE>
3. REORGANIZATION PLAN
On February 26, 1992, Barry's Jewelers, Inc. voluntarily initiated a case under
Chapter 11 of the United States Bankruptcy Code and filed its prenegotiated
plan of reorganization. On June 19, 1992, the United States Bankruptcy Court
for the Central District of California entered an order confirming the
Company's Amended Plan of Reorganization, as modified, under Chapter 11 of the
United States Bankruptcy Code (the "Reorganization Plan"). The effective date
of the Reorganization Plan was June 30, 1992 (Effective Date).
F-13
<PAGE> 30
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. REORGANIZATION PLAN (CONTINUED)
The confirmed Reorganization Plan, as of the Effective Date, provided for the
following:
(a) Bank Borrowings
The Company's credit obligations under the then-existing credit
facility, consisting of $95 million principal amount outstanding,
were restructured to include Old Term Loan and Old Revolving Facility
(which, on the Effective Date, after giving effect to payments on such
facilities on that date, were approximately $32,076,000 and
$57,716,000, respectively). Interest on the Old Term Loan and Old
Revolving Facility accrued at the rate of 2% and 1-3/8% per annum,
respectively, over the Bank's prevailing prime rate, subject to
increases in the event of default.
Principal payments on the Old Term Loan were $341,833 per month until
maturity. The Old Revolving Facility provided for advances, with
formulas based on the Company's eligible accounts receivable and
merchandise inventories, of up to $64,000,000.
The Old Term Loan and the Old Revolving Facility were collateralized by
substantially all present and future assets of the Company and
contained covenants and events of default which, among other things,
limit capital expenditures, indebtedness, payment of dividends and
investments as well as required the Company to maintain certain
financial ratios. See Note 2 for a description of the replacement of
the Old Term Loan and the Old Revolving Facility with the New Credit
Agreement and Senior Secured Notes on December 22, 1993.
In addition, the banks received warrants to purchase an aggregate of
50,000 shares of post-reorganization common stock (Company's Common
Stock), an amount equal to 2-1/2% of the shares outstanding as of the
Effective Date, at a price of $16.75 per share of the Company's Common
Stock, expiring June 30, 2002.
(b) Predecessor 12-5/8% Subordinated Notes
All of the $46,500,000 aggregate principal amount of the 12-5/8%
Subordinated Notes issued in April 1986 (the "Predecessor 12-5/8%
Subordinated Notes") were automatically canceled, and in exchange
therefor, the holders received an aggregate of $2,550,000 in cash,
1,800,000 shares of the Company's Common Stock representing 90% of the
shares outstanding on the Effective Date, and Senior Subordinated
Notes due May 15, 1996 in an
F-14
<PAGE> 31
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. REORGANIZATION PLAN (CONTINUED)
(b) Predecessor 12-5/8% Subordinated Notes (continued)
aggregate principal amount of $1,200,000. Principal and interest are
payable quarterly with the principal payments required to fully
amortize the Company's 12-5/8% Subordinated Notes by May 15, 1996. No
distribution was made in respect of accrued and unpaid interest on the
Predecessor 12-5/8% Subordinated Notes (see note 2).
(c) Predecessor Common Stock
All shares of the Predecessor's Common Stock outstanding immediately
prior to the Effective Date (Predecessor Common Stock) were canceled
and the holders received in exchange an aggregate of 140,000 shares of
Company Common Stock, representing 7% of the shares outstanding on the
Effective Date, and warrants to purchase an aggregate of 160,000
shares of Company Common Stock, an amount which is equivalent to 8% of
the shares outstanding as of the Effective Date, at a price of $16.75
per share, expiring June 30, 2002.
(d) Other Claims
Other Allowed Claims were paid in full in cash at the Effective Date
or in accordance with their terms.
(e) Management
Pursuant to the Reorganization Plan, the Company instituted a new
Employee Incentive Stock Plan and a new Employee Stock Option Plan.
(For further discussion, see Note 7.)
(f) Shares Issued and Outstanding
Immediately prior to the Effective Date, the Predecessor had 1,000,413
shares of Common Stock outstanding. On the Effective Date, all shares
of the Predecessor's Common Stock were canceled, and the Company
issued 2,000,000 shares of Common Stock.
F-15
<PAGE> 32
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. REORGANIZATION PLAN (CONTINUED)
(g) Extraordinary Item
The extraordinary item in the month ended June 30, 1992 represents the
gain on cancellation of the Predecessor's 12-5/8% Subordinated Notes
and related accrued interest ($50,580,000), net of write-off of
deferred debt expenses ($1,351,000). The gain resulting from the
forgiveness of debt is not taxable for federal and state income tax
purposes.
4. RESTRUCTURING CHARGES
In connection with a restructuring of its long-term debt obligations and the
Company's emergence from Chapter 11 on June 30, 1992, the Company recorded
charges for professional fees of approximately $100,000 (eleven months ended
May 31, 1993), $450,000 (month ended June 30, 1992) and $4,200,000 (1992).
Such fees were originally budgeted to be incurred during the year ended May 31,
1992 but were more appropriately expensed as incurred during the emergence from
Chapter 11. These restructuring charges are included in the accompanying
financial statements as part of selling, general and administrative expenses.
5. INCOME TAXES
At May 31, 1995 and 1994, the Company had available approximately $7,800,000
and $15,000,000, respectively of remaining pre-reorganization usable net
operating loss (the "NOL") carryovers for federal income tax purposes expiring
through 2008.
Pursuant to Internal Revenue Service guidelines, the NOL is subject to further
limitation immediately after any owner shift or equity structure shift, if the
percentage of stock owned by one or more "five percent shareholders" has
increased by more than 50 percentage points over the lowest percentage held by
such five percent shareholders at any time during the testing period. In
management's belief, the Company experienced such a change in ownership in
fiscal 1995. Accordingly, the Company reduced the existing May 31, 1994 NOL by
approximately 50%. The utilization of the remaining NOL is limited to $650,000
of taxable income annually for the next 12 years, and, for financial reporting
purposes, is recorded as a credit to common stock.
Utilization of the NOL for tax purposes resulted in a credit to common stock of
approximately $221,000 and $931,000 at May 31, 1995 and 1994, respectively. In
addition, the Company reduced
F-16
<PAGE> 33
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
the current provision for May 31, 1994 by approximately $273,000 through the
utilization of operating loss carryovers which arose subsequent to the
Reorganization. At May 31, 1995, there are no remaining NOL carryovers
relating to operating losses occurring subsequent to the Reorganization.
At May 31, 1995, the Company recorded a deferred tax benefit of approximately
$882,000 due to a reduction in the valuation allowance, as management believes
the realization of certain net deferred tax assets is more likely than not.
For the fiscal year ended May 31, 1993, the Company did not record a benefit
for income taxes because utilization of the NOL was not reasonably assured for
financial reporting purposes.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
Year Ended
May 31,
1995 1994
--------- ----------
<S> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . $ 853,000 $ 793,000
State . . . . . . . . . . . . . . . . . . . . . . . . 29,000 334,000
--------- ----------
882,000 1,127,000
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . (652,000) (118,000)
State . . . . . . . . . . . . . . . . . . . . . . . . (230,000) -
--------- ----------
(882,000) (118,000)
--------- ----------
$ - $1,009,000
========= ==========
</TABLE>
The Company's effective tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
Year Ended
May 31,
1995 1994
---------- ---------
<S> <C> <C>
Statutory rate . . . . . . . . . . . . . . . . . . . . . 35.0% 34.0%
Surtax benefit . . . . . . . . . . . . . . . . . . . . . (1.0) -
State taxes (net of federal tax) . . . . . . . . . . . . 3.6 3.1
Net operating loss carryforward . . . . . . . . . . . . - (15.9)
Valuation allowance . . . . . . . . . . . . . . . . . . (34.8) 18.4
Alternative minimum tax credits . . . . . . . . . . . . (3.8) -
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 -
----- -----
Effective tax rate . . . . . . . . . . . . . . . . . - % 39.6%
===== =====
</TABLE>
F-17
<PAGE> 34
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The components of deferred tax assets (liabilities and valuation allowance) are
as follows:
<TABLE>
<CAPTION>
May 31,
1995 1994
-------- ---------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . $ 4,682,000 $ 4,480,000
Inventory . . . . . . . . . . . . . . . . . . . . . . 1,073,000 833,000
Vacation accrual . . . . . . . . . . . . . . . . . . 340,000 325,000
State taxes . . . . . . . . . . . . . . . . . . . . . 60,000 40,000
----------- -----------
6,155,000 5,678,000
Noncurrent tax assets:
Property and leasehold improvements . . . . . . . . . 325,000 636,000
Net operating loss carryforwards . . . . . . . . . . 2,891,000 5,798,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 194,000 89,000
----------- -----------
3,410,000 6,523,000
----------- -----------
Total deferred tax assets . . . . . . . . . . . . . . 9,565,000 12,201,000
Valuation allowance . . . . . . . . . . . . . . . . . (8,565,000) (12,083,000)
----------- -----------
Net deferred tax assets . . . . . . . . . . . . . . . $ 1,000,000 $ 118,000
=========== ===========
</TABLE>
6. LEASE COMMITMENTS AND CONTINGENCIES
The Company leases store and office facilities and certain equipment used in
its regular operations under operating leases which expire at various dates
through 2005. The store leases provide for additional rentals based upon sales
and for payment of taxes, insurance and certain other expenses. Rent expense
charged to operations is as follows:
<TABLE>
<CAPTION>
Company Predecessor
------------------------------------------------- ------------
Eleven
Year Year Months Month
Ended Ended Ended Ended
May 31, May 31, May 31, June 30,
1995 1994 1993 1992
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Minimum rentals $9,914,000 $8,201,000 $7,492,000 $666,000
Additional rentals 2,816,000 2,236,000 1,978,000 131,000
----------- ----------- ---------- --------
$12,730,000 $10,437,000 $9,470,000 $797,000
=========== =========== ========== ========
</TABLE>
F-18
<PAGE> 35
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASE COMMITMENTS AND CONTINGENCIES (CONTINUED)
Included in the above table is rent expense paid to officers/shareholders
related to certain stores and the office facility, of $787,000 (1995),
$784,000 (1994), $725,000 (eleven months ended May 31, 1993), and $66,000
(month ended June 30, 1992).
Minimum rental commitments for all noncancelable leases in effect as of May 31,
1995 are as follows:
<TABLE>
<CAPTION>
Shareholders Others Total
------------ ------ -----
<S> <C> <C> <C>
1996 $ 645,000 $ 8,726,000 $ 9,371,000
1997 629,000 7,335,000 7,964,000
1998 629,000 5,949,000 6,578,000
1999 629,000 5,313,000 5,942,000
2000 629,000 4,271,000 4,900,000
Thereafter 3,147,000 11,805,000 14,952,000
---------- ----------- -----------
$6,308,000 $43,399,000 $49,707,000
========== =========== ===========
</TABLE>
The Company is from time to time involved in routine litigation incidental to
the conduct of its business. Based upon discussions with legal counsel,
management believes that its litigation currently pending will not have a
material adverse effect on the Company's financial position or results of
operations.
7. SHAREHOLDERS' EQUITY
Stock Options
On July 29, 1992, pursuant to the Reorganization Plan, all previously
outstanding employee stock options of the Predecessor were canceled on the
Effective Date, and new options were issued to the former holders according to
the 1992 Employee Stock Option Plan (the "1992 Stock Option Plan).
On November 1, 1994, the shareholders approved the 1994 Employee Stock Option
Plan (the "1994 Stock Option Plan"), which terminated the 1992 Stock Option
Plan. The termination of the 1992 Stock Option Plan does not affect the
outstanding options previously granted under the 1992 Stock Option Plan. At
May 31, 1995, there were options to purchase 153,900 shares outstanding under
the 1992 Employee Stock Option Plan.
F-19
<PAGE> 36
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
1994 Employee Stock Option Plan:
The Company's 1994 Employee Stock Option Plan (the "1994 Stock Option Plan")
effective November 1, 1994 has a term of ten years and provides for the grant
of Incentive Stock Options (ISOs) and Nonqualified Stock Options (NSOs).
Options granted are at the fair market value at date of grant for ISOs (or not
less than 85% of fair market value for NSOs) and, subject to termination of
employment, expire no later than ten years from date of grant, are not
transferable, and vest in three equal annual installments as specified by the
Audit and Compensation Committee of the Board of Directors. A total of 220,000
shares of common stock may be issued under the 1994 Stock Option Plan.
Non-employee directors automatically receive options to purchase 2,000 shares
of common stock upon their being added to the Board of Directors and options to
purchase 1,000 shares of common stock on the date of each annual meeting of
shareholders.
F-20
<PAGE> 37
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
The following is a summary of the Company stock options granted through May
31, 1995, as adjusted for the reverse stock split (see note 1):
<TABLE>
<CAPTION>
Shares
------
ISO's NSO'S
----- -----
<S> <C> <C>
Balance at June 30, 1992 - -
Granted at $6.25 - $8.45 per share 152,399 8,000
Terminated (5,112) -
------- ------
Balance at May 31, 1993 147,287 8,000
------- ------
Granted at $5.00 - $7.50 per share 2,599 5,600
Terminated (6,356) -
------- ------
Balance at May 31, 1994 143,530 13,600
------- ------
Granted at $5.45 - $7.35 per share
the 1992 Option Plan 2,600 -
the 1994 Option Plan 94,400 8,800
Terminated
the 1992 Option Plan (3,430) (2,400)
------- ------
Balance at May 31, 1995 237,100 20,000
======= ======
</TABLE>
Employee Incentive Stock Plan:
The Employee Incentive Stock Plan provides for the grant by the Company of
shares of common stock for no consideration (other than past services). The
Employee Incentive Stock Plan has a term of ten years.
A total of 100,000 shares of common stock were initially reserved for issuance
pursuant to the Employee Incentive Stock Plan. As of June 30, 1992, pursuant
to the Reorganization Plan, a total of 60,000 shares of common stock were
granted to certain members of management of the Company. As a result of the
Recapitalization, restrictions on such shares lapsed. An additional 30,000
shares of common stock were granted in 1993 to an officer of the Company
subject to restrictions expiring May 31, 1995. The fair market value of the
shares of $150,000 at the date of grant is being charged to expense over the
three-year vesting period.
F-21
<PAGE> 38
BARRY'S JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
Shares of common stock reserved for future issuance are summarized as follows:
<TABLE>
<S> <C>
Employee Incentive Stock Plan 10,000
1992 Employee Stock Options 153,900
1994 Employee Stock Options 220,000
Warrants (see note 3) 210,000
--------
593,900
========
</TABLE>
Employee Stock Purchase Plan
On November 1, 1994, shareholders of the Company approved the Company's
Employee Stock Purchase Plan, which enables substantially all employees of the
Company with more than one year of service to purchase shares of the Company's
common stock at not less than 85% of the fair market value at the date of
purchase during one or more offering periods specified by the Company. A total
of 50,000 shares has been authorized for issuance under this plan. At May 31,
1995, no shares of common stock have been purchased under this plan.
Other Plans
The Board of Directors adopted a qualified 401(k) retirement plan effective
June 1, 1995. Substantially all employees of the Company are eligible to
participate in the Company's 401(k) plan upon attaining age 21 and six
consecutive months of service. Employees may elect to contribute 1% to 15% of
their compensation subject to certain IRS limitations. Employer matching
contributions are determined annually by a Board of Directors resolution.
Participants are partially vested in employer matching contributions after 2
years and fully vested after 5 years.
Nonqualified Deferred Compensation Plan
On June 1, 1994, a Nonqualified Deferred Compensation Plan was established for
the benefit of a select group of management, highly compensated employees
and/or Directors who contribute materially to the continued growth, development
and business success of the Company. The plan is unfunded for tax purposes and
for purposes of Title I of ERISA.
F-22
<PAGE> 39
8. RESTATEMENT
Subsequent to the issuance of the Company's 1995 financial statements,
management detected a mathematical mistake in the accumulation of the March 5,
1995 physical merchandise inventories. Accordingly, the accompanying financial
statements for the year ended May 31, 1995 have been restated. The effects of
this restatement are summarized as follows:
<TABLE>
<CAPTION>
As
Previously As
Reported Restated
<S> <C> <C>
As of May 31, 1995:
Merchandise inventories $55,382,000 $53,835,000
Prepaid expenses and other current assets $ 1,812,000 $ 2,027,000
Other accrued liabilities $ 3,419,000 $ 2,970,000
Retained earnings $ 3,691,000 $ 2,808,000
For the year ended May 31, 1995:
Cost of goods sold, buying and occupancy $77,360,000 $78,907,000
Income before income taxes $ 3,453,000 $ 1,906,000
Net income $ 2,789,000 $ 1,906,000
Net income per share $ .70 $ .48
</TABLE>
As a result of the above restatement, the Company was not in compliance with
certain covenants under the terms of its New Credit Agreement (see Note 2).
However, during December 1995 and in conjunction with a transaction involving
the securitization of its receivables, the Company replaced the New Credit
Agreement with an amended and restated revolving credit facility (the
"Revolving Credit Agreement") which provides for maximum aggregate loans and
letters of credit outstanding at any time of not more than $20,000,000 and is
collateralized by merchandise inventories. The Revolving Credit Agreement, as
further amended on July 12, 1996, also contains certain covenants and
restrictions which, among other things, limit capital expenditures,
indebtedness and payment of dividends and requires maintenance of certain
financial ratios.
On July 26, 1996, the Company was notified that the agent of the securitization
facility desires to extinguish the commitment under the facility. On August
15, 1996, the Company entered into a commitment letter with Bank of Boston
relating to an $85,000,000 revolving credit facility that would replace the
existing Revolving Credit Agreement and the commitment under the securitization
facility. The Company is currently working with the Bank of Boston with
respect to definitive documentation of such new facility and with the Senior
Secured Note holders for their consent to such transactions and anticipates the
consummation thereof in the near future. The new revolving credit facility will
be collateralized by the Company's inventory and accounts receivable.
F-23
<PAGE> 40
SCHEDULE II
BARRY'S JEWELERS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended May 31, 1995 (Company) $11,162,000 $10,501,000 $1,832,000 (a) $11,833,000 (b) $11,662,000
Year Ended May 31, 1994 (Company) 11,500,000 10,018,000 1,936,000 (a) 12,292,000 (b) 11,162,000
Eleven Months Ended May 31, 1993 (Company) 11,834,000 10,187,000 1,683,000 (a) 12,204,000 (b) 11,500,000
Month Ended June 30, 1992 (Predecessor) 12,075,000 756,000 158,000 (a) 1,155,000 (b) 11,834,000
</TABLE>
(a) Recoveries from accounts written off.
(b) Uncollectible accounts written off.
F-24
<PAGE> 1
The First National Bank of Boston,
individually and as agent
100 Federal Street
Boston, MA 02110
July 12, 1996
Barry's Jewelers, Inc.
111 West Lemon Avenue
Monrovia, California
Re: Amendment No. 1 and Waivers of Certain Events of Default
Ladies and Gentlemen:
We refer to the Amended and Restated Revolving Credit Agreement dated
as of December 21, 1995, by and among Barry's Jewelers, Inc. (the "Borrower"),
The First National Bank of Boston and the other lenders party thereto (the
"Lenders") and The First National Bank of Boston, as agent for the Lenders (the
"Agent") (as amended and in effect from time to time, the "Credit Agreement").
Capitalized terms used herein without definition shall have the meanings
assigned to such terms in the Credit Agreement.
The Borrower has informed the Agent and the Lenders that the
Borrower's financial statements delivered pursuant to Section 7.4(a) of the
Credit Agreement materially misstate the Borrower's income for the fiscal year
ending May 31, 1995 for the reasons set forth in the Borrower's press release,
dated June 25, 1996, a copy of which is attached hereto as Exhibit A (the
"Press Release"). This misstatement also causes misstatements in the
Borrower's representations and warranties contained in Section 7.5 and 7.11 of
the Credit Agreement, and the Borrower's noncompliance with Section 8.3 and
12.1 of the Credit Agreement. Such misstatements and failures to comply
constitute Events of Default under Sections 13.1(c) and (e) of the Credit
Agreement and the failure of the Borrower to give the Agent and the Lenders
written notice of such Events of Default results in the Borrower's
noncompliance with Section 8.5(a) of the Credit Agreement which noncompliance
is also an Event of Default under Section 13.1(c) of the Credit Agreement
(collectively, the "Specified Events of Default"). The Borrower has also
informed the Agent and the Lenders that the Borrower is not in compliance with
the Debt Service covenant set forth in Section 10.1 of the Credit Agreement for
the fiscal quarter ending May 31, 1996. Such failure to comply constitutes an
Event of Default under Section 13. 1(c) of the Credit Agreement.
EXHIBIT 10.13(b)
<PAGE> 2
-2-
The Borrower has requested that the Lenders waive the Specified Events
of Default as of the date hereof caused by the aforementioned misstatements and
failures to comply. The Borrower has further requested that the Lenders amend
Section 10.1 of the Credit Agreement to reduce the minimum Consolidated
Operating Cash Flow to Consolidated Total Debt Service ratio required for the
fiscal quarter ending May 31, 1996 from 1.30:1 to 1.15:1.
Amendment:
Each of the Borrower, the Lenders and the Agent hereby amend the
Credit Agreement by deleting the table set forth at the end of Section 10.1 and
substituting therefor the following table:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date - 02/29/96 1.30:1
03/01/96 - 05/31/96 1.15:1
06/01/96 - 08/31/96 1.30:1
09/01/96 - 11/30/96 1.40:1
12/01/96 - 08/31/97 1.50:1
09/01/97 - 11/30/97 1.60:1
Thereafter 1.70:1
</TABLE>
Upon satisfaction of the conditions set forth in this letter agreement, the
foregoing amendment shall be effective as of May 31, 1996.
WAIVERS:
The Lenders hereby waive the Specified Events of Default as of the
date hereof, provided that the Borrower shall have received a waiver (and the
Agent shall have received a copy thereof) from the appropriate parties to the
Receivables Securitization Facilities Documents of each Event of Termination or
Termination Date occurring as a result of any of the Specified Events of
Default or the misstatement of the Borrower's income for the fiscal year ending
May 31, 1995, which waiver shall be in form and substance satisfactory to the
Agent, and provided further that (a) if any action, suit, proceeding or
arbitration, whether in law or in equity, is commenced or filed against the
Borrower or any of its Subsidiaries as a result of the misstatement of the
Borrower's income for the fiscal year ending May 31, 1995 or the investigation
(the "Investigation") by the Securities Exchange Commission (the "SEC") of the
Borrower relating to the subject matter of the Press Release, such commencement
or filing shall constitute a Default under the Credit Agreement and, if such
action, suit, proceeding or arbitration is not dismissed within thirty (30)
days of the date of such filing or commencement, an immediate Event of Default
under the Credit Agreement or (b) if the SEC or any other governmental
authority commences any formal action or proceedings against the Borrower, any
of its Subsidiaries, or any of their respective directors, officers or
employees (including, by way of example and not limitation, the issuance of a
cease and desist order, the filing of a criminal indictment or the
<PAGE> 3
-3-
commencement of a civil suit seeking injunctive relief or the award of
penalties, damages or liabilities) in connection with the matters described in
the Press Release, the Agent may and, at the request of the Majority Lenders,
shall declare the occurrence of an Event of Default under the Credit Agreement,
which Event of Default shall become effective immediately upon the receipt by
the Borrower of written notice of such declaration.
Miscellaneous:
The waivers granted herein are limited strictly to their terms and
shall apply only to the specific provisions described herein. The Lenders
shall not have any obligation to issue any further waiver with respect to the
subject matter of the waivers granted herein or any other waivers. The waivers
contained herein shall not extend to or affect any other obligations of the
Borrower or its Subsidiaries contained in the Credit Agreement or any other
Loan Documents and shall not impair or prejudice any rights consequent thereon.
The Borrower hereby represents and warrants to the Lenders and the
Agent that, except as specifically waived herein, each of the representations
and warranties of any of the Borrower and its Subsidiaries contained in the
Credit Agreement, the other Loan Documents or in any document or instrument
delivered pursuant to or in connection with the Credit Agreement were true as
of the date as of which they were made and are also true at and as of the date
hereof, with the same effect as if made at and as of the date hereof (except to
the extent of changes resulting from transactions contemplated or permitted by
the Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date) and no Default or Event of Default has occurred
and is continuing.
The effectiveness of this letter agreement shall be conditioned upon
receipt by the Agent and the Lenders of this letter agreement accepted and
agreed to by the Borrower. This letter agreement may be executed in several
counterparts and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original and all of which together shall
constitute one instrument. THIS LETTER AGREEMENT IS INTENDED TO TAKE EFFECT AS
A SEALED INSTRUMENT AND SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO CONFLICTS OF LAW).
<PAGE> 4
-4-
This letter agreement shall constitute a Loan Document under and as
defined in the Credit Agreement.
Very truly yours,
The First National Bank of Boston,
individually and as Agent
By: /s/ ELIZABETH A RATTO
-------------------------------
Title: VICE PRESIDENT
Accepted and Agreed:
Barry's Jewelers, Inc.
By:
-------------------------------
Title:
<PAGE> 5
-4-
This letter agreement shall constitute a Loan Document under and as
defined in the Credit Agreement.
Very truly yours,
The First National Bank of Boston,
individually and as Agent
By:
-------------------------------
Title:
Accepted and Agreed:
Barry's Jewelers, Inc.
By: /s/ THOMAS S. LISTON
-------------------------------
Title: Vice Chairman & CFO
<PAGE> 1
WAIVER NO. 1
to
ORIGINATOR PURCHASE AGREEMENT
Dated as of December 21, 1995
THIS WAIVER NO. 1 ("Waiver") dated as of July 11, 1996, is
entered into between Barry's Funding Corp., a Delaware corporation ("BFC"), as
Purchaser, and Barry's Jewelers, Inc., a California corporation ("Barry's
Jewelers"), as Originator. Capitalized terms used herein without definition
shall have the meanings ascribed thereto in the "Originator Purchase Agreement"
referred to below, or in the "Investor Purchase Agreement" (as defined
therein).
PRELIMINARY STATEMENTS:
A. BFC and Barry's Jewelers are parties to that certain
Originator Purchase Agreement dated as of December 21, 1995, as amended
pursuant to Amendment No. 1 dated as of April 19, 1996 and as further amended
pursuant to Amendment No. 2 dated as of June 17, 1996 (as so amended, the
"Originator Purchase Agreement").
B. The Originator has informed the Agent and the
Purchaser that the Originator's financial statements delivered by the
Originator to the Seller under Section 4.01(r) of the Originator Purchase
Agreement materially misstate the Originator's income for the fiscal year
ending May 31, 1995, for the reasons set forth in the Originator's press
release, dated June 25, 1996, a copy of which is attached hereto as Annex 1
(the "Press Release").
C. The misstatement described in clause B of these
Preliminary Statements constitutes a breach of certain representations and
warranties set forth in Section 4.01(h) and 4.01(r) of the Originator Purchase
Agreement, and gives rise to a breach of certain covenants of the Originator
set forth in Section 5.01(d) of the Originator Purchase Agreement. Such
misstatement and breaches constitute Events of Termination under Section
7.01(a), Section 7.01(c) or Section 7.01(d) of the Originator Purchase
Agreement (as the case may be), and the "Events of Termination" under the
Investor Purchase Agreement described in the clauses E and F of these
Preliminary Statements give rise to an additional Event of Termination under
Section 7.01(i) of the Originator Purchase Agreement (collectively, the "OPA
Misstatement Events of Termination").
D. In addition, the Originator has acknowledged to the
Agent and the Purchaser that the Originator is in breach of the
EXHIBIT 10.22(a)
<PAGE> 2
following covenants under the originator Purchase Agreement, to the extent
described below:
1. Under the provisions of Section 5.02(a) of
the Originator Purchase Agreement, the Originator has failed
to furnish the required consolidating financial statements of
the Purchaser (with appropriate officer's certifications) for
the fiscal quarter which ended in February of 1996.
2. Under the provisions of Section 5.02(b) of
the Originator Purchase Agreement, the Originator has failed
to furnish the required monthly financial statements of the
Purchaser and the Originator and its consolidated subsidiaries
(with appropriate officer's certifications) for each of the
months of January, March and April of 1996.
3. The failure of the Originator to deliver a
written statement relating to the Events of Termination under
the Originator Purchase Agreement described in these
Preliminary Statements and the Events of Default described in
the draft dated July 3, 1996 of a letter amendment and waiver
dated July 12, 1996 from Bank of Boston to the Originator,
purporting to amend or waive certain provisions of the
Revolving Credit Agreement (the "Bank of Boston Waiver"),
constitutes a breach of the Originator's covenant in Section
5.02(e) of the originator Purchase Agreement.
Each of the foregoing breaches gives rise to an additional "Event of
Termination" under Section 7.01(d) of the Originator Purchase Agreement
(collectively, the "OPA Reporting Events of Termination", and together with the
OPA Misstatement Events of Termination, the "Specified OPA Events of
Termination").
E. The misstatement described in clause B of these
Preliminary Statements also constitutes a breach of certain representations and
warranties set forth in Section 4.01(h) of the Investor Purchase Agreement, and
gives rise to a breach of certain covenants of BFC set forth in Section 5.01(d)
and Section 5.01(j) of the Investor Purchase Agreement. Such misstatement and
breaches constitute "Events of Termination" under Section 7.01(a), Section
7.01(c) or Section 7.01(d) of the Investor Purchase Agreement (as the case may
be), and the Specified OPA Events of Termination give rise to an additional
"Event of Termination" under Section 7.01(k) of the Investor Purchase Agreement
(collectively, the "RPA Misstatement Events of Termination").
F. In addition, the "Servicer" under the Investor
Purchase Agreement has acknowledged that BFC is in breach of the
2
<PAGE> 3
following covenants under the Investor Purchase Agreement, to the extent
described below:
1. Under the provisions of Section 5.02(a) of
the Investor Purchase Agreement, BFC has failed to furnish to
the Agent the required quarterly consolidating financial
statements of BFC (with appropriate officer's certifications)
for the fiscal quarter which ended in February of 1996.
2. Under the provisions of Section 5.02(b) of
the Investor Purchase Agreement, BFC has failed to furnish to
the Agent the required monthly financial statements of BFC and
the Originator and its consolidated subsidiaries (with
appropriate officer's certifications) for each of the months
of January, March and April of 1996.
3. Under the provisions of Section 5.02(h) of
the Investor Purchase Agreement, BFC has failed to furnish to
the Agent the required quarterly compliance certificate of an
appropriate officer of the Servicer for the fiscal quarter
which ended in February of 1996.
4. Under the provisions of Section 5.02(o), the
Agent requested, and BFC failed to deliver to the Agent prior
to July 9, 1996, confirmation of BFC's compliance with the
covenants set forth in Sections 5.03(r) and 5.03(s) of the
Investor Purchase Agreement.
5. The failure of BFC to deliver a written
statement to the Agent relating to the "Events of Termination"
under the Investor Purchase Agreement described in these
Preliminary Statements, and the Events of Default described in
the draft dated July 3, 1996 of the Bank of Boston waiver,
constitutes a breach of BFC's covenant in Section 5.02(e) of
the Investor Purchase Agreement.
Each of the foregoing breaches gives rise to an "Event of Termination" under
Section 7.01(d) of the Receivables Purchase Agreement (collectively, the "RPA
Reporting Events of Termination", and together with the RPA Misstatement Events
of Termination, the "Specified RPA Events of Termination").
G. The Originator has requested that BFC agree to waive
the Specified OPA Events of Termination in existence as of the date hereof to
the extent caused by the above-referenced misstatement and breaches, and,
subject in all events to the terms and conditions of this Waiver, for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, each of the parties hereto hereby agrees as follows:
3
<PAGE> 4
SECTION 1. Waiver. (a) Effective as of the date first written
above and subject to the satisfaction of all of the conditions precedent set
forth in Section 2(a) hereof, BFC hereby waives each of the Specified OPA Events
of Termination in existence as of the date hereof, to the extent such Specified
OPA Events of Termination are caused by the misstatement and breaches
specifically described in the Preliminary Statements hereof.
(b) The execution, delivery and effectiveness of this
Waiver shall not, except to the extent expressly provided in clause (a) above,
operate as a waiver of any right, power or remedy of BFC under any of the
Purchase Documents, or constitute a waiver of any provision of any of the
Purchase Documents. By way of example and not limitation with respect to the
foregoing sentence, BFC shall not be deemed to have waived, by virtue of the
effectiveness of the waiver described in clause (a) of this Section 1, the
breach of any reporting covenant of the Originator under the Originator
Purchase Agreement other than the reporting covenants specifically described in
the Preliminary Statements hereof as giving rise to the OPA Reporting Events of
Termination, whether or not any such breach is determined to have been in
existence as of the effective date of the waiver described in clause (a) of
this Section 1.
SECTION 2. Conditions. The waiver of BFC described in
Section 1(a) hereof shall become effective as of the date first written above,
only upon:
(i) receipt by BFC and the Agent (or its counsel)
of counterpart signature pages of this Amendment, executed by each of
BFC and Barry's Jewelers; and
(ii) receipt by BFC and the Agent (or its counsel)
of an executed waiver from the appropriate parties to the Revolving
Credit Agreement of each Default or Event of Default known by any of
BFC, the Servicer or Bank of Boston to be in existence as of the date
hereof (including, without limitation, each Default or Event of
Default occurring as a result of any of the Specified RPA Events of
Termination or the Specified OPA Events of Termination, or the
misstatement of the Originator's income for the fiscal year ending May
31, 1995), which waiver shall be in form and substance satisfactory to
BFC.
SECTION 3. Confirmation, Acknowledgement and Agreement.
Barry's Jewelers hereby acknowledges and confirms to BFC that, in accordance
with the terms of Section 6.03(b)(ii) and Amendment No. 1 to the Originator
Purchase Agreement, a Lock-Box Account at Glendale Federal Bank has been
established subject to an appropriate Lock-Box Agreement with the Agent and
such bank as the "Lock-Box Bank", and that substantially all Obligors of
Purchased Receivables shall have received by U.S. mail, by no
4
<PAGE> 5
later than August 31, 1996, written instructions from the Servicer to direct
all items of payment constituting Collections which are remitted by mail to the
post office box associated with such Lock-Box Account, for deposit into such
Lock-Box Account. Each of BFC and Barry's Jewelers hereby acknowledges that
the failure of substantially all such Obligors to receive the notice described
in the foregoing sentence on or prior to July 31, 1996, shall constitute a
breach of Section 6.03(b)(ii) of the Originator Purchase Agreement and a
corresponding Event of Termination under Section 7.01(d) of the Originator
Purchase Agreement, effective immediately upon close of business of the
Originator on such day.
SECTION 4. Covenants, Representations and Warranties of the
Originator.
(a) Upon the effectiveness of this Waiver, the Originator
hereby (i) reaffirms all covenants, representations and warranties made by it
in the Originator Purchase Agreement to the extent the same are not
specifically waived hereby, (ii) agrees that all such covenants,
representations and warranties shall be deemed to have been re-made as of the
effective date of this Waiver, and (iii) represents and warrants that no Event
or Termination is in effect or is continuing, or would be in effect or
continuing but for the lapse of time, or the giving of notice, or both.
(b) Each of the Seller and the Servicer hereby represents
and warrants that this Amendment constitutes its legal, valid and binding
obligation, enforceable against such Person in accordance with its terms.
SECTION 5. Reference to and Effect on the Transaction
Documents.
(a) Except as specifically waived above, the terms and
conditions of the Originator Purchase Agreement, of any other Purchase
Documents and any other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect and
are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this
Waiver shall not operate as a waiver of any right, power or remedy of BFC under
the Originator Purchase Agreement or any other Purchase Document or any other
document, instrument or agreement executed in connection therewith, nor
constitute a waiver of any provision contained therein, in each case except as
specifically set forth herein.
SECTION 6. Execution in Counterparts. This Waiver may be
executed in any number of counterparts and by different
5
<PAGE> 6
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
SECTION 7. Governing Law. THIS WAIVER SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Headings. Section headings in this Waiver are
included herein for convenience of reference only and shall not constitute a
part of this Waiver for any other purpose.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
PURCHASER: BARRY'S FUNDING CORP.
By: /s/ THOMAS S. LISTON
----------------------------
Name: Thomas S. Liston
Title: President
ORIGINATOR: BARRY'S JEWELERS, INC.
By: /s/ THOMAS S. LISTON
----------------------------
Name: Thomas S. Liston
Title: Vice Chairman & CFO
7
<PAGE> 8
ANNEX 1
ORIGINATOR'S PRESS RELEASE
(Dated June 25, 1996)
[Attached]
8
<PAGE> 9
BARRY'S JEWELERS, INC.
111 WEST LEMON AVENUE
MONROVIA, CA 91016
(818) 303-4741
FAX (818) 357-7596
CONTACTS:
Thomas S. Liston Robert W. Bridel Eugene G. Heller
Vice Chairman and President and Silverman Heller Associates
Chief Financial Officer Chief Executive Officer (310) 208-2550
(818) 303-4741 (818) 303-4741
FOR IMMEDIATE RELEASE
BARRY'S JEWELERS TO RESTATE FISCAL 1995 RESULTS,
WILL TAKE ONE-TIME CHARGES IN FISCAL 1996
MONROVIA, California (June 25, 1996) - Barry's Jewelers, Inc. (Nasdaq NM:BARY)
today reported that it will restate its results for fiscal year 1995 to reflect
inventory shrinkage for that year of $1.5 million in excess of the amount
originally recorded. The discrepancy was detected during the reconciliation of
the Company's inventory for fiscal 1996. Additionally, although results are
still being audited, the Company anticipates reporting a pretax loss of
approximately $2 million for fiscal 1996, which includes approximately $1.5
million of one-time charges and $1 million of unanticipated inventory shrinkage.
The one-time charges primarily include expenses incurred for the settlement of
legal actions, the write-off of deferred financing fees related to the
redemption of Senior Secured Notes, and fees related to the recent sale of 1.5
million shares of the Company's stock by Wells Fargo Bank to private investors.
Thomas S. Liston, vice chairman and chief financial officer of Barry's
Jewelers, said, "We are studying this unanticipated problem with our inventory
accounting and we will immediately begin to further tighten our controls at both
the wholesale and retail levels."
(more)
<PAGE> 10
BARRY'S TO RESTATE FISCAL 1995 RESULTS/2
Robert W. Bridel, Barry's recently appointed president and chief
executive officer, said, "The systems put in place in recent years, including
the Company's new credit management system, have been instrumental in returning
Barry's to a sound financial footing. A new automated inventory management
system has done much to improve our control over inventory. However, the
discovery of this most recent situation indicates that more needs to be done in
this area, and management is prioritizing the implementation of the necessary
improvements.
"While we are naturally disappointed with this temporary setback,
Barry's remains financially sound and strategically focused," Mr. Bridel
added. "This is evidenced by the fact that, without the aforementioned charges
and greater than expected inventory shrinkage, we had anticipated reporting a
profit for fiscal 1996. Additionally, our balance sheet is strong, with
shareholders' equity of approximately $35.5 million as of May 31, 1996.
Moreover, our stores -- particularly our new superstores -- are performing
well, and our expansion program is proceeding on schedule. These factors make
us confident in the Company's current direction and future outlook, and we are
optimistically looking forward to the 1996 holiday selling season."
Barry's also reported that the inventory shrinkage problem has placed
the Company in default of certain provisions of its revolving inventory line
and its securitization facility. The Company is currently in discussion with
its lenders regarding waivers to those defaults and is confident that the
situation will be resolved favorably.
Barry's Jewelers, Inc., the nation's fourth largest independent
retailer of fine jewelry, operates 161 retail jewelry stores in 17 states
throughout the country, primarily in California, Texas, Arizona, North and
South Carolina, Utah, Montana, Colorado, and Ohio.
###
<PAGE> 1
AMENDMENT NO. 3 AND WAIVER
to
RECEIVABLES PURCHASE AGREEMENT
Dated as of December 21, 1995
THIS AMENDMENT NO. 3 AND WAIVER ("Amendment") dated as of July
11, 1996, is entered into among Barry's Funding Corp., a Delaware corporation
("BFC"), as Seller, Triple-A One Funding Corporation, a Delaware corporation
("Triple-A"), as Purchaser, Barry's Jewelers, Inc. ("Barry's Jewelers"), as
Servicer, and Capital Markets Assurance Corporation ("CapMAC"), as Agent.
Capitalized terms used herein without definition shall have the meanings
ascribed thereto in the "Receivables Purchase Agreement" referred to below.
PRELIMINARY STATEMENTS:
A. BFC, Triple-A, Barry's Jewelers and CapMAC are
parties to that certain Receivables Purchase Agreement dated as of December 21,
1995, as amended pursuant to Amendment No. 1 dated as of April 19, 1996 and as
further amended pursuant to Amendment No. 2 dated as of June 17, 1996 (as so
amended, the "Receivables Purchase Agreement").
B. The Servicer has informed the Agent and the Purchaser
that the Originator's financial statements delivered by the Originator to the
Seller under Section 4.01(r) of the Originator Purchase Agreement, and
furnished by the Seller to the Agent in connection with the Receivables
Purchase Agreement, materially misstate the Servicer's income for the fiscal
year ending May 31, 1995, for the reasons set forth in the Servicer's press
release, dated June 25, 1996, a copy of which is attached hereto as Annex 1
(the "Press Release").
C. The misstatement described in clause B of these
Preliminary Statements constitutes a breach of certain representations and
warranties set forth in Section 4.01(h) and 4.01(r) of the Originator Purchase
Agreement, and gives rise to a breach of certain covenants of the Originator
set forth in Section 5.01(d) of the Originator Purchase Agreement. Such
misstatement and breaches constitute "Events of Termination" under Section
7.01(a), Section 7.01(c) or Section 7.01(d) of the Originator Purchase
Agreement (as the case may be), and the Events of Termination described in the
clauses E and F of these Preliminary Statements give rise to an additional
"Event of Termination" under Section 7.01(i) of the Originator Purchase
Agreement (collectively, the "OPA Misstatement Events of Termination").
EXHIBIT 10.23(a)
<PAGE> 2
D. In addition, the Servicer has acknowledged to the
Agent and the Purchaser that the Originator is in breach of the following
covenants under the Originator Purchase Agreement, to the extent described
below:
1. Under the provisions of Section 5.02(a) of
the Originator Purchase Agreement, the Originator has failed
to furnish the required consolidating financial statements of
the Seller (with appropriate officer's certifications) for the
fiscal quarter which ended in February of 1996.
2. Under the provisions of Section 5.02(b) of
the Originator Purchase Agreement, the Originator has failed
to furnish the required monthly financial statements of the
Seller and the Originator and its consolidated subsidiaries
(with appropriate officer's certifications) for each of the
months of January, March and April of 1996.
3. The failure of the Originator to deliver a
written statement to the Agent relating to the "Events of
Termination" under the Originator Purchase Agreement described
in these Preliminary Statements and the Events of Default
described in the draft dated July 3, 1996 of a letter
amendment and waiver dated July 12, 1996 from Bank of Boston
to the Originator, purporting to amend or waive certain
provisions of the Revolving Credit Agreement (the "Bank of
Boston Waiver"), constitutes a breach of the Originator's
covenant in Section 5.02(e) of the Originator Purchase
Agreement.
Each of the foregoing breaches gives rise to an additional "Event of
Termination" under Section 7.01(d) of the Originator Purchase Agreement
(collectively, together with the OPA Misstatement Events of Termination, the
"Specified OPA Events of Termination").
E. The misstatement described in clause B of these
Preliminary Statements also constitutes a breach of certain representations and
warranties set forth in Section 4.01(h) of the Receivables Purchase Agreement,
and gives rise to a breach of certain covenants of the Seller set forth in
Section 5.01(d) and Section 5.01(j) of the Receivables Purchase Agreement.
Such misstatement and breaches constitute Events of Termination under Section
7.01(a), Section 7.01(c) or Section 7.01(d) of the Receivables Purchase
Agreement (as the case may be), and the Specified OPA Events of Termination
give rise to an additional Event of Termination under Section 7.01(k) of the
Receivables Purchase Agreement (collectively, the "RPA Misstatement Events of
Termination").
2
<PAGE> 3
F. In addition, the Servicer has acknowledged to the
Agent and the Purchaser that the Seller is in breach of the following covenants
under the Receivables Purchase Agreement, to the extent described below:
1. Under the provisions of Section 5.02(a) of
the Receivables Purchase Agreement, the Seller has failed to
furnish to the Agent the required quarterly consolidating
financial statements of the Seller (with appropriate officer's
certifications) for the fiscal quarter which ended in February
of 1996.
2. Under the provisions of Section 5.02(b) of
the Receivables Purchase Agreement, the Seller has failed to
furnish to the Agent the required monthly financial statements
of the Seller and the Originator and its consolidated
subsidiaries (with appropriate officer's certifications) for
each of the months of January, March and April of 1996.
3. Under the provisions of Section 5.02(h) of
the Receivables Purchase Agreement, the Seller has failed to
furnish to the Agent the required quarterly compliance
certificate of an appropriate officer of the Servicer for the
fiscal quarter which ended in February of 1996.
4. Under the provisions of Section 5.02(o), the
Agent requested, and the Seller failed to deliver to the Agent
prior to July 9, 1996, confirmation of the Seller's compliance
with the covenants set forth in Sections 5.03(r) and 5.03(s)
of the Receivables Purchase Agreement.
5. The failure of the Seller to deliver a
written statement to the Agent relating to the Events of
Termination under the Receivables Purchase Agreement described
in these Preliminary Statements, and the Events of Default
described in the draft dated July 3, 1996 of the Bank of
Boston Waiver, constitutes a breach of the Seller's covenant
in Section 5.02(e) of the Receivables Purchase Agreement.
Each of the foregoing breaches gives rise to an "Event of Termination" under
Section 7.01(d) of the Receivables Purchase Agreement (collectively, the "RPA
Reporting Events of Termination", and together with the RPA Misstatement Events
of Termination, the "Specified RPA Events of Termination").
G. The Seller and the Servicer have requested that the
Agent and the Purchaser agree to waive the Specified RPA Events of Termination
in existence as of the date hereof to the
3
<PAGE> 4
extent caused by the above-referenced misstatement and breaches, and Agent and
the Purchaser have requested that the Seller and the Servicer agree to amend
the Receivables Purchase Agreement as set forth below.
H. Subject in all events to the terms and conditions of
this Amendment, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, each of the parties hereto hereby
agrees as follows:
SECTION 1. Waiver. (a) Effective as of the date first written
above and subject to the satisfaction of all of the conditions precedent set
forth in Section 3(a) hereof, each of the Agent and the Purchaser hereby waives
each of the Specified RPA Events of Termination in existence as of the date
hereof, to the extent such Specified RPA Events of Termination are caused by
the misstatement and breaches specifically described in the Preliminary
Statements hereof.
(b) The execution, delivery and effectiveness of this
Amendment shall not, except to the extent expressly provided in clause (a)
above, operate as a waiver of any right, power or remedy of either of the
Purchaser or the Agent under any of the Receivables Purchase Agreement or any
of the Purchase Documents, or constitute a waiver of any provision of any of
the Receivables Purchase Agreement or any of the Purchase Documents. By way of
example and not limitation with respect to the foregoing sentence, neither the
Agent nor the Purchaser shall be deemed to have waived, by virtue of the
effectiveness of the waiver described in clause (a) of this Section 1, the
breach of any reporting covenant of the Seller or the Servicer under the
Receivables Purchase Agreement other than the reporting covenants specifically
described in the Preliminary Statements hereof as giving rise to the RPA
Reporting Events of Termination, whether or not any such breach is determined
to have been in existence as of the effective date of the waiver described in
clause (a) of this Section 1.
SECTION 2. Amendment. The Receivables Purchase Agreement is,
effective as of August 30, 1996, and subject to the satisfaction of the
conditions precedent set forth in Section (3)b hereof, hereby amended to remove
the reference in clause (i) of the definition of the term "Maximum Advance
Rate" set forth in Section 1.01 thereof to the percentage "73.0%", and replace
the same with a reference to the percentage "70.0%".
SECTION 3. Conditions.
(a) The waiver of the Agent and the Purchaser described
in Section 1(a) hereof shall become effective as of the date first written
above, only upon:
4
<PAGE> 5
(i) receipt by the Agent or its counsel of
counterpart signature pages of this Amendment, executed by each of
BFC, Triple-A, Barry's Jewelers and CapMAC;
(ii) delivery of written certification by Triple-A
to each Liquidity Bank that no material adverse effect to such
Liquidity Bank's rights, obligations or interests would result from
the effectiveness of this Amendment; and
(iii) receipt by the Agent or its counsel of an
executed waiver from the appropriate parties to the Revolving Credit
Agreement of each Default or Event of Default known by any of the
Seller, the Servicer or Bank of Boston to be in existence as of the
date hereof (including, without limitation, each Default or Event of
Default occurring as a result of any of the Specified RPA Events of
Termination or the Specified OPA Events of Termination, or the
misstatement of the Originator's income for the fiscal year ending May
31, 1995), which waiver shall be in form and substance satisfactory to
the Agent.
(b) The amendment to the Receivables Purchase Agreement
described in Section 2 hereof shall become effective, as of August 30, 1996,
only upon satisfaction of each of the conditions described in clauses (i) and
(ii) of Section 3(a) above.
(c) Notwithstanding anything herein or elsewhere to the
contrary, if any action, suit, proceeding or arbitration, whether in law or in
equity is commenced or filed against the Originator or any of its Subsidiaries
as a result of either the misstatement of the Originator's income for the
fiscal year ending May 31, 1995, or the investigation (the "Investigation") by
the Securities Exchange Commission (the "SEC") of the Originator relating to
the subject matter of the Press Release, such commencement or filing shall
constitute a Potential Event of Termination under the Receivables Purchase
Agreement and, if such action, suit, proceeding or arbitration is not dismissed
within thirty (30) days of the date of such filing or commencement, an
immediate Event of Termination.
(d) Notwithstanding anything herein or elsewhere to the
contrary, if the SEC or any other Governmental Authority commences any formal
action or proceedings against the Originator, any of its Subsidiaries, or any of
their respective directors, officers or employees (including, by way of example
and not limitation, the issuance of a cease and desist order, the filing of a
criminal indictment or the commencement of a civil suit seeking injunctive
relief or the award of penalties, damages or liabilities) in connection with the
matters described in the Press Release, the Agent may declare the occurrence of
an Event of Termination under the Receivables Purchase Agreement, which
5
<PAGE> 6
Event of Termination shall become effective immediately upon the receipt by the
Servicer of written notice of such declaration.
SECTION 4. Confirmation, Acknowledgment and Agreement.
(a) Each of the Seller and the Servicer hereby
acknowledges and confirms to each of the Agent and the Purchaser that, in
accordance with the terms of Section 6.03(b)(ii) and Amendment No. 1 to the
Receivables Purchase Agreement, a Lock-Box Account at Glendale Federal Bank has
been established subject to an appropriate Lock-Box Agreement with the Agent
and such bank as the "Lock-Box Bank", and that substantially all Obligors of
Purchased Receivables shall have received by U.S. mail, by no later than August
31, 1996, written instructions from the Servicer to direct all items of payment
constituting Collections which are remitted by mail to the post office box
associated with such Lock-Box Account, for deposit into such Lock-Box Account.
Each of the Seller and the Servicer hereby acknowledges that the failure of
substantially all such Obligors to receive the notice described in the
foregoing sentence on or prior to July 31, 1996, shall constitute a breach of
Section 6.03(b)(ii) of the Receivables Purchase Agreement and a corresponding
Event of Termination under Section 7.01(d) of the Receivables Purchase
Agreement, effective immediately upon close of business of the Servicer on such
day.
(b) Under the provisions of section 5.02(o), the Agent
hereby requests that the Servicer provide, and the Servicer hereby agrees to so
provide, notice of the Seller's compliance (or lack of compliance, as the case
may be) with the covenants set forth in each of Sections 5.03(r) and 5.03(s) of
the Receivables Purchase Agreement for each Monthly Period, together with the
calculations (in reasonable detail) required on the part of the Servicer to
make such statement, as determined as of the close of business of the Servicer
for such Monthly Period, in each case as an additional line item in the
Settlement Report for such Monthly Period. Notwithstanding anything herein or
elsewhere to the contrary, each of the Seller and the Servicer hereby confirms
that the Seller is in compliance with the covenants set forth in each of
Sections 5.03(r) and 5.03(s) of the Receivables Purchase Agreement, as of the
effective date of this Amendment, and has been in compliance with each such
covenant at all times following the effective date of the Receivables Purchase
Agreement.
SECTION 5. Covenants, Representations and Warranties of the
Seller and the Servicer.
(a) Upon the effectiveness of this Amendment, each of the
Seller and the Servicer hereby (i) reaffirms all covenants, representations and
warranties made by it in the Receivables Purchase Agreement to the extent the
same are not specifically
6
<PAGE> 7
waived hereby, (ii) agrees that all such covenants, representations and
warranties shall be deemed to have been remade as of the effective date of this
Amendment, and (iii) represents and warrants that no Event or Termination or
Potential Event of Termination is in effect or is continuing.
(b) Each of the Seller and the Servicer hereby represents
and warrants that this Amendment constitutes its legal, valid and binding
obligation, enforceable against such Person in accordance with its terms.
SECTION 6. Reference to and Effect on the Transaction
Documents.
(a) Upon the effectiveness of this Amendment, (i) each
reference in the Receivables Purchase Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import shall mean and be a
reference to the Receivables Purchase Agreement, as amended hereby, and (ii)
each reference to the Receivables Purchase Agreement in any other Purchase
Document or any other document, instrument or agreement executed and/or
delivered in connection therewith, shall mean and be a reference to the
Receivables Purchase Agreement as amended hereby.
(b) Except as specifically waived or amended above, the
terms and conditions of the Receivables Purchase Agreement, of all Purchase
Documents and any other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect and
are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Agent or the Purchaser under the Receivables Purchase Agreement or any Purchase
Document or any other document, instrument or agreement executed in connection
therewith, nor constitute a waiver of any provision contained therein, in each
case except as specifically set forth herein.
SECTION 7. Consent. The Agent hereby consents, pursuant to
Section 5.03(j) of the Receivables Purchase Agreement, to the waiver of the
Specified OPA Events of Termination substantially in the form of Annex 2
hereto.
SECTION 8. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
7
<PAGE> 8
SECTION 9. Governing Law. THIS AMENDMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 10. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
SELLER: BARRY'S FUNDING CORP.
By /s/ THOMAS S. LISTON
-----------------------------------
Name: Thomas S. Liston
Title: President
PURCHASER: TRIPLE-A ONE FUNDING CORPORATION
By: CAPITAL MARKETS ASSURANCE
CORPORATION, its Attorney-in-fact
By
---------------------------------
Name:
Title:
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
SELLER: BARRY'S FUNDING CORP.
By
-----------------------------------
Name:
Title:
PURCHASER: TRIPLE-A ONE FUNDING CORPORATION
By: CAPITAL MARKETS ASSURANCE
CORPORATION, its Attorney-in-fact
By /s/ Una Kearns
---------------------------------
Name: Una Kearns
Title: Vice President
9
<PAGE> 11
AGENT: CAPITAL MARKETS ASSURANCE CORPORATION,
individually and as Agent
By
--------------------------------
Name:
Title:
SERVICER: BARRY'S JEWELERS, INC.
By /s/ THOMAS S. LISTON
---------------------------------
Name: Thomas S. Liston
Title: Vice Chairman & CFO
10
<PAGE> 12
AGENT: CAPITAL MARKETS ASSURANCE CORPORATION,
individually and as Agent
By /s/ Una Kearns
-----------------------------------------
Name: Una Kearns
Title: Vice President
SERVICER: BARRY'S JEWELERS, INC.
By
----------------------------------------
Name:
Title:
10
<PAGE> 13
ANNEX 1
ORIGINATOR'S PRESS RELEASE
(Dated June 25, 1996)
[Attached]
8
<PAGE> 14
BARRY'S JEWELERS, INC.
111 WEST LEMON AVENUE
MONROVIA, CA 91016
(818) 303-4741
FAX (818) 357-7596
CONTACTS:
Thomas S. Liston Robert W. Bridel Eugene G. Heller
Vice Chairman and President and Silverman Heller Associates
Chief Financial Officer Chief Executive Officer (310) 208-2550
FOR IMMEDIATE RELEASE
BARRY'S JEWELERS TO RESTATE FISCAL 1995 RESULTS,
WILL TAKE ONE-TIME CHARGES IN FISCAL 1996
MONROVIA, California (June 25, 1996) -- Barry's Jewelers, Inc. (Nasdaq NM: BARY)
today reported that it will restate its results for fiscal year 1995 to reflect
inventory shrinkage for that year of $1.5 million in excess of the amount
originally recorded. The discrepancy was detected during the reconciliation of
the Company's inventory for fiscal 1996. Additionally, although results are
still being audited, the Company anticipates reporting a pretax loss of
approximately $2 million for fiscal 1996, which includes approximately $1.5
million of one-time charges and $1 million of unanticipated inventory shrinkage.
The one-time charges primarily include expenses incurred for the settlement of
legal actions, the write-off of deferred financing fees related to the
redemption of Senior Secured Notes, and fees related to the recent sale of 1.5
million shares of the Company's stock by Wells Fargo Bank to private investors.
Thomas S. Liston, vice chairman and chief financial officer of Barry's
Jewelers, said, "We are studying this unanticipated problem with our inventory
accounting and we will immediately begin to further tighten our controls at
both the wholesale and retail levels."
(more)
<PAGE> 15
BARRY'S JEWELERS
BARRY'S TO RESTATE FISCAL 1995 RESULTS/2
Robert W. Bridel, Barry's recently appointed president and chief
executive officer, said, "The systems put in place in recent years, including
the Company's new credit management system, have been instrumental in returning
Barry's to a sound financial footing. A new automated inventory management
system has done much to improve our control over inventory. However, the
discovery of this most recent situation indicates that more needs to be done in
this area, and management is prioritizing the implementation of the necessary
improvements.
"While we are naturally disappointed with this temporary setback,
Barry's remains financially sound and strategically focused," Mr. Bridel added.
"This is evidenced by the fact that, without the aforementioned charges and
greater than expected inventory shrinkage, we had anticipated reporting a profit
for fiscal 1996. Additionally, our balance sheet is strong, with shareholders'
equity of approximately $35.5 million as of May 31, 1996. Moreover, our stores
- -- particularly our new superstores -- are performing well, and our expansion
program is proceeding on schedule. These factors make us confident in the
Company's current direction and future outlook, and we are optimistically
looking forward to the 1996 holiday selling season."
Barry's also reported that the inventory shrinkage problem has placed
the Company in default of certain provisions of its revolving inventory line and
its securitization facility. The Company is currently in discussion with its
lenders regarding waivers to those defaults and is confident that the situation
will be resolved favorably.
Barry's Jewelers, Inc., the nation's fourth largest independent retailer
of fine jewelry, operates 161 retail jewelry stores in 17 states throughout the
country, primarily in California, Texas, Arizona, North and South Carolina,
Utah, Montana, Colorado, and Ohio.
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-67814 of Barry's Jewelers, Inc. on Form S-8 of our report dated August 3,
1995, except for Note 8, as to which the date is August 15, 1996 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to the restatement described in footnote 8), appearing in the Annual Report on
Form 10-K/A of Barry's Jewelers, Inc. for the year ended May 31, 1995.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
August 28, 1996
EXHIBIT 23
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) No. 33-67184 of our report dated August 8, 1994 with respect to the
balance sheet of Barry's Jewelers, Inc. at May 31, 1994, and the related
statements of operations, shareholders' equity, and cash flows for the year
ended May 31, 1994 (Company), for the eleven month period ended May 31, 1993
(Company) and one month period ended June 30, 1992 (Predecessor), and the
related financial statement schedule, included in the Annual Report (Form
10-K/A) of Barry's Jewelers, Inc. for its fiscal year ended May 31, 1995.
/s/ ERNST & YOUNG LLP
Los Angeles, California
August 28, 1996
EXHIBIT 23
<PAGE> 1
[LETTERHEAD]
BARRY'S JEWELERS, INC.
1 WEST LEMON AVENUE
MONROVIA, CA 91016
(818) 303-4741
FAX (818) 357-7596
<TABLE>
<CAPTION>
CONTACTS:
<S> <C> <C>
Thomas S. Liston Robert W. Bridel Eugene G. Heller
Vice Chairman and President and Silverman Heller Associates
Chief Financial Officer Chief Executive Officer (310) 208-2550
(818) 303-4741 (818) 303-4741
</TABLE>
FOR IMMEDIATE RELEASE
BARRY'S JEWELERS SECURES WAIVERS TO FINANCING DEFAULTS
MONROVIA, California (July 12, 1996) -- Barry's Jewelers, Inc. (Nasdaq NM:BARY)
today reported that it has obtained waivers of certain defaults under its
revolving inventory line and its securitization facility. The defaults
principally arose due to the Company's previously announced inventory shrinkage
for fiscal years 1995 and 1996. The defaults were waived following discussions
between Barry's management and the financing sources.
Robert W. Bridel, president and chief executive officer of Barry's
Jewelers, said, "We are very pleased to have promptly resolved this situation.
We have redoubled our efforts to tighten inventory controls at all levels of our
operation. We now intend to focus on preparing for what we believe will be a
good holiday sales season for Barry's Jewelers."
Barry's Jewelers, Inc., the nation's fourth largest independent retailer
of fine jewelry, operates 161 retail jewelry stores in 17 states throughout the
country, primarily in California, Texas, Arizona, North and South Carolina,
Utah, Montana, Colorado, and Ohio.
EXHIBIT 99.1
