<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT to SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1997. 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 (IRS Employer
incorporation or organization) Identification No.)
111 West Lemon Avenue, Monrovia, California 91016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (626) 303-4741
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock
Warrants
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. YES. [X] NO. [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
As of September 17, 1997, the aggregate market value of the voting stock
held by non-affiliates of the issuer based on the average bid and ask
prices of $0.25 and $0.16, respectively, of such common stock was
$512,734 based upon an average price of $0.20 multiplied by 2,563,672
shares of common stock outstanding on such date held by non-affiliates.
As of September 17, 1997, the issuer had a total of 4,029,372 shares of
common stock outstanding.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15 (d) of the
Securities Exchange Act of 1934 subsequent to the distribution under a
plan confirmed by a court. [X] Yes. [ ] No.
<PAGE> 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
INTRODUCTORY NOTE. This Annual Report on Form 10-K contains certain forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Company
intends that such forward-looking statements be subject to the safe harbors
created thereby. See "--Private Securities Litigation Reform Act."
THE COMPANY. Barry's Jewelers, Inc. (the "Company," including the operations of
its predecessor; see "Selected Financial Data") is a chain of specialty retail
jewelry stores generally located in regional shopping malls. The Company's
stores offer fine jewelry items in a wide range of styles and prices, with a
principal emphasis on diamond and gemstone jewelry. As of May 31, 1997, the
Company operated 130 retail jewelry stores, principally in California, Texas,
Arizona, North Carolina, Utah, Indiana, Ohio, Colorado, Idaho, and Montana. As
measured by the number of retail locations, the Company is one of the larger
specialty retailers of fine jewelry in the country. The Company's corporate
office is located at 111 West Lemon Avenue, Monrovia, California, 91016, and its
telephone number is (626) 303-4741.
EVENTS LEADING UP TO CHAPTER 11. Throughout fiscal 1997, the Company experienced
significant operating losses that necessitated the Company's renegotiation of
financial covenants and certain other terms contained in its Amended Revolving
Credit Agreement (as hereinafter defined in "Management's Discussion and
Analysis of Financial Condition and Results of Operations ("MD&A") --
Liquidity and Capital Resources") during the second quarter of fiscal 1997.
In January 1997, management announced its intent to implement a
Company-wide restructuring and other cost savings initiatives during the third
and fourth quarters of fiscal 1997. Those initiatives included a plan not to
renew leases on twelve stores and closing eighteen to twenty-four
under-performing stores with concurrent reductions in overhead at the Company's
remaining stores and reduction in corporate expenses. However, the management
team of the Company was replaced in February 1997 prior to the full execution of
the restructuring and cost savings initiatives. At the end of the third quarter,
the Company recorded restructuring charges of approximately $1.3 million
primarily related to severance and costs associated with eleven stores closed
during the quarter, impairment losses of approximately $2.0 million related
principally to impairment of leasehold improvements and fixtures at twenty-six
under performing stores and a $1.1 million charge to cost of goods sold to
hasten the liquidation of aged inventory in an effort to improve cash flow.
At the end of the third quarter, due to continued operating losses, the
Company was not in compliance with certain financial covenants contained in the
Second Amended Revolving Credit Agreement. As a result, the Company was unable
to make interest payments to the holders of the Company's 11% Senior Secured
Notes due December 22, 2000 (the "Notes"). Additionally, most vendors were not
extending terms, and substantially all new merchandise purchases were on a cash
basis. Because of these restrictions on cash flow and an inability to
renegotiate existing bank debt or raise additional capital through other
sources, the Company decided to seek bankruptcy protection.
PROCEEDINGS UNDER CHAPTER 11. On May 11, 1997 (the "Petition Date"), the Company
commenced a reorganization case by filing a voluntary petition (the "Chapter 11
Petition") for relief under chapter 11 ("Chapter 11") of title 11 of the United
States Code (as amended from time to time, the "Bankruptcy Code") in the United
States Bankruptcy Court for the Central District of California, Los Angeles
Division (the "Bankruptcy Court"), case number 97-27988-VZ. Management
determined that filing of the Chapter 11 Petition would allow the needed time
and flexibility to restructure the Company's operations, help assure the
continued flow of merchandise to its stores, and provide the time and protection
necessary to restructure the Company's funding sources.
Since the Petition Date, the Company has continued in possession of its
properties and, as debtor-in-possession, is authorized to operate and manage its
businesses and enter into all transactions (including obtaining services,
inventories, and supplies) in the ordinary course of business, or out of the
ordinary course of business subject to approval of the Bankruptcy Court, after
notice and hearing. A statutory Creditors' Committee and an official
Bondholders' Committee have been appointed in the Chapter 11 case, and as of
September 17, 1997, an unofficial equity committee was in the process of being
formed.
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<PAGE> 3
Subsequent to the filing of the Chapter 11 Petition, the Company sought
and obtained several orders from the Bankruptcy Court which were intended to
stabilize its business. The most significant of these orders: (1) authorized and
extended use of the Company's cash collateral through February 28, 1998 (see
"MD&A -- Liquidity and Capital Resources -- Stipulation Authorizing Use of Cash
Collateral" for a discussion of the Cash Stipulation (as therein defined)); (2)
approved a trade debtor-in-possession ("DIP") financing agreement (the "Trade
DIP Financing Agreement"), which allows the Company to obtain its expected
merchandise orders of over $50 million on extended trade terms while providing
the trade vendors with substantial support for the payment of their accounts
receivable; (3) authorized the Company to return approximately $8 million of
merchandise to vendors as credit against the vendors' prepetition claims in
exchange for at least $11 million of new merchandise on extended trade terms
(the "Vendor Return Program"); (4) authorized the Company to obtain merchandise
on consignment (the "Consignment Agreement"); and (5) authorized payment of
certain prepetition liabilities, principally prepetition wages and employee
benefits, and payments for certain prepetition customer and related service
claims. See "MD&A" for additional discussion of the Cash Stipulation, the Trade
DIP Financing Agreement, the Vendor Return Program and Consignment Agreement.
The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates realization of assets and satisfaction
of liabilities in the normal course of business. As a result of the Chapter 11
Petition filing and circumstances relating to this event, such realization of
assets and satisfaction of liabilities is subject to uncertainty. A plan of
reorganization could materially change the amounts reported in the accompanying
consolidated financial statements, which do not give effect to adjustments to
the carrying values of assets and liabilities, which may be necessary as a
consequence of a plan of reorganization. The Company's ability to continue as a
going concern is contingent upon, among other things, its ability to formulate a
plan of reorganization that will be confirmed by the Bankruptcy Court, to
achieve satisfactory levels of profitability and cash flow from operations, to
maintain compliance with the debtor-in-possession Trade DIP Financing Agreement
and terms of the Cash Stipulation, and the ability to obtain sufficient
financing sources to meet future obligations.
PRIOR RESTRUCTURING. During 1992, the Company effected a comprehensive
restructuring of its long-term debt obligations and capital structure. On
February 26, 1992, the Company voluntarily initiated a case under Chapter 11 of
the Bankruptcy Code and filed a pre-negotiated Plan of Reorganization in the
United States Bankruptcy Court for the Central District of California (the
"Court"). On June 19, 1992, the Court entered an order confirming the Company's
Amended Plan of Reorganization (the "Prior Reorganization Plan"). The effective
date of the Prior Reorganization Plan was June 30, 1992.
STRATEGY. The Company's operating strategy is to provide quality fine jewelry
displayed in attractive store locations at affordable prices. To enhance sales,
the Company makes credit financing available to qualified customers through its
own private label credit card and through various secondary credit sources. The
Company's sales capabilities are supported by a trained and knowledgeable sales
staff, an automated, centralized credit and collection system for the
authorization of credit sales and collection of accounts, and a centralized
distribution system to replenish merchandise to the stores.
MERCHANDISE STRATEGY. Under the leadership of the Company's new management team,
the Company's merchandising presentation is being expanded to include broader
diamond fashion and gold assortments. Management believes that through its
vendor partnerships that allow for a large amount of merchandise to be brought
in under exclusive consignment arrangements, it should be able to expand these
assortments and focus on key categories. As a result, the stores are expected to
offer dominant assortments of quality jewelry in the fashion areas, thereby
contributing to an enhancement of overall merchandise presentation and of the
Company's ability to capture a larger market share.
On July 22, 1997, the Company reached an agreement with its vendors and
creditors regarding the terms of the Trade DIP Financing Agreement, Vendor
Return Program, and Consignment Agreement. See "-- Proceedings Under Chapter
11." These vendor programs, along with an increase in available borrowing under
the Company's Second Amended Revolving Credit Agreement pursuant to the terms of
the Cash Stipulation (see "MD&A -- Liquidity and Capital Resources"), are
expected to help management to implement its new merchandise strategy.
MERCHANDISE MIX. The Company is repositioning its merchandising assortments to
provide an emphasis in the diamond fashion and gold departments. This is being
implemented in addition to the Company's prior focus on bridal product, which
accounted for 44% of the Company's sales for the fiscal year ended May 31, 1997.
2
<PAGE> 4
INVENTORY PURCHASING. Buyers located in the Company's corporate offices purchase
most of the stores' merchandise. Each store's inventory is replenished weekly or
more often during peak selling seasons. Management believes that centralized
merchandise purchasing provides the Company with quality controls and price
advantages.
Three vendors have accounted for 25%, 21%, and 17% of the Company's
merchandise purchases for fiscal 1997, 1996, and 1995, respectively. Management
believes that the Company's relationship with these three vendors, as well as
its other vendors, is good. These vendors, and all vendors key to the Company's
new merchandising strategy, have agreed to participate in the Trade DIP
Financing Agreement and the Vendor Return Program.
SUPPLY AND PRICE FLUCTUATIONS. The world supply and price of diamonds are
influenced considerably by the Central Selling Organization ("CSO"), which is
the marketing arm of DeBeers Consolidated Mines, Ltd. ("DeBeers"), a South
African company. Through the CSO, over the past several years, DeBeers has
supplied approximately 80% of the world demand for rough diamonds, selling to
gem cutters and polishers at controlled prices.
The continued availability of diamonds to the Company's suppliers is
dependent, to some degree, upon the political and economic situation in South
Africa. While several other countries, including Australia, the Commonwealth of
Independent States, Zaire, Angola, Tanzania and Sierra Leone are suppliers of
diamonds, the Company cannot predict with any certainty the effect on the
overall supply or price of diamonds in the event of an interruption of supplies
from South Africa, the CSO or DeBeers.
The Company is subject to other supply risks, including fluctuations in
the price of precious gems and metals. The Company presently does not engage in
any hedging activity with respect to possible fluctuations in the price of these
items. If such fluctuations should be unusually large or rapid and result in
prolonged higher or lower prices, there is no assurance that the necessary
retail price adjustments will be made quickly enough to prevent the Company from
being adversely affected.
TRADE NAMES. The Company predominantly operates under four trade names
representing 124 of the 130 stores: Hatfield Jewelers, Mission Jewelers, Samuels
Jewelers, and Schubach Jewelers. Two other trade names make up the remaining
six stores: A. Hirsh & Son Jewelers and The Ringmaker. The Company believes that
except for the Samuels Jewelers, Schubach Jewelers, and Mission Jewelers
tradenames, the loss of any of the other tradenames would not have a material
effect on its business.
3
<PAGE> 5
STORE PERFORMANCE. The following table sets forth selected data with respect to
the Company's operations for the five fiscal years ended May 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of stores at
beginning of year 161 162 144 144 145
Acquired during the year -- -- 15 -- --
Opened during the year 17 7 8 1 --
Closed during the year(1) (48) (8) (5) (1) (1)
---- ---- ---- ---- ----
Total at year end 130 161 162 144 144
Percentage increase (decrease)
in sales of comparable stores(2) (10.0)% 2.2% 11.0% 7.4% 9.1%
Average sales per comparable
store (in thousands)(2) $ 709 $ 905 $ 871 $ 792 $ 736
</TABLE>
- ----------
(1) The 48 stores closed during fiscal 1997 are comprised of 33 stores closed
on or about May 11, 1997, as part of the Company's Chapter 11 Petition
filing; 11 stores closed in connection with the restructuring, announced
in January 1997, and 4 other stores closed during the year.
(2) Comparable stores are stores that were open for the same period in both
the current and preceding years.
CREDIT PROGRAM. The Company's credit policy is intended to complement its
overall sales strategy. The principal objective is the extension of credit to
those customers which will produce the most reasonable rate of return. The
Company also offers credit insurance to its customers. This insurance program,
underwritten by a major insurance company, generally provides coverage for life,
disability, unemployment and loss of property.
Sales under the Company's credit program accounted for approximately
56% of fiscal 1997 sales, net of down payments. Payment periods for the credit
sales generally range from 24 to 36 months. Customers may also purchase jewelry
for cash and by using major national credit cards.
SEASONALITY. The level of success of the Company is heavily dependent each year
on the success of its Christmas selling season, which in turn depends on many
factors beyond the Company's control, including the general business environment
and competition in the industry. Sales during the Christmas season (which
includes the period from the day following Thanksgiving day to December 31)
generally account for approximately 25% of net sales and all or nearly all of
annual earnings. For the Christmas selling season during fiscal 1997, net sales
were $32.4 million.
As previously discussed, the Company experienced significant
operating losses during fiscal 1997, including an operating loss of $6.8 million
for the third quarter ended February 28, 1997. Not since the Company's Prior
Reorganization has it failed to report net income for the third quarter, which
includes the Christmas selling season.
COMPETITION. The retail jewelry industry is highly competitive. It is estimated
that there are approximately 35,000 retail jewelry stores in the United States,
most of which are independently operated and not part of a major chain. Numerous
companies, including publicly and privately held independent stores and small
chains, department stores, catalog showrooms, direct mail suppliers, and TV
shopping networks, provide competition on a national and regional basis. The
malls and shopping centers where many of the Company's stores are located
typically contain several other national chain or independent jewelry stores as
well as one or more jewelry departments located in the "anchor" department
stores. Certain of the Company's competitors are substantially larger than the
Company and have greater financial resources.
4
<PAGE> 6
Management believes that the primary elements of competition in the
retail jewelry business are quality of personnel, level of customer service,
breadth, depth, price and quality of merchandise offered, credit terms and store
location and design. Management believes that the Company has been unable to
compete successfully in recent years because of its failed merchandising
programs, poor credit underwriting practices, cash flow constraints, excessive
collection costs, poor inventory controls and below-average percentage of
consignment inventory, executive turnover, restrictive financing arrangements,
ineffective investment in technology and the resultant excessive administrative
costs. In addition, the Company believes that, as the jewelry retailing industry
consolidates, the ability to compete effectively may become increasingly
dependent on volume purchasing capability, regional market focus, superior
management information systems, and the ability to provide customer service
through trained and knowledgeable sales staffs. However, the competitive
environment is often affected by factors beyond a particular retailer's control,
such as shifts in consumer preferences, economic conditions, population and
traffic patterns.
EMPLOYEES. At May 31, 1997, the Company had 1,171 full- and part-time employees.
Unions represented 26 employees, or 2% of the Company's employees, at such date.
Union contracts covering these employees expired on August 31, 1996; however,
negotiations to renew the contract are continuing. The Company believes it
provides working conditions and wages that compare favorably with those offered
by other retailers in the industry and that its employee relations are good. The
Company has never experienced any material labor unrest, disruption of
operations or strikes.
PRIVATE SECURITIES LITIGATION REFORM ACT. The Private Securities Litigation
Reform Act of 1995 provides a "safe harbor" for forward-looking statements.
Certain information included under the captions "Business -- Proceedings Under
Chapter 11" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in other parts of this Form 10-K and
other materials filed or to be filed by the Company with the Securities and
Exchange Commission contain statements that are forward-looking, such as
statements relating to the Company's Vendor Return Program, Consignment
Merchandise Agreement, Trade DIP Financing Agreement, among others. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future, and accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, the risk of continuing losses and cash flow constraints
despite the Company's efforts to improve operations, including: the Vendor
Return Program, the Consignment Merchandise Agreement, and Trade DIP Financing
Agreement such that the Company will be able to purchase inventory for the 1997
holiday season and thereafter, and attain credit support from its creditors and
vendors; failure to negotiate acceptable payment terms with creditors, vendors
and landlords; and failure to have its plan for reorganization confirmed.
ITEM 2. PROPERTIES
The Company leases all its retail stores. Stores range in size from
approximately 577 square feet to 3,690 square feet. Store leases generally have
an initial term of five to fifteen years and will expire at various dates
through 2007. Currently, leases at 11 stores have expired, the stores are
occupied on a month-to-month basis. Some leases contain renewal options for
periods ranging from five to ten years on substantially the same terms and
conditions as the initial lease. Under most of the store leases, the Company is
required to pay taxes, insurance, and its pro rata share of common area and
maintenance expenses. Most of the leases also require the Company to pay the
greater of a specified minimum rent or a contingent rent based on a percentage
of sales as defined.
The Company leases approximately 38,000 square feet for its
headquarters location under a lease expiring in 2005. Certain shareholders and
former officers of the Company hold an interest in the Company's headquarters
property.
Under section 365(d)(4) of the Bankruptcy Code, unless otherwise
ordered by a bankruptcy court, a Chapter 11 debtor must assume all leases of
non-residential property within 60 days of its Chapter 11 filing or such leases
will be deemed rejected. By order of the Bankruptcy Court, the Company obtained
an extension of time within which to assume or reject its non-residential real
property leases through and including November 7, 1997, for the headquarters'
lease and January 30, 1998, for the store leases, or such later date(s) as the
Bankruptcy Court may order.
5
<PAGE> 7
Consistent with its responsibility to its creditors, the Company
intends to continue to evaluate on an ongoing basis the terms of its
non-residential real estate leases to determine whether to take any further
actions with respect to the leases, including assuming or rejecting leases in
the Chapter 11 proceedings, terminating leases, allowing leases to expire,
renegotiating existing leases and entering into new leases. The Company is
continuing to focus on eliminating unproductive stores. See "MD&A." In
connection with such ongoing evaluation, since the commencement of the Company's
Chapter 11 case, the Company has rejected 36 retail store leases, including a
lease for a store the Company never opened and one lease which had expired. Two
of the 36 lease rejections occurred after May 31, 1997. As of September 17,
1997, the Company was operating 128 retail stores in the following states:
<TABLE>
<CAPTION>
Number of
State Stores
----- ---------
<S> <C>
California 33
Texas 32
Arizona 7
North Carolina 7
Utah 7
Indiana 6
Ohio 6
Colorado 5
Idaho 5
Montana 5
Others 15
--------
TOTAL 128
========
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Pursuant to section 362 of the Bankruptcy Code, during the Chapter 11
case, creditors and other parties in interest may not, without court approval,
(i) commence or continue a judicial, administrative or other proceeding against
the Company which was or could have been commenced prior to the commencement of
the Chapter 11 case, or recover a claim that arose prior to the commencement of
the Chapter 11 case; (ii) enforce any pre-petition judgment against the Company;
(iii) take any action to obtain possession of property of the Company or to
exercise control over property of the Company or its estate; (iv) create,
perfect or enforce any lien against property of the Company; (v) collect,
assess, or recover claims against the Company that arose before the commencement
of the Chapter 11 case; or (vi) offset any debt owing to the Company that arose
prior to the commencement of the Chapter 11 case against a claim of such
creditor or party in interest against the Company that arose before the
commencement of the Chapter 11 case.
As a result of the foregoing, all pre-petition claims asserted or
assertable against the Company have been automatically stayed.
The nature of a Chapter 11 case is to have all claims against and
interest in the Company resolved. Accordingly, the Bankruptcy Court ordered that
any entity desiring to participate in any distribution in the Chapter 11 case
must either have been previously properly scheduled by the Company or file a
proof of claim with the Bankruptcy Court on or before October 31, 1997. The
Company will evaluate proofs of claims filed during the Chapter 11 case.
The Company filed a motion requesting that the Bankruptcy Court
extend the exclusive periods during which only the Company may file a plan of
reorganization and solicit acceptances thereto on such plan to February 27, 1998
and April 27, 1998. On September 24, 1997, the Bankruptcy Court granted the
Company's motion.
In addition, the Company filed a motion with the Bankruptcy Court
requesting that the Bankruptcy Court approve employment agreements entered into
between the Company and its new management team. On September 24, 1997, the
Bankruptcy Court granted the Company's motion.
6
<PAGE> 8
The Company is, from time to time, involved in routine litigation
incidental to the conduct of its business. The Company believes that no
litigation currently pending against it will have a material adverse effect on
its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION. As a result of the Company's bankruptcy proceedings and its
failure to maintain certain minimum listing requirements, the Company's Common
Stock was delisted from NASDAQ on July 14, 1997 and is currently traded on the
pink sheets. In November 1994, a one-for-five reverse stock split of the
Company's Common Stock was effected; all share and per share data in this Form
10-K have been restated to reflect such reverse stock split. For each quarter of
the fiscal years ended May 31, 1997 and 1996, the high and low bid prices per
share were:
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW
----------- -------- --------
<S> <C> <C>
First $ 4.875 $ 2.750
Second $ 3.875 $ 2.188
Third $ 2.625 $ 1.125
Fourth $ 2.188 $ 0.219
FISCAL 1996
-----------
First $ 4.625 $ 2.875
Second $ 5.875 $ 3.750
Third $ 4.125 $ 3.125
Fourth $ 4.875 $ 3.000
</TABLE>
WARRANTS. Beginning in July 1992, the Company's warrants commenced trading in
the over-the-counter market on NASDAQ. Since then, the trading volume has
been very low, and the reported high and low bid prices for the fiscal year
ended May 31, 1997 were $0.375 and $0.0625, respectively. The Company's warrants
were also delisted from NASDAQ on July 14, 1997.
HOLDERS. Management believes that there are approximately 200 beneficial owners
of Common Stock as of September 17, 1997.
DIVIDENDS. The Company has paid no cash dividends on its Common Stock during the
past three fiscal years and management does not anticipate that it will do so in
the foreseeable future. Currently, the Company is prohibited from paying any
cash dividends under the terms of its Second Amended Revolving Credit Agreement
and the indenture governing the Notes.
7
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company
(through the effective date of the Prior Reorganization Plan, referred to as
"Predecessor") as of and for the month ended June 30, 1992, and the Company
(referred to as such following the effective date of the Prior Reorganization
Plan) as of and for the years ended May 31, 1997, 1996, 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.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except for per share data)
<TABLE>
<CAPTION>
ELEVEN
MONTHS PREDECESSOR(1)
FOR THE YEARS ENDED MAY 31, ENDED --------------
-------------------------------------- MAY 31, MONTH ENDED
1997 1996 1995 1994 1993 JUNE 30, 1992
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net Sales $130,446 $140,145 $136,055 $114,023 $ 99,270 $ 7,070
Finance and credit insurance fees 13,900 16,008 15,681 14,487 13,037 1,229
-------- -------- -------- -------- -------- -------
144,346 156,153 151,736 128,510 112,307 8,299
-------- -------- -------- -------- -------- -------
Operating (loss) income(2)(3) (29,741) 8,651 11,670 10,294 5,764 (541)
-------- -------- -------- -------- -------- -------
Interest expense, net 12,745 11,146 9,764 7,746 6,401 644
Reorganization costs 2,322 -- -- -- -- --
Provision for income taxes 284 288 -- 1,009 -- --
-------- -------- -------- -------- -------- -------
(Loss) income before extraordinary
item (45,092) (2,783) 1,906 1,539 (637) (1,185)
-------- -------- -------- -------- -------- -------
Extraordinary items(4)(5) (876) -- -- -- -- 49,229
-------- -------- -------- -------- -------- -------
Net (loss) income $(45,968) $ (2,783) $ 1,906 $ 1,539 $ (637) $48,044
======== ======== ======== ======== ======== =======
PER SHARE DATA:(6)
(Loss) income before extraordinary
item $ (11.25) $ (0.70) $ 0.48 $ 0.53 $ (0.32) $ (1.19)
======== ======== ======== ======== ======== =======
Extraordinary items(4)(5) $ (0.22) $ -- $ -- $ -- $ -- $ 49.21
======== ======== ======== ======== ======== =======
Net (loss) income $ (11.47) $ (0.70) $ 0.48 $ 0.53 $ (0.32) $ 48.02
======== ======== ======== ======== ======== =======
Weighted average number of common
and common equivalent shares
outstanding 4,007 3,978 3,969 2,902 2,008 1,000
======== ======== ======== ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Current assets $105,390 $127,075 $127,208 $107,876 $106,816
Working capital 99,482 117,819 109,873 94,660 89,470
Total assets 123,483 145,875 144,959 122,252 119,200
Total debt(7) 130,271 103,579 92,368 75,935 90,251
</TABLE>
- ----------
(1) "Predecessor" includes the consolidated results of the Company and its
subsidiaries for the month of June 1992, and reflects the settlement of
liabilities in accordance with the Prior Reorganization Plan.
(2) Operating (loss) income for the fiscal year ended May 31, 1997, eleven
months ended May 31, 1993, and the month ended June 30, 1992, include
$1,336, $100, and $450, respectively, of restructuring expenses.
(3) Operating (loss) income for the fiscal year ended May 31, 1997, includes
$3,947 for impairment loss, and $3,033 for inventory valuation.
(4) The year ended May 31, 1997, includes an extraordinary loss of $876 or
$0.22 per share, incurred in connection with the early extinguishment of
the Company's Securitization Facility. See "MD&A -- Liquidity and Capital
Resources."
(5) The month ended June 30, 1992, includes an extraordinary gain of $49,229
($49.21 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 Prior
Reorganization Plan.
(6) 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.
(7) As of May 31, 1997, total debt includes liabilities subject to compromise
under reorganization proceedings.
8
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT. This Annual Report on Form 10-K
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act, and the Company intends
that such forward-looking statements be subject to the safe harbors created
thereby. See "Business -- Private Securities Litigation Reform Act."
OVERVIEW. The following discussion presents information about the financial
condition, liquidity and capital resources, and results of operations of the
Company as of and for the fiscal years ended May 31, 1997, 1996, and 1995. This
information should be read in conjunction with the audited consolidated
financial statements of the Company and the notes thereto.
Throughout fiscal 1997, the Company experienced significant operating
losses that necessitated the Company's renegotiation of financial covenants and
certain other terms contained in its Amended Revolving Credit Agreement (see
"--Liquidity and Capital Resources") during the second quarter of fiscal 1997.
In January 1997, management announced its intent to implement a
Company-wide restructuring and other cost savings initiatives during the third
and fourth quarters of fiscal 1997. Those initiatives included a plan not to
renew leases on twelve stores and closing eighteen to twenty-four
under-performing stores with concurrent reductions in overhead at the Company's
remaining stores and reduction in corporate expenses. However, the management
team of the Company was replaced in February 1997 prior to the full execution of
the restructuring and cost savings initiatives. At the end of the third quarter,
the Company recorded restructuring charges of approximately $1.3 million
primarily related to severance and costs associated with eleven stores closed
during the quarter, impairment losses of approximately $2.0 million related
principally to impairment of leasehold improvements and fixtures at twenty-six
under performing stores, and a $1.1 million cost of goods sold charge to hasten
the liquidation of aged inventory in an effort to improve cash flow.
At the end of the third quarter, due to continued operating losses,
the Company was again not in compliance with certain financial covenants
contained in the Second Amended Revolving Credit Agreement (see "-- Liquidity
and Capital Resources"). As a result, the Company was unable to make interest
payments to the holders of the Notes. Additionally, most vendors were not
extending terms and substantially all new merchandise purchases were on a cash
basis. Because of these restrictions on cash flow and an inability to
renegotiate existing bank debt or raise additional capital through other
sources, the Company decided to seek bankruptcy protection. See "Business --
Proceedings Under Chapter 11."
FISCAL YEAR ENDED MAY 31, 1997 ("FISCAL 1997") COMPARED WITH FISCAL YEAR ENDED
MAY 31, 1996 ("FISCAL 1996")
Net sales in fiscal 1997 were $130.4 million, a decrease of $9.7
million, or 7%, from net sales of $140.1 million in fiscal 1996. The decrease
was the combined result of the closure of the 48 stores and a decrease of 10% in
sales of comparable stores (those open for the same period in both the current
and preceding years) versus the prior year. The comparable store sales decrease
was due in part to implementation of a value-pricing strategy commenced earlier
in the fiscal year. Additionally, net sales were adversely impacted by late
receipt of merchandise in the stores for the Christmas selling season, which
resulted in excessive stock outs as well as an increase in the sales mix of
promotionally priced merchandise and competitive discounts.
Finance and credit insurance charges on credit sales in fiscal 1997
were $13.9 million, a decrease of $2.1 million, or 13%, from the prior year
primarily due to a decrease in the average total outstanding customer
receivables.
Cost of goods sold, buying and occupancy expenses were 71% of net
sales for fiscal 1997 compared to 60% for the prior year. The gross margin
percentage declined in fiscal 1997 primarily as a result of the Company's
value-pricing strategy, and the sales mix of promotionally priced merchandise
and competitive discounts. In connection with the change in merchandising
strategy as developed by the Company's new management team, an inventory
valuation allowance of approximately $3.0 million was established as of May 31,
1997. The allowance reduces the carrying value of ending inventory to its
estimated net realizable value.
Selling, general and administrative expenses were $57.0 million, an
increase of $5.1 million, or 10%, from the prior year, primarily due to
increases in the costs of advertising, professional services, and shipping.
Selling, general and administrative expenses increased as a percentage of net
sales to 44% in fiscal 1997 from 37% for the fiscal 1996. The increase as a
percentage of net sales is attributable to a combination of the decline in net
sales and the increase in total expense.
9
<PAGE> 11
The provision for doubtful accounts was $18.8 million, an increase of
$7.0 million from the prior year. The provision was approximately 14% and 8% of
net sales for fiscal 1997 and 1996, respectively. The increase of such provision
was primarily due to an additional provision for customer receivables from
closed stores, and a general provision increase as a result of an overall
analysis of portfolio performance.
The Company recorded approximately $1.3 million of restructuring
expenses during fiscal 1997. The restructuring expenses consist primarily of
severance and store closing costs at 11 stores.
The Company recognized an impairment loss of approximately $3.9
million as a result of impaired leasehold improvements and fixtures at 37 closed
stores, as well as impaired computer equipment and software related to the
Company's merchandise management and point-of-sale systems.
Interest expense was $12.7 million, an increase of $1.6 million from
the prior year. Such increase was a result of higher average interest rates on
the Company's long-term debt, and $325,000 of additional interest expense
charged during the third quarter of fiscal 1997 in connection with obtaining an
amendment to the Company's Amended Revolving Credit Agreement as discussed in
"-- Liquidity and Capital Resources." The Company also recorded $876,000 of
extraordinary charges due to the write-off deferred finance fees in connection
with the early extinguishment of its Securitization Facility during the first
quarter of fiscal 1997.
FISCAL 1996 COMPARED WITH FISCAL YEAR ENDED MAY 31, 1995 ("FISCAL 1995")
Net sales in fiscal 1996 were $140.1 million, an increase of $4.1
million, or 3%, from net sales of $136.1 million in fiscal 1995. The increase
was the combined result of the full operation of the 23 new stores opened in the
prior year and an increase of 2% in sales of comparable stores (those open for
the same period in both the current and preceding years) versus the prior year.
Finance and credit insurance charges on credit sales in fiscal 1996
were $16.0 million, an increase of $327,000, or 2%, from the prior year
primarily due to an increase in the average total outstanding customer
receivables.
Cost of goods sold, buying and occupancy expenses were 60% of net
sales for fiscal 1996, compared to 58% for the prior year. The gross margin
percentage declined in fiscal 1996 primarily due to increased competitive
pressure in the retail jewelry industry.
Selling, general and administrative expenses were $52.0 million, an
increase of $1.0 million, or 2%, from the prior year, primarily due to
approximately $972,000 of expenses related to the settlement of legal actions
and fees related to the sale of 1.5 million shares of the Company's stock by
Wells Fargo Bank to private investors. 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 37% in fiscal 1996 from 38% for fiscal 1995.
The provision for doubtful accounts was $11.8 million, an increase of
$1.6 million from the prior year. The provision was approximately 8% of net
sales for fiscal 1996 and 1995.
Interest expense was $11.1 million, an increase of $1.4 million, or
14%, from the prior year. Such increase was a result of a higher average
interest rate on the Company's long-term debt, higher average borrowings to
finance the higher inventory per store, and the write-off of $232,000 of
deferred financing fees relating to redemption of the Notes as discussed in "--
Liquidity and Capital Resources."
The Company's provision for income taxes was $288,000. The provision
primarily reflects the increase in the valuation allowance against certain
deferred income tax assets based on management's estimates of the realization of
these net deferred income tax assets.
10
<PAGE> 12
FINANCIAL CONDITION
CREDIT PROGRAM. The Company offers its merchandise sales on credit terms to
qualified customers. 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
24 to 36 months. The Company's customer receivables are revolving charge
accounts. The Company currently collects (and has historically collected)
approximately 10% of its customer receivable balances each month. Sales under
the Company's credit program accounted for approximately 56% of fiscal 1997
sales, net of down payments. As of May 31, 1997 and May 31, 1996, the aggregate
customer receivables balances were $64.9 million and $79.7 million,
respectively. Aggregate credit collections during the twelve months ended May
31, 1997 were $84.7 million.
During the third quarter of fiscal 1997, the Company changed its
customer receivable write-off policy. Previously, the Company would fully
reserve for accounts that fell within certain aged parameters but would continue
internal collection efforts until such time as a determination was made that the
accounts should be written off against the allowance for doubtful accounts,
generally when the account was more than 29 months contractually delinquent.
With the change in policy, the internal collection efforts for these fully
reserved accounts has been discontinued and the accounts are being sent to
outside collection agencies, generally within 6 months of becoming delinquent,
at which time the account balances are written off against the allowance for
doubtful accounts. The Company adopted this change as a result of its cost
savings initiatives in an effort to reduce internal collection and other
expenses. Concurrent with this change, the Company accelerated the write-off of
approximately $6.8 million of customer accounts against the allowance for
doubtful accounts.
INVENTORY. At May 31, 1997, inventory was approximately $44.4 million, gross of
a valuation allowance of $3.0 million, a decrease of approximately $10.2 million
from May 31, 1996. This decrease is primarily due to fewer stores at May 31,
1997 compared to last year together with the inability of the Company to obtain
adequate levels of inventory as a result of cash flow constraints.
LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS. As discussed
previously, the Company filed a voluntary petition for relief under Chapter 11.
Under Chapter 11, actions to enforce certain claims against the Company are
stayed if the claims arose or are based on events that occurred on or before the
Petition Date. The ultimate terms of settlement of these claims will be
determined in accordance with a plan of reorganization that requires approval of
the impaired prepetition creditors and shareholders and confirmation by the
Bankruptcy Court.
Until a plan of reorganization is confirmed by the Bankruptcy Court,
only such payments on prepetition obligations that are approved or required by
the Bankruptcy Court will be made. Pursuant to the Cash Stipulation, the Company
is making contractual interest payments to its lenders. At May 31, 1997, $130.3
million was the amount established as liabilities subject to compromise under
reorganization proceedings. Other liabilities may arise or be subject to
settlement as a result of rejection of executory contracts and unexpired leases,
or the Bankruptcy Court's resolution of claims for contingencies and other
disputed amounts.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's operations require working capital to fund the purchase
of inventory, lease payments, and the funding of normal operating expenses. The
seasonality of the Company's business requires a significant build-up of
inventory for the Christmas holiday selling period. These seasonal inventory
needs generally must be funded during the late summer and fall months because of
the necessary lead-time to obtain additional inventory. Additionally, the heavy
holiday selling period leads to a seasonal build-up of customer receivables that
must be funded during the winter and spring months.
The Company reported cash flow from operating activities of
approximately $8.3 million for the fiscal year ended May 31, 1997, as compared
to cash flows used by operating activities of approximately $6.0 million and
$9.6 million for the fiscal years ended May 31, 1996 and 1995, respectively. The
Company's positive cash flow for fiscal 1997 resulted primarily from several
large non-cash charges recorded in connection with impaired assets, inventory
valuation allowance, and additional provision for bad debts at the Company's
closed stores. Additionally, the Company's inventory decreased by approximately
$10.2 million, and accounts payable and accrued liabilities increased by
approximately $6.7 million and $9.7 million, respectively, for the fiscal year
ended May 31, 1997.
11
<PAGE> 13
In addition, the Company requires working capital to fund capital
expenditures. Capital expenditures for fiscal 1997, 1996 and 1995 were $7.2
million, $4.5 million, and $6.5 million, respectively. Such expenditures were
made primarily in connection the opening of seventeen new stores and the
remodeling of twelve stores during fiscal 1997, and the opening of seven new
stores and remodeling of fourteen stores during fiscal 1996, and opening of
eight new stores and the acquisition of fifteen stores during fiscal 1995.
As of May 31, 1997, the Company had $7.3 million of cash and cash
equivalents as a result of the Chapter 11 filing and the prohibition on payments
of prepetition debt. Approximately $1.3 million of the Company's cash and cash
equivalents at May 31, 1997 was restricted pursuant to the terms of the Cash
Stipulation.
Inherent in a successful plan of reorganization is a capital
structure that permits the Company to generate sufficient cash flow after
reorganization to meet its restructured obligations and to fund the current
obligations of the reorganized Company. Under the Bankruptcy Code, the rights of
and ultimate payment to prepetition creditors may be substantially altered and
eliminated as to some classes of creditors. At this time, it is not possible to
predict the outcome of the Chapter 11 filing or its effects on the business of
the Company, or on the interests of the creditors or shareholders.
FINANCING TRANSACTIONS. On December 21, 1995, the Company entered into an
accounts receivable securitization facility (the "Securitization Facility"). In
connection with the Securitization Facility, the Company also entered into an
amended and restated revolving credit facility (the "Revolving Credit
Agreement"), which amended the original December 1993 agreement. In addition,
proceeds of the initial loan under the Securitization Facility were used in part
to repay at par $20 million of the Company's $70 million in outstanding Notes.
On July 26, 1996, the agent under the Securitization Facility advised
the Company that it wished to terminate the commitment under the Securitization
Facility. On August 30, 1996, the Company entered into an amended and restated
revolving credit agreement with First National Bank of Boston ("FNBB", the
"Amended Revolving Credit Agreement"), which has a term of three years and
contains various restrictive and financial covenants.
Proceeds of the initial funding under the Amended Revolving Credit
Agreement in the amount of approximately $41.2 million were used to refinance
the Company's obligations under the Securitization Facility, following which the
Securitization Facility was terminated. In addition, upon consummation of the
Amended Revolving Credit Agreement, the Company paid fees of approximately $2.3
million, which were deferred and are being amortized. On August 30, 1996, the
indenture governing the Notes was also amended to the extent required to permit
the consummation of the Amended Revolving Credit Agreement and the termination
of the Securitization Facility.
On January 27, 1997, the Company's Amended Revolving Credit Agreement
was amended again (the "Second Amended Revolving Credit Agreement"), and the
bank waived the Company's non-compliance with certain financial covenants
therein for the quarter ended November 30, 1996 and reduced its commitment to
lend to the Company from $85 million to $70 million as of January 27, 1997.
Outstanding borrowings bear interest at the agent bank's reference rate plus
1.5% unless an Event of Default (as defined in the Second Amended Revolving
Credit Agreement) has occurred and is continuing, or is not waived, in which
case such outstanding borrowings bear interest at 2.0% above the rate otherwise
payable.
The Second Amended Revolving Credit Agreement required the Company to
comply with certain customary financial covenants and restrictions, some of
which were adjusted in the January amendment to take into account the various
charges incurred in connection with the Company's restructuring and cost savings
initiatives implemented during the third and fourth quarters of fiscal 1997. The
Company failed to meet certain financial covenants contained in the Second
Amended Revolving Credit Agreement as of February 28, 1997, which constituted an
Event of Default under the Second Amended Revolving Credit Agreement. The Event
of Default prohibited the Company from paying the interest due on April 30, 1997
on the Notes.
Commencement of the Chapter 11 case has automatically stayed any
actions to enforce collection of amounts owed by the Company to the holders of
the Second Amended Revolving Credit Agreement and Notes. Concurrent with the
Chapter 11 proceedings, the commitment to lend under the Second Amended
Revolving Credit Agreement was terminated. The Company had $57.9 million
outstanding on the Petition Date and at May 31, 1997.
12
<PAGE> 14
As of May 31, 1997, the Company had approximately $57.9 million of
borrowings outstanding under its Second Amended Revolving Credit Agreement and
$50 million outstanding on the Notes. The Company had $3.2 million of interest
payable on the Notes. This amount represented the semi-annual interest payment
that was due on April 30, 1997, but was not paid, plus accrued interest through
May 31, 1997. The Company's average interest rates on its borrowings under the
Second Amended Revolving Credit Agreement and Notes were 13.3% and 11.0%,
respectively, for the fiscal year ended May 31, 1997.
STIPULATION AUTHORIZING USE OF CASH COLLATERAL. On May 14, 1997, the Company
received interim approval of the Bankruptcy Court of an Agreement to Use Cash
Collateral. The Company operated under that agreement until July 22, 1997, at
which time it received final court approval of an Amended and Restated
Stipulation Pursuant to Sections 361 and 363 of the Bankruptcy Code Authorizing
Debtor's Use of Cash Collateral and Granting Adequate Protection to Collateral
Agent, Lenders and Bondholders (the "Cash Stipulation"). Pursuant to the terms
of the Cash Stipulation, through February 28, 1998, the lenders agreed to allow
the Company to utilize the cash collateral generated by operations rather than
paying down any of the $57.9 million outstanding balance. This cash collateral
agreement requires the Company to, among other things, comply with a modified
borrowing base. The modified borrowing base increased the cash collateral
availability under the Company's Second Amended Revolving Credit Agreement by
increasing the advance rate to 82% of eligible accounts receivable, as defined,
and to 45% of eligible inventory, as defined, subject to various reductions
stipulated in the Cash Stipulation.
DEBTOR-IN-POSSESSION TRADE FINANCING AGREEMENT AND VENDOR RETURN PROGRAM. On
July 22, 1997, the Company reached an agreement with its vendors and creditors
regarding the terms of the Trade DIP Financing Agreement. Pursuant to such
agreement, the Company should be able to obtain its expected orders for over $50
million of new merchandise on extended trade terms, without having to pay the
high fees and interest charges that normally accompany a DIP loan. The vendors
are protected from credit exposure through a $2 million trade trust and a $4
million subordination provided by certain holders of the Company's Notes.
In addition, the agreement allows the Company to exchange up to
approximately $8 million of slow-moving merchandise for at least $11 million of
fresh inventory on extended trade terms.
CONSIGNEE AGREEMENT. As part of the Company's plan of reorganization, management
has sought to increase the level of consigned merchandise. Toward this end, the
Company received Bankruptcy Court approval of its Consignment Agreement on July
22, 1997. Pursuant to the terms of the Consignment Agreement, the Company's
vendors will commit to maintain a specified minimum amount of consigned
merchandise. The Company shall hold such merchandise for sale in the ordinary
course of its business and is responsible for insuring the consignment
merchandise for its full value and against all risks of loss. The Company is
required to report all consignment merchandise sales on a weekly basis, and to
pay all invoices within specified trade payment terms, generally 30 days from
receipt of invoice, as set forth in the Consignment Agreement.
TAX LOSS CARRYOVERS. At May 31, 1997, the Company had a net operating loss
carryforward for federal income tax purposes of $61.7 million, which is
scheduled to expire in the years May 31, 2006 through May 31, 2012. Of this
$61.7 million, approximately $14 million is scheduled to expire in the years May
31, 2006 through May 31, 2008, and is subject to the limitations imposed under
Section 382 of the Internal Revenue Code of 1986, as amended (the "IRC").
Section 382 of the IRC provides a limitation ("Section 382
limitation") on the use of net operating loss carryovers, net operating losses,
and certain built-in losses and deduction items of a loss corporation that has
an ownership change. For financial statement purposes, utilization of a net
operating loss, under Section 382 of the IRC, is recorded as a credit to common
stock.
The balance of the net operating losses, approximately $47.7 million,
is not subject to the limitations imposed under Section 382 of the IRC, and is
scheduled to expire through May 31, 2012.
At May 31, 1997 and 1996, the Company has recorded a noncurrent
deferred tax asset of $72,000 and $122,000, respectively, representing
alternative minimum tax ("AMT") credit carryforwards. Unlike net operating loss
carryforwards, the AMT credit has an indefinite carryforward period, as it will
be available to reduce the Company's regular tax liability in any future year.
13
<PAGE> 15
QUARTERLY RESULTS OF OPERATIONS. The following is a summary of the unaudited
quarterly results of operations for the years ended May 31, 1997 and 1996:
QUARTERLY INFORMATION
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
May 31, February 28, November 30, August 31,
Quarter Ended 1997 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales, finance and credit
insurance fees $ 28,886 $52,829 $32,797 $29,834
Cost of goods sold, buying and
occupancy 24,237 32,022 19,349 17,394
Restructuring expense -- 1,336 -- --
Impairment loss 1,977 1,970 -- --
Loss before reorganization costs,
income taxes and extraordinary loss (24,142) (6,818) (6,655) (4,871)
Reorganization costs 2,322 -- -- --
Net loss before extraordinary item -- -- -- (4,871)
Extraordinary item -- -- -- (876)
Net loss $(26,748) $(6,818) $(6,655) $(5,747)
- -------------------------------------------------------------------------------------------------------------
Loss per share before extraordinary item -- -- -- $ (1.22)
Loss per share $ (6.64) $ (1.70) $ (1.66) $ (1.44)
- -------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 4,029 4,001 3,999 3,999
- -------------------------------------------------------------------------------------------------------------
Common stock price per share: High $ 2.19 $ 2.63 $ 3.88 $ 4.88
Low $ 0.22 $ 1.13 $ 2.19 $ 2.75
</TABLE>
<TABLE>
<CAPTION>
May 31, February 29, November 30, August 31,
1996 1996 1995 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Net sales, finance and credit
insurance fees $ 33,370 $54,872 $36,995 $30,916
Cost of goods sold, buying and
occupancy 20,210 27,865 19,305 16,389
Net (loss) income $ (4,489) $ 3,159 $ (447) $(1,006)
- -------------------------------------------------------------------------------------------------------------
(Loss) income per share $ (1.12) $ 0.79 $ (0.11) $ (0.25)
- -------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 3,999 3,974 3,969 3,969
- -------------------------------------------------------------------------------------------------------------
Common stock price per share: High $ 4.88 $ 4.13 $ 5.88 $ 4.63
Low $ 3.00 $ 3.13 $ 3.75 $ 2.88
</TABLE>
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
rent, 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.
14
<PAGE> 16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedule of the
Company and the reports of independent auditors are listed at Item 14 and are
included beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
Set forth below is biographical information for each of the nominees to
the Board of Directors of the Company.
David W. Cochran, 51, has been a director of the Company since June
1992. From December 1978 to November 1994, Mr. Cochran was President, Chief
Executive Officer and a Principal of R.F. Simmons Company, Inc., a jewelry
manufacturer. From November 1994 to October 1995, Mr. Cochran was President and
Chief Executive Officer of Simmons & Company, Inc., a jewelry manufacturer. Mr.
Cochran is currently the President and Chief Executive Officer of Riverbank
Associates, Inc., a real estate investment company, which position he has held
since December 1995, and the Chairman of Page Walker & Co., a jewelry
manufacturer, which position he has held since January 1993. Mr. Cochran is a
consultant to G. Austin Young Co., dba Attleboro Jewelry Makers, a retail outlet
representing 20 jewelry and gift manufacturers.
William D. Eberle, 74, has been Chairman of the Company since August
1996. Mr. Eberle has been Chairman of Manchester Associates, Ltd., a venture
capital and international consulting firm since 1977, and of counsel to the law
firm of Kaye, Scholer, Fierman, Hays & Handler since 1993. From 1989 to 1993,
Mr. Eberle was of counsel to the law firm of Donovan, Leisure, Newton & Irvine.
Mr. Eberle is presently Chairman of America Service Group, Inc. and of Showscan
Entertainment, Inc., Deputy Chairman of Mid-States Plc, and a director for Ampco
Pittsburgh Corp., FAC Realty, Inc., Horace Small Apparel Company Plc, Mitchell
Energy and Development Corp. and Sirrom Capital Corporation.
John W. Gildea, 54, has been a director of the Company since August
1996. Since September 1990, Mr. Gildea has been an advisor to The Network Funds,
a series of investment funds. From 1986 to 1990, Mr. Gildea was the manager of
the Corporate Services Group of Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Gildea is presently a Managing Director of Gildea Management
Company, an investment management company, which position he has held since
1990, and a director of America Service Group, Inc., FAC Realty, Inc., UNC,
Inc., and General Chemical.
Carol R. Goldberg, 66, has been a director of the Company since
November 1996. Ms. Goldberg is currently President of the Avcar Group, Ltd., an
investment and management consulting firm, which position she has held since
December 1989. Ms. Goldberg previously served as Chief Operating Officer of The
Stop & Shop Companies, Inc., a retailing company, from 1982 to November 1989, as
its President from October 1985 to November 1989, as its Executive Vice
President from 1982 to 1985, and as its Senior Vice President -- Manufacturing
from 1979 to 1982. Ms. Goldberg is currently a director of The Gillette Company,
America Service Group, Inc., and SelfCare, Inc. and is Senior Advisor of New
England for America International Group, Inc.
Samuel J. Merksamer, 56, has been the Company's President and Chief
Executive Officer, and a director, since February 1997. Before joining the
Company, Mr. Merksamer was the President and Chief Executive Officer of
Merksamer Jewelers, Inc. from 1992 to June 1996. Merksamer Jewelers, Inc. was
previously involved as a debtor-in-possession in reorganization proceedings
under Chapter 11 of the Bankruptcy Code, emerging from such proceedings in 1992.
Cleaveland D. Miller, 58, has been a director of the Company since
June 1992. Mr. Miller is presently a partner with the law firm of Semmes, Bowen
& Semmes. Mr. Miller is a director of EA Engineering, Science, and Technology,
Inc. Since 1988, Mr. Miller has been Chairman of Legal Mutual Liability
Insurance Society of Maryland. Mr. Miller served as President of the Maryland
State Bar Association from 1987 to 1988.
William P. O'Donnell, 43, has been a director of the Company since
August 1996. Since 1992, Mr. O'Donnell has been an advisor to The Network Funds,
a series of investment funds. From 1990 to 1992, Mr. O'Donnell was a Vice
President in the Corporate Finance Group of Chrysler Capital Corporation, a
finance company. Mr. O'Donnell is presently a Managing Director of Gildea
Management Company, a position he has held since 1992.
EXECUTIVE OFFICERS
The following individuals currently serve as the Company's executive
officers.
Samuel J. Merksamer, 56, has been the Company's President and Chief
Executive Officer, and a director, since February 1997. Additional biographical
information regarding Mr. Merksamer is set forth under the caption "Directors
and Executive Officers of the Registrant -- Board of Directors."
E. Peter Healey, 44, has been the Company's Executive Vice President,
Chief Financial Officer and Secretary since February 1997. From 1994 to 1996,
Mr. Healey was the Vice President, Chief Financial Officer, Secretary and
Treasurer of MS Financial, Inc. From 1985 to 1993, Mr. Healey was Vice President
and Treasurer of Zale Corporation. Zale Corporation was previously involved as a
debtor-in-possession in reorganization proceedings under Chapter 11 of the
Bankruptcy Code, emerging from such proceedings in 1993.
Randy N. McCullough, 45, has been the Company's Senior Vice President
- -- Merchandise since April 1997. Prior to joining the Company, Mr. McCullough
served as President of Silverman's Factory Jewelers from 1991 to March 1997.
Bill R. Edgel, 31, has been the Company's Vice President -- Marketing
since February 1997. Prior to joining the Company, Mr. Edgel served as Director
of Credit Marketing of Macy's West, a division of Federated Department Stores,
from 1996 to 1997. From 1995 to 1996, Mr. Edgel served as Director of Marketing
for Merksamer Jewelers, Inc. Merksamer Jewelers, Inc. was previously involved as
a debtor-in-possession in reorganization proceedings under Chapter 11 of the
Bankruptcy Code, emerging from such proceedings in 1992. From 1993 to 1995, Mr.
Edgel served as Advertising Manager/Creative Director for Troutman's Emporium,
Inc. From 1992 to 1993, Mr. Edgel served as Partner/Creative Director of Vaki
Advertising, Inc.
Daniel L. Felsenthal, 40, has been the Company's Vice President --
Finance since October 1996 and its Vice President -- Finance, Treasurer and
Assistant Secretary since April 1997. Prior to joining the Company, Mr.
Felsenthal served as the Controller for Quarterdeck Corporation during 1996.
From 1990 to 1996, Mr. Felsenthal was employed by Mac Frugal's Bargains --
Close-outs Inc., serving as its Controller from 1991 to 1994, and as its Vice
President -- Finance from 1994 to 1996.
Chad C. Haggar, 34, has been the Company's Vice President --
Operations since February 1997. Prior to joining the Company, Mr. Haggar served
as Director of Stores of Fred Meyer, Inc. from 1996 to 1997. From before 1992 to
1996, Mr. Haggar served as Regional Manager of Merksamer Jewelers, Inc.
Merksamer Jewelers, Inc. was previously involved as a debtor-in-possession in
reorganization proceedings under Chapter 11 of the Bankruptcy Code, emerging
from such proceedings in 1992.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the officers and directors of
the Company and certain shareholders beneficially owning more than 10% of the
Company's Common Stock ("Ten Percent Shareholders") are required to file with
the Securities and Exchange Commission and the Company reports of ownership,
and changes in ownership, of Company Common Stock. During fiscal 1997, Ms.
Goldberg did not file, as of the required date, a report on Form 4 regarding her
purchase of 10,000 shares of the Company's Common Stock in November 1996. Such
report was subsequently filed in compliance with Section 16(a). Except for the
foregoing, based solely on a review of the reports received by it, the Company
believes that, during fiscal 1997, all of its offers and directors and Ten
Percent Shareholders complied with all applicable filing requirements under
Section 16(a).
15
<PAGE> 17
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation for services during each of the Company's last three fiscal years
to (i) those persons serving as chief executive officer of the Company during
fiscal 1997 and (ii) two additional executive officers of the Company during
fiscal 1997 who would have been among the four most highly compensated executive
officers during fiscal 1997 but who were not serving as such at the end of
fiscal 1997 (none of the Company's executive officers during fiscal 1997 serving
as such at the end of fiscal 1997 earned an annual salary and bonus exceeding
$100,000).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------------
----------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR(1) ($) ($) ($)(2) AWARDS(S)($) SARS(#) ($)
- ---------------------------- ------- ------- ------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Samuel J. Merksamer 1997(3) 98,462 -- -- -- --
President and Chief 1996 -- -- -- -- -- --
Executive Officer 1995 -- -- -- -- -- --
Robert W. Bridel 1997 231,250 8,231(4) -- -- -- 113,511(5)
Former President 1996 261,126 31,386(6) -- 34,375(7) 110,000 2,795(8)
and Chief Executive 1995 200,000 51,343(6) -- -- 15,000 --
Officer
Thomas S. Liston 1997 213,462 8,231(4) -- -- -- 80,721(5)
Former Chief Financial 1996 279,396 31,386(6) -- 34,375(7) 100,000 2,795(8)
Officer, Secretary and 1995 225,000 62,513(6) -- -- 15,000 --
Treasurer
Joseph M. Maisano 1997 124,308 -- -- -- -- 16,833(6)
Former Senior Vice 1996 155,369 -- -- -- 15,000 --
President -- Operations 1995 -- -- -- -- 4,000 --
</TABLE>
- ---------------
(1) "1997," "1996," and "1995" represent fiscal years ended May 31, 1997, 1996
and 1995, respectively.
(2) Excludes perquisites, other personal benefits, securities and property,
which, in the aggregate, did not exceed in any year shown the lesser of
$50,000 or 10% of the total annual salary and bonus reported for such
individual for such year.
(3) All compensation shown for Mr. Merksamer dates from February 13, 1997.
(4) Represents bonus payments paid to Messrs. Bridel and Liston during fiscal
1997, in connection with their resignations from the Company, for payments
made with respect to taxes due upon vesting of 5,000 of their respective
10,000 shares of restricted stock. See "-- Employment Agreements and
Change-in-Control Arrangements."
(5) Represents (i) with respect to Mr. Bridel, $60,580 in vacation pay, $50,000
in severance pay, auto lease payments of $1,155, and $1,776 of group
insurance benefits, (ii) with respect to Mr. Liston, $32,463 in vacation
pay, $46,154 in severance pay, auto lease payments of $595, and $1,509 of
group insurance benefits, and (iii) with respect to Mr. Maisano, $16,338 in
vacation pay and auto lease payments of $495.
(6) Represents bonus payments pursuant to the Company's cash bonus plans for
fiscal 1996 (the "1996 Plan") and fiscal 1995 (the "1995 Plan"). The 1996
Plan provided for the payment of bonuses to participants from a pool of up
to 15% of the Company's pre-tax, pre-bonus earnings (the "Pre-Bonus
Earnings") for the fiscal year ending May 31, 1996, except that no awards
were to be made if the amount of Pre-Bonus Earnings was less than
$3,000,000. The 1995 Plan provided for the payment of bonuses to
participants from a pool of up to 15% of the Company's Pre-Bonus Earnings
for the fiscal year ending May 31, 1995, except that no awards were to be
made if the amount of Pre-Bonus Earnings was less than
16
<PAGE> 18
$2,000,000. With respect to the 1996 Plan and the 1995 Plan, 90% of the pool
amount was awarded based on the participation weight assigned in such plan
to each participant and 10% was awarded to participants in the discretion of
the Compensation Committee of the Board of Directors after consultation
with the Chief Executive Officer.
(7) Reflects the value of a 10,000 share restricted stock grant made as of April
8, 1996 to each of Messrs. Bridel and Liston based on the market value of
such stock as of the date of issuance (without giving effect to the
diminution in value attributed to restrictions on such shares). See
"-- Employment Contracts and Change-in-Control Arrangements."
(8) Represents Company contributions on behalf of Messrs. Bridel and Liston
under the Company's Deferred Compensation Plan.
OPTION/SAR GRANTS IN FISCAL 1997
None of those persons serving as chief executive officer of the
Company during fiscal 1997 or any other executive officer of the Company named
in the Summary Compensation Table under the caption "Executive Compensation" was
issued any option to acquire the Company's Common Stock during fiscal 1997.
AGGREGATED 1997 OPTION/SAR EXERCISES
AND YEAR-END OPTION VALUES
No stock options were exercised during or held at the end of fiscal
1997 by any of those persons serving as chief executive officers of the Company
during fiscal 1997 or any other executive officer of the Company named in the
Summary Compensation Table under the caption "Executive Compensation."
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
During fiscal 1997 until their resignations on February 13, 1997,
Robert W. Bridel served as the Company's President and Chief Executive Officer
and Thomas S. Liston served as the Company's Chief Financial Officer, Secretary
and Treasurer. Both Messrs. Bridel and Liston served in such capacities under
employment agreements with the Company (the "Agreements") dated April 8, 1996,
the initial terms of which extended through April 8, 1998. The Agreements
provided for annual salaries of $325,000 and $300,000 to Messrs. Bridel and
Liston, respectively. Under the Agreements, Mr. Bridel and Mr. Liston received
options to purchase 35,000 shares and 25,000 shares, respectively, of the
Company's Common Stock, and restricted stock awards of 10,000 shares each, the
vesting of such options and stock awards to occur one-half on each of the first
and second anniversary dates of such Agreements (provided, with respect to the
stock awards, that such executive officer remained employed by the Company on
each such anniversary date). The Agreements contained certain severance
provisions, and in connection with the resignations from the Company of Messrs.
Bridel and Liston, the Company and each of Messrs. Bridel and Liston entered
into severance agreements, under which the following benefits are payable to or
on behalf of Messrs. Bridel and Liston: (i) $371,250.00 and $342,692.33,
respectively, representing salary from February 17, 1997 through April 8, 1998,
(ii) $8,230.63 to each representing bonuses in respect of tax obligations with
respect to 5,000 shares of restricted stock that vested as to each on February
13, 1997 (the "Resignation Date"), (iii) $3,082.50 and $2,464.62, respectively,
representing accrued vacation, (iv) reimbursement of the cost of their electing
to continue to be included in the Company's medical insurance plan from the
Resignation Date through April 8, 1998 (totaling $5,769.69 and $4,519.48,
respectively), (v) payment of fees of an outplacement services firm up to
$25,000 each, (vi) inclusion in the Company's life insurance and disability
plans from the Resignation Date through April 8, 1998 and (vii) continuation of
automobile-related benefits from the Resignation Date through April 8, 1998
(totaling $8,086.54 and $8,321.32, respectively).
Simultaneously with the resignation of Mr. Bridel as President and
Chief Executive Officer of the Company, the Company retained Samuel J. Merksamer
as its President and Chief Executive Officer. Effective February 13, 1997, the
Company and Mr. Merksamer entered into a non-binding letter of intent
17
<PAGE> 19
under which they agreed, among other things, to negotiate a definitive
employment contract by May 15, 1997. The Bankruptcy Court has authorized the
Company to enter into employment agreements with Mr. Merksamer and with certain
other executive officers of the Company, a summary description of certain terms
of which is set forth under the caption "-- Compensation Committee Report --
Implementation of Philosophy."
COMPENSATION COMMITTEE REPORT
COMPENSATION PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is responsible for developing and implementing the Company's
executive compensation policies. The Compensation Committee's philosophy of
executive compensation is to enhance the profitability of the Company, and thus
shareholder value, by closely aligning the financial interests of the executive
officers with those of the shareholders.
IMPLEMENTATION OF PHILOSOPHY
Generally, the Compensation Committee seeks to realize this objective by
the use of short term incentives in the form of salary and cash bonuses, and
long term incentives in the form of stock option and restricted stock grants.
Salaries initially are set based on the executive officer's experience and
competitive conditions. Thereafter, salaries may be adjusted based on various
factors, including the executive's performance. In setting and making
adjustments to salaries, the Compensation Committee also considers salaries paid
to similarly situated executive officers in comparable companies.
Consistent with the foregoing, in February 1997, after a nationwide
search for a management team capable of analyzing the reasons for the Company's
poor performance and developing and executing a plan to improve such
performance, the Compensation Committee approved compensation terms for each of
Messrs. Merksamer and Healey. Effective February 13, 1997, the Company entered
into a non-binding letter of intent with each of Mr. Merksamer and Mr. Healey to
employ Mr. Merksamer as President and Chief Executive Officer of the Company and
Mr. Healey as Executive Vice President, Chief Financial Officer and Secretary of
the Company.
Prior to the Bankruptcy Filing, the Compensation Committee began to
re-evaluate the Company's executive employment needs in the context of potential
formal or informal reorganization proceedings. As a result of such reevaluation,
and recognizing the decline in the value of non-cash compensation in the form of
equity in the Company, the difficulties to be faced by its executives in an
attempt to lead the Company out of any such proceedings and the importance of
retaining key executives during such proceedings, the Compensation Committee
determined that it was in the best interests of the Company to enter into
employment agreements with such executives. At a hearing of the Bankruptcy Court
held on September 24, 1997, the Bankruptcy Court authorized the Company to enter
into employment agreements (the "Employment Agreements") with Mr. Merksamer and
each of Messrs. Healey, McCullough, Haggar and Edgel (each an "Executive"). Upon
entry of the related Bankruptcy Court order, the Company will enter into such
Employment Agreements, which extend through confirmation of a plan of
reorganization of the Company. Set forth below is a summary of certain other
terms of such Employment Agreements.
18
<PAGE> 20
CERTAIN TERMS OF EMPLOYMENT AGREEMENTS
<TABLE>
<CAPTION>
PLAN OF REORGANIZATION CONFIRMATION BONUS
(AS A PERCENTAGE OF ANNUAL BASE SALARY)(2)
-------------------------------------------------
MAXIMUM ANNUAL IF CONFIRMA- IF CONFIRMA-
CASH BONUS (AS TION OCCURS ON TION OCCURS ON
A OR AFTER OR AFTER
PERCENTAGE OF MAY 1, 1998 JULY 1, 1998
ANNUAL IF CONFIRMATION THROUGH AND AND PRIOR TO
ANNUAL BASE BASE OCCURS PRIOR TO INCLUDING SEPTEMBER 30,
EXECUTIVE/TITLE SALARY SALARY)(1) MAY 1, 1998 JUNE 30, 1998 1998
- -------------------------------- ----------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Samuel J. Merksamer............. $ 400,000 100% 125% 100% 75%
President and Chief Executive
Officer
E. Peter Healey................. $ 275,000 75% 125% 100% 75%
Executive Vice President,
Chief Financial Officer and
Secretary
Randy N. McCullough............. $ 225,000 60% 125% 100% 75%
Senior Vice President --
Merchandising
Chad C. Haggar.................. $ 165,000 50% 125% 100% 75%
Vice President -- Operations
Bill R. Edgel................... $ 120,000 33% 125% 100% 75%
Vice President -- Marketing
</TABLE>
- ---------------
(1) Such bonuses are payable as follows: (i) 50% thereof are payable if the
Company achieves projected earnings before interest, taxes, depreciation and
amortization for its 1998 fiscal year, (ii) 10% thereof are payable if the
Company meets or exceeds its November 30, 1997 projected inventory levels,
(iii) 10% thereof are payable if the Company meets or exceeds its December
31, 1997 projected cash deposit, receivable and inventory levels, (iv) 10%
thereof are payable if the Company meets its December 31, 1997 projected
general and administrative expenses, (v) 10% thereof are payable if, as of
February 1998, there is total availability under the borrowing base in the
Company's revolving credit facility (as modified by the Cash Stipulation
filed with the Bankruptcy Court) plus total cash balances of at least $4.1
million, and payables are maintained within agreed upon vendor terms, and
(vi) the remaining 10% are payable upon receipt from vendors of 1.4 times
the amount of inventory returned by November 1997 and at the end of February
1998.
(2) A condition to the payment of such bonus will require that the Company have
an asset-based, working capital credit facility on market terms on the
confirmation date of a plan of reorganization.
Under the Employment Agreements, if an Executive's employment is
terminated by the Company without cause, by the Executive with good reason
(including a sale of the Company under the Bankruptcy Code), due to an
Executive's death or disability, or as a result of the confirmation of a plan of
reorganization, such Executive is entitled to receive (i) accrued annual base
salary and vacation, (ii) his maximum annual cash bonus if (A) the fiscal year
end 1998 performance targets have been achieved (provided that such target will
be prospectively applicable with respect to termination resulting from
confirmation of a plan prior to the end of such fiscal year) or (B) in the event
of a Change-in-Control (as defined below) of the Company at a time when the
Company is a going concern or the death or disability of an Executive if any
applicable performance conditions have been met, and (iii) if such termination
without cause or with good reason occurs prior to confirmation of a plan of
reorganization of the Company, his confirmation bonus. If the Executive's
employment is terminated by the Company for cause (i.e., malfeasance or
misfeasance) or by the Executive without good reason, such Executive is entitled
to receive accrued annual base salary and vacation, but no annual cash bonus or
confirmation bonus (if such termination occurs prior to confirmation). Under the
Employment Agreements, a "Change-in-Control" includes the dissolution or
liquidation of the Company, a reorganization, merger or consolidation of the
Company with one or more corporations in which the Company is not the surviving
entity or as a result of which the Company's outstanding voting securities are
converted to
19
<PAGE> 21
or reclassified as cash, securities of another corporation or other property, a
sale of assets of the Company or its subsidiaries having a fair market value
equal to more than 50% of the total fair market value of the Company's assets to
a nonaffiliate of the Company, or the acquisition of more than 30% of the
then-outstanding voting securities of the Company by a nonaffiliate.
1997 COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The base salary of the Company's Chief Executive Officer is established
through negotiations between the Compensation Committee and such Chief Executive
Officer. Until his resignation on February 13, 1997, Robert W. Bridel was the
Company's Chief Executive Officer. In setting Mr. Bridel's annual salary and
incentive compensation for Fiscal 1997, the Compensation Committee considered
numerous factors, including Mr. Bridel's previous salary level, his experience
and his overall performance. Samuel J. Merksamer succeeded Mr. Bridel as the
Company's President and Chief Executive Officer. In setting Mr. Merksamer's
annual salary and incentive compensation for Fiscal 1997, the Compensation
Committee considered numerous factors, including Mr. Merksamer's extensive
experience in the jewelry industry, his prior success in turning around troubled
companies and the market rate for presidents and chief executive officers with
knowledge and experience commensurate to that of Mr. Merksamer. Based on these
factors, and after negotiations between the Compensation Committee and Mr.
Merksamer, the Compensation Committee established Mr. Merksamer's compensation
terms in the non-binding letter of intent referred to above. After the
Compensation Committee's re-evaluation of the Company's executive employment
needs in the context of potential formal or informal reorganization proceedings,
and after additional negotiations between the Compensation Committee and Mr.
Merksamer, the Compensation Committee established Mr. Merksamer's compensation
terms as reflected in his Employment Agreement described above.
THE COMPENSATION COMMITTEE
Carol R. Goldberg, Chairman
David W. Cochran
John W. Gildea
Cleaveland D. Miller
William P. O'Donnell
20
<PAGE> 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 3, 1997, information as
to the beneficial ownership of the Company's Common Stock by (i) each person who
is known by the Company to own beneficially more than 5% of its outstanding
shares of Common Stock, (ii) each of the Company's directors and director
nominees, (iii) each of the officers named in the Summary Compensation Table
under the caption "Executive Compensation," and (iv) all executive officers and
directors of the Company as a group. In each instance, information as to the
number of shares owned and the nature of ownership has been provided by the
person or entity identified or described and is not within the direct knowledge
of the Company.
<TABLE>
<CAPTION>
AMOUNT PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) CLASS
--------------------------------------------------------- ------------ -------
<S> <C> <C>
Robert W. Bridel......................................... 22,000 **
500 W. Harbor Drive, Apt. 124
San Diego, CA 92101
Thomas S. Liston......................................... -- **
14518 Las Brizas Lane
Sun City, AZ 85375
Samuel J. Merksamer*..................................... -- **
Joseph M. Maisano........................................ -- **
14 Creekview Street
Sanger, TX 76266
William D. Eberle*....................................... 82,600(3) 2.0%
David W. Cochran*........................................ 3,600(2) **
Carol R. Goldberg*....................................... 400(2) **
Cleaveland D. Miller*.................................... 3,600(2) **
John W. Gildea........................................... 595,600(4) 14.8%
115 East Putnam Avenue
Greenwich, CT 06830
William P. O'Donnell..................................... 535,600(5) 13.3%
115 East Putnam Avenue
Greenwich, CT 06830
Network Fund III, Ltd.................................... 525,000(6) 13.0%
P.O. Box 219, Butterfield House
Grand Cayman, Cayman Islands, B.W.I.
Gary Gelman.............................................. 456,700(7) 11.3%
One Jerico Plaza
Jerico, NY 11753
J. Ezra Merkin........................................... 325,000(8) 8.1%
450 Park Avenue
New York, NY 10022
All executive officers and directors as a group (12
persons)............................................... 697,400 17.1%
</TABLE>
- ---------------
(1) To the Company's knowledge, except as otherwise set forth in this table, the
persons and entities in this table have sole voting, investment and
dispositive power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.
(2) All of such shares are issuable upon the exercise of currently-exercisable
options outstanding under the Company's 1994 Stock Option Plan (the "1994
Stock Option Plan"), which is administered by the Compensation Committee of
the Board of Directors.
(3) 15,000 of such shares are issued and outstanding. 35,000 of such shares are
issuable upon the exercise of currently-exercisable options. 32,000 of such
shares are restricted shares, as to which Mr. Eberle has sole voting power.
600 of such shares are issuable upon the exercise of currently-exercisable
options
21
<PAGE> 23
outstanding under the Company's 1994 Stock Option Plan, which is
administered by the Compensation Committee of the Board of Directors. See
"Executive Compensation -- Directors."
(4) 600 of such shares are issuable upon the exercise of currently-exercisable
options outstanding under the Company's 1994 Stock Option Plan, which is
administered by the Compensation Committee of the Board of Directors. With
respect to the remaining 595,000 of such shares, pursuant to an amended
Schedule 13D filed by Mr. Gildea under the Exchange Act, dated June 11,
1996, as of such date Mr. Gildea had sole voting and dispositive power as to
70,000 of such shares and shared dispositive power with Network Fund III,
Ltd. as to 525,000 of such shares.
(5) 600 of such shares are issuable upon the exercise of currently-exercisable
options outstanding under the Company's 1994 Stock Option Plan, which is
administered by the Compensation Committee of the Board of Directors. With
respect to the remaining 535,000 of such shares, pursuant to a Form 3 filed
by Mr. O'Donnell under the 1934 Act dated September 10, 1996, as of such
date Mr. O'Donnell had sole voting and dispositive power as to 10,000 of
such shares and shared dispositive power with Network Fund III, Ltd. as to
525,000 of such shares.
(6) The Network Fund III, Ltd. has shared dispositive power with Mr. Gildea and
Mr. O'Donnell as to such shares. See footnotes 4 and 5 above.
(7) As set forth in an amended Schedule 13D filed by Mr. Gelman under the 1934
Act dated January 15, 1997, as of such date Mr. Gelman had sole voting and
dispositive power with respect to all such shares.
(8) As set forth in a Schedule 13D filed by Mr. Merkin under the 1934 Act dated
May 22, 1996, as of such date Mr. Merkin had sole voting and dispositive
power as to 20,475 of such shares, shared voting and dispositive power with
Gabriel Capital, L.P. as to 126,425 of such shares, and shared voting and
dispositive power with Ariel Management Corp. as to 178,100 of such shares.
* Address is c/o Barry's Jewelers, Inc., 111 West Lemon Avenue, Monrovia,
California 91016.
** Less than one percent.
22
<PAGE> 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
David Blum and Gerson I. Fox, each a current shareholder and former
officer and director of the Company, presently own and lease to the Company,
through a partnership, the Company's headquarters building. In May 1990, the
Company moved into the new headquarters office building that allowed the Company
to consolidate all corporate credit, collection, merchandising and
administrative functions into a single location for more efficient management
and to allow future growth. The building is a special-purpose building built to
the Company's specifications. The base annual rent for the first five years was
$574,284. Currently, the base annual rent is $643,476. On the 121st month, the
rent may be increased based on a cost-of-living index. The Company is
responsible for leasehold improvements, insurance, property taxes, maintenance
and repairs. The lease has a 15-year term, but the Company has the right to
terminate the lease earlier (the "Early Termination Right"), provided that the
Company gives six months' notice and pays $15,000 for each month remaining in
the 15-year term after the effective date of such termination. In connection
with certain consulting agreements between the Company and each of Messrs. Blum
and Fox (each of which expired on May 31, 1995) and a financing secured by the
leased premises, and at the request of the lessor, the Company agreed in 1995 to
waive such Early Termination Right. The Company believes that the terms of the
foregoing lease are presently above market, and is currently negotiating with
the lessor so as to revise such terms to more closely reflect current market
conditions (although no assurances can be given that the Company will be
successful in such negotiations).
William D. Eberle, the Company's Chairman, is of counsel to the law
firm of Kaye, Scholer, Fierman, Hays & Handler LLP, which firm provided certain
legal services to the Company during Fiscal 1997.
23
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and
Exhibits
1. CONSOLIDATED FINANCIAL STATEMENTS
The following are included herein under Item 8:
Financial Statements, Financial Statement Schedules
and Exhibits
Independent Auditors' Report - Deloitte & Touche LLP
Consolidated Balance Sheets as of May 31, 1997 and 1996
Consolidated Statements of Operations for the three
years ended May 31, 1997.
Consolidated Statements of Stockholders' (Deficiency)
Equity for the three years ended May 31, 1997.
Consolidated Statements of Cash Flows for the three
years ended May 31, 1997.
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
II. Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is included in
the Consolidated Financial Statements or notes
thereto.
3. EXHIBITS
24
<PAGE> 26
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Restated Articles of Incorporation filed November 16, 1994 in
connection with the Reverse Stock Split (5).
3.2 Bylaws (10).
4.1(a) 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 the form of Note certificate (4).
4.1(b) Amendment No. 1 to Indenture, dated as of February 14, 1994,
between Barry's Jewelers, Inc. and the Trustee (5).
4.1(c) Amendment No. 2 to Indenture, dated as of March 18, 1994, between
Barry's Jewelers, Inc. and the Trustee (6).
4.1(d) Amendment No. 3 to Indenture, dated as of December 21, 1995,
between Barry's Jewelers, Inc. and the Trustee (6).
4.1(e) Amendment No. 4 to Indenture, dated as of August 30, 1996, between
Barry's Jewelers, Inc. and the Trustee (9).
4.2 Exchange Agreement, dated as of December 22, 1993, by and among the
Company and the holders signatories thereto (1).
4.3 Senior Secured Notes Registration Rights Agreement, dated as of
December 22, 1993, by and among the Company and the holders
signatories thereto (1).
4.4 Common Stock Registration Rights Agreement, dated as of December 22,
1993, by and among the Company and the holders signatories thereto
(1).
4.5 Second Amended and Restated Revolving Credit Agreement, dated as of
August 30, 1996, by and among the Company, The First National Bank of
Boston ("FNBB"), as lender and agent thereunder (9).
4.6(a) Collateral Agency and Intercreditor Agreement, dated as of December
22, 1993, among FNBB, as collateral agent for the secured parties and
as agent for the lenders (under the New Revolving Credit Agreement),
the Trustee, on behalf of the holders of the Notes and the Company
(1).
4.6(b) Amendment Agreement No. 1, dated as of December 21, 1995, to
Collateral Agency and Intercreditor Agreement, dated as of December
22, 1993, among FNBB, the Trustee, and the Company (6).
4.6(c) Amendment Agreement No. 2, dated as of August 30, 1996, to
Collateral Agency and Intercreditor Agreement, dated as of December
22, 1993, among FNBB, the Trustee, and the Company (5).
4.7 Second Amended and Restated Security Agreement, dated as of August 30,
1996, between the Company and FNBB, as collateral agent for the
secured parties (9).
4.8 Second Amended and Restated Trademark Collateral Security and Pledge
Agreement, dated as of August 30, 1996, between the Company and FNBB
(9).
10.1 Lease dated February 1, 1990 between the El Monte Partnership as
Landlord and Barry's Jewelers, Inc. as Tenant (8).
10.2 Executive Incentive Bonus Plan for the year ended May 31, 1994 (2).*
10.3 Executive Incentive Bonus Plan for the year ended May 31, 1995 (5).*
25
<PAGE> 27
EXHIBIT
NO. DESCRIPTION
--- -----------
10.4 Lease dated December 1, 1990, between Gerson I. Fox and David Blum, as
Lessors, and BBF Jewelers Management, Inc., as Lessee (2).
10.5 Deferred Compensation Plan (4).*
10.6 Executive Deferral Plan (6).*
10.7 Executive Bonus Plan - Master Plan Document (4).*
10.8 Executive Bonus Plan - Trust Agreement (4).*
10.9 Employee Stock Purchase Plan (5).*
10.10 Employment Agreement dated April 8, 1996, between the Company and
Thomas S. Liston (9).*
10.11 Employment Agreement dated April 8, 1996, between the Company and
Robert Bridel (9).*
10.12 Agreement dated March 19, 1997, between the Company and Thomas S.
Liston (10).*
10.13 Agreement dated March 19, 1997, between the Company and Robert Bridel
(10).*
10.14(a) Form of Employment Agreement to be entered into between the Company
and each of Samuel J. Merksamer, as President and Chief Executive
Officer, E. Peter Healey, as Executive Vice President, Chief
Financial Officer and Secretary, Randy N. McCullough, as Senior Vice
President - Merchandising, Chad C. Haggar, as Vice President -
Operations, and Bill R. Edgel, as Vice President - Marketing (10).*
10.14(b) Term Sheet between the Company and certain of the Company's creditors
evidencing their compromise regarding the terms of such employment
agreements (10).*
10.14(c) Schedule of Certain Terms of such employment agreements (10).*
10.15(a) Form of Trade Financing Agreement Term Sheet (10).
10.15(b) Form of Trade Financing Agreement (10).
10.15(c) Exhibit B to Form of Trade Financing Agreement (10).
10.15(d) Form of Consignment Agreement (10).
23 Consent of Independent Auditors (10).
27 Financial Data Schedule (10).
- ------------------------------------------------
(1) Incorporated herein by reference to the Company's Current Report on
Form 8-K filed December 22, 1993.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) Incorporated herein by reference to the Company's Current Report on
Form 8-K filed December 21, 1995.
(7) 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/A for the year ended May 31, 1995.
(8) 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.
(9) 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, 1996.
(10) Filed herewith.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
On May 20, 1997, the Company filed a Current Report on Form 8-K with
respect to Item 3 under Form 8-K.
26
<PAGE> 28
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.
October 14, 1997 By: /s/ SAMUEL J. MERKSAMER
-----------------------
Samuel J. Merksamer
President and Chief
Executive Officer
October 14, 1997 By: /s/ E. PETER HEALEY
-------------------
E. Peter Healey
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
October 14, 1997 By: /s/ DANIEL L. FELSENTHAL
------------------------
Daniel L. Felsenthal
Vice President Finance
(Principal Accounting Officer)
27
<PAGE> 29
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on October 14, 1997:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM EBERLE Chairman of the Board October 14, 1997
--------------------- of Directors
William Eberle
/s/ SAMUEL J. MERKSAMER Chief Executive Officer October 14, 1997
------------------------ and Director
Samuel J. Merksamer
/s/ DAVID COCHRAN Director October 14, 1997
------------------------
David Cochran
/s/ JOHN W. GILDEA Director October 14, 1997
------------------------
John W. Gildea
/s/ CAROL R. GOLDBERG Director October 14, 1997
------------------------
Carol R. Goldberg
/s/ CLEAVELAND D. MILLER Director October 14, 1997
------------------------
Cleaveland D. Miller
/s/ WILLIAM P. O'DONNELL Director October 14, 1997
------------------------
William P. O'Donnell
</TABLE>
28
<PAGE> 30
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
SCHEDULE II--VALUATION & QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS/ END OF
OF PERIOD EXPENSES OTHER PERIOD
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR END 1997:
Allowance for doubtful accounts $10,930 $18,766 $(19,396) $10,300
Inventory valuation allowance $ -- $ 3,033 $ -- $ 3,033
YEAR END 1996:
Allowance for doubtful accounts $11,662 $11,839 $(12,571) $10,930
YEAR END 1995:
Allowance for doubtful accounts $11,162 $10,501 $(10,001) $11,662
</TABLE>
F-19
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Barry's Jewelers, Inc.
Monrovia, California
We have audited the accompanying consolidated balance sheets of Barry's
Jewelers, Inc. (Debtor-in-Possession) and Subsidiary (the "Company") as of May
31, 1997 and 1996, and the related consolidated statements of operations,
shareholders' (deficiency) equity, and cash flows for each of the three years in
the period ended May 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Barry's Jewelers,
Inc. and Subsidiary as of May 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company has
filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. The
accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
financial statements do not purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b)
as to prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to shareholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be made
in its business.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is currently operating its
business as Debtor-in-Possession under the jurisdiction of the Bankruptcy Court,
and continuation of the Company as a going concern is contingent upon, among
other things, its ability to formulate a Plan of Reorganization which will be
approved by its creditors and confirmed by the Bankruptcy Court, and its ability
to generate sufficient cash flows from operations and financing sources. The
uncertainties inherent in the bankruptcy process and the Company's recurring
losses from operations and shareholders' capital deficiency raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are discussed in Note 1 to the consolidated financial
statements. The consolidated financial statements do not include adjustments
that might result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Los Angeles, California
October 1, 1997
F-1
<PAGE> 32
BARRY'S JEWELERS, INC. and SUBSIDIARY
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
May 31, 1997 May 31, 1996
------------ ------------
<S> <C> <C>
ASSETS (Notes 1 and 6)
Current assets:
Cash and cash equivalents (Note 6) $ 7,322 $ 1,765
Customer receivables, net of allowances
for doubtful accounts of $10,300 (1997)
and $10,930 (1996) 54,552 68,720
Merchandise inventories (Note 3) 41,374 54,559
Prepaid expenses and other current assets 2,142 2,031
-------- --------
Total current assets 105,390 127,075
Property and equipment: (Note 1)
Leasehold improvements, furniture
and fixtures 20,726 23,013
Computers and equipment 4,110 3,778
-------- --------
24,836 26,791
Less: accumulated depreciation
and amortization 9,413 10,425
-------- --------
Net property and equipment 15,423 16,366
Deferred income taxes (Note 7) 72 122
Other assets, principally deferred debt
issuance costs, net of accumulated
amortization of $1,834 (1997)
and $1,864 (1996) (Note 6) 2,598 2,312
-------- --------
Total assets $123,483 $145,875
======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY (Notes 1 and 6)
Current liabilities:
Accounts payable - trade $ 221 $ 3,837
Other accrued liabilities (Note 4) 5,687 5,238
Current portion of long-term
debt (Note 6) - 181
-------- --------
Total current liabilities 5,908 9,256
Long-term debt, less current
maturities (Note 6) - 103,398
Liabilities subject to compromise under
reorganization proceedings (Notes 5 and 6) 130,271 -
Commitments and contingencies (Notes 8 and 9)
Shareholders' (deficiency) equity: (Note 9)
Common stock, no par value; authorized
8,000,000 shares; issued and
outstanding, 4,029,372 (1997) and
3,999,416 (1996) 33,247 33,196
(Accumulated deficit) Retained earnings (45,943) 25
-------- --------
Total shareholders' (deficiency)
equity (12,696) 33,221
-------- --------
Total liabilities and shareholders'
(deficiency) equity $123,483 $145,875
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE> 33
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $130,446 $140,145 $136,055
Finance and credit insurance fees 13,900 16,008 15,681
-------- -------- --------
144,346 156,153 151,736
-------- -------- --------
Costs and expenses:
Cost of goods sold, buying and occupancy (Note 3) 93,002 83,769 78,907
Selling, general and administrative expenses 57,036 51,974 50,966
Provision for doubtful accounts 18,766 11,759 10,193
Impairment loss (Note 2) 3,947 -- --
Restructuring expenses (Note 1) 1,336 -- --
-------- -------- --------
174,087 147,502 140,066
-------- -------- --------
Operating (loss) income (29,741) 8,651 11,670
Interest expense, net 12,745 11,146 9,764
-------- -------- --------
(Loss) income before reorganization costs,
income taxes, and extraordinary item (42,486) (2,495) 1,906
Reorganization costs (Notes 2 and 8) 2,322 -- --
-------- -------- --------
(Loss) income before income taxes and
extraordinary item (44,808) (2,495) 1,906
Income taxes (Note 7) 284 288 --
-------- -------- --------
(Loss) income before extraordinary item (45,092) (2,783) 1,906
Extraordinary item (Note 6) (876) -- --
-------- -------- --------
Net (loss) income $(45,968) $ (2,783) $ 1,906
======== ======== ========
Per share data:
(Loss) income before extraordinary item $ (11.25) $ (0.70) $ 0.48
======== ======== ========
Extraordinary item (Note 6) $ (0.22) $ -- $ --
======== ======== ========
(Loss) income $ (11.47) $ (0.70) $ 0.48
======== ======== ========
Weighted average number of common
shares outstanding 4,007 3,978 3,969
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 34
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIENCY) EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------------ EARNINGS DEFERRED
SHARES AMOUNT (DEFICIT) COMPENSATION TOTAL
------ ------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1994 3,969 $32,715 $ 902 $(50) $ 33,567
Net income for the year 1,906 1,906
Utilization of pre-reorganization
net operating loss carryovers
(Note 7) 221 221
Amortization of deferred compensation 50 50
------ ------- -------- ---- --------
Balance at May 31, 1995 3,969 32,936 2,808 -- 35,744
Net loss for the year (2,783) (2,783)
Utilization of pre-reorganization
net operating loss carryovers
(Note 7) 173 173
Shares issued pursuant to employee
stock purchase plan (Note 9) 30 87 87
------ ------- -------- ---- --------
Balance at May 31, 1996 3,999 33,196 25 -- 33,221
Net loss for the year (45,968) (45,968)
Shares issued pursuant to employment
contracts (Note 9) 20 37 37
Shares issued pursuant to employee
stock purchase plan (Note 9) 10 14 14
------ ------- -------- ---- --------
Balance at May 31, 1997 4,029 $33,247 $(45,943) $ -- $(12,696)
====== ======= ======== ==== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 35
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
--------------------------------------
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(45,968) $ (2,783) $ 1,906
Adjustments to reconcile net (loss) income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,992 4,626 3,854
Impairment of long-lived assets 3,947 -- --
Extraordinary loss 876 -- --
Compensation on issuance of common stock
(Note 9) 37 -- 50
Provision for doubtful accounts 18,766 11,759 10,193
Inventory valuation allowance 3,003 -- --
Loss on sale of abandonment of property
and equipment 311 274 101
Deferred income taxes 50 878 (882)
Changes in assets and liabilities:
Customer receivables (4,598) (10,395) (16,151)
Merchandise inventories 10,152 (724) (11,260)
Prepaid expenses and other current assets (111) (4) (1,141)
Other assets (2,385) (1,336) (351)
Restructuring and reorganization costs 2,752 -- --
Accounts payable - trade 6,728 (6,296) 2,703
Other accrued liabilities 9,681 (1,995) 1,380
-------- -------- --------
Net cash provided by (used in)
operating activities 8,263 (5,996) (9,598)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,158) (4,500) (6,516)
Proceeds from sale of assets 74 9 24
-------- -------- --------
Net cash used in investing activities (7,084) (4,491) (6,492)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under revolving
credit facility 49,666 (13,435) 16,507
Net (repayments) borrowings under securitization
facility (45,119) 45,119 --
Proceeds from employee stock purchase plan 14 87 --
Principal payments on long-term debt (183) (473) (561)
Reduction of long-term debt from securitization
transaction -- (20,000) --
-------- -------- --------
Net cash provided by financing activities 4,378 11,298 15,946
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 5,557 811 (144)
Cash and cash equivalents at beginning of year 1,765 954 1,098
-------- -------- --------
Cash and cash equivalents at end of year $ 7,322 $ 1,765 $ 954
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 36
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
--------------------------------------
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest $8,364 $11,338 $9,105
Income taxes $ 30 $ 543 $ 976
Noncash investing and financing activities:
Capital lease obligations $ -- $ 19 $ 487
Utilization of pre-reorganization net
operating loss carryovers (increase to
common stock and reduction of current
income taxes payable) $ -- $ 173 $ 221
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 37
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1. REORGANIZATION AND BASIS OF PRESENTATION
Barry's Jewelers, Inc. (Debtor-in-Possession) and subsidiary (the
"Company") operates a chain of retail stores that sell fine jewelry
and watches, utilizing credit financing to enhance sales. Since May
11, 1997, the Company has operated as "Debtor-in-Possession" under
the protection of Chapter 11 of the United States Bankruptcy Code
("Chapter 11"). It operated 130 stores on May 31, 1997, 161 stores on
May 31, 1996, and 162 stores on May 31, 1995.
Throughout fiscal 1997, the Company experienced significant operating
losses that necessitated the Company's renegotiation of financial
covenants and certain other terms contained in its Amended Revolving
Credit Agreement during the second quarter of fiscal 1997 (Note 6).
In January, 1997, management announced its intent to implement a
Company-wide restructuring and other cost savings initiatives during
the third and fourth quarters of fiscal 1997. Those initiatives
included a plan not to renew leases on twelve stores and closing
eighteen to twenty-four under-performing stores with concurrent
reductions in overhead at the Company's remaining stores and
reduction in corporate expenses. However, the management team of the
Company was replaced in February 1997 prior to the full execution of
the restructuring and cost savings initiatives. At the end of the
third quarter, the Company recorded restructuring charges of
approximately $1,336 primarily related to severance and costs
associated with eleven stores closed during the quarter, impairment
losses of approximately $1,970 related principally to impairment of
leasehold improvements and fixtures at twenty-six under performing
stores and a $1,095 cost of goods sold charge to hasten the
liquidation of aged inventory in an effort to improve cash flow.
At the end of the third quarter, due to continued operating losses
the Company was again not in compliance with certain financial
covenants contained in the Second Amended Revolving Credit Agreement.
As a result, the Company was unable to make interest payments to the
holders of the Senior Secured Notes (Note 6). Additionally, most
vendors were not extending terms and substantially all new
merchandise purchases were on a cash basis. Because of these
restrictions on cash flow and an inability to renegotiate existing
bank debt or raise additional capital through other sources, the
Company decided to seek bankruptcy protection.
On May 11, 1997, (the "Petition Date"), the Company filed a voluntary
petition for reorganization under Chapter 11 in the United States
Bankruptcy Court for the Central District of California, Los Angeles
Division. Management determined that filing the Chapter 11 petition
would allow the Company the needed time and flexibility to
restructure its operations, help assure the continued flow of
merchandise to its stores, and provide the time and protection
necessary to restructure the Company's funding sources.
Since the Petition Date, the Company has continued in possession of
its properties and, as Debtor-in-Possession, is authorized to operate
and manage its businesses and enter into all transactions (including
obtaining services, inventories, and supplies) that it could have
entered into in the ordinary course of business without approval of
the Bankruptcy Court. A statutory Creditors' Committee and an
official Bondholders' Committee have also been appointed.
In a Chapter 11 filing, substantially all liabilities as of the
Petition Date are subject to compromise or other treatment under a
plan of reorganization. For financial reporting purposes, those
liabilities and obligations whose disposition is dependent on the
outcome of the Chapter 11 filing have been segregated and classified
as liabilities subject to compromise under reorganization proceedings
in the accompanying consolidated balance sheet (Note 5). Generally,
actions to enforce or otherwise effect payment of all pre-Chapter 11
liabilities as well as all pending litigation against the Company are
stayed while the Company continues its business operations as
Debtor-in-Possession. Schedules have been filed by the Company with
the Bankruptcy Court setting forth its assets and liabilities as of
the Petition Date as reflected in the Company's accounting records.
Differences between amounts reflected in such schedules and claims
filed by creditors will be
F-7
<PAGE> 38
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
investigated and either amicably resolved or adjudicated before the
Bankruptcy Court. The ultimate amount of and settlement terms for
such liabilities are subject to a plan of reorganization and
accordingly are not presently determinable.
Under the Bankruptcy Code, the Company may elect to assume or reject
real estate leases, employment contracts, personal property leases,
service contracts and other prepetition executory contracts, subject
to Bankruptcy Court approval. The liabilities subject to compromise
under reorganization proceedings include a provision for the
estimated amount that may be claimed by lessors and allowed in
connection with the unexpired real estate leases. The Company will
continue to analyze its executory contracts and may assume or reject
additional contracts.
The new management team has developed a business plan to (1)
reposition the Company's merchandise selection; (2) establish vendor
partnering programs to bring in new consignment inventory and return
aged merchandise to vendors in exchange for new inventory; (3)
establish a consistent store format and consolidate trade names; (4)
adjust the Company's pricing and commission structure to improve
sales and strengthen its competitive position; (5) pursue
alternatives to an in-house credit and collection process; and (6)
install modern merchandising and point-of-sale systems.
The Company reached an agreement in July 1997 with its vendors and
creditors regarding the terms of a trade debtor-in-possession
financing agreement. Pursuant to the agreement, the participating
vendors will allow the Company to return merchandise with a value
equal to up to 75% of the vendor's prepetition claim. The value of
the prepetition merchandise returned shall not exceed, in the
aggregate, approximately $7,913. Additionally, participating vendors
will also provide credit for merchandise purchases in an amount equal
to two and one-half times the value of the prepetition merchandise
returned. The revolving trade credit will be granted, generally, on
90-day terms for a period of one year from the date of the agreement.
Additionally, the Company also reached an agreement in July 1997 with
its vendors and creditors allowing the Company to increase the level
of consigned merchandise. Pursuant to the terms of the agreement,
certain Company vendors will commit to maintain a specified minimum
amount of consigned merchandise with the Company for a specified
period. The Company shall hold such merchandise for sale in the
ordinary course of its business and is responsible for insuring the
consignment merchandise for its full value and against all risks of
loss.
The accompanying consolidated financial statements have been prepared
in conformity with principles of accounting applicable to a going
concern, which contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business. As a
result of the Chapter 11 filing and circumstances relating to this
event, such realization of assets and satisfaction of liabilities is
subject to uncertainty. A plan of reorganization could materially
change the amounts reported in the accompanying consolidated
financial statements, which do not give effect to adjustments to the
carrying values of assets and liabilities, which may be necessary as
a consequence of a plan of reorganization. The Company's ability to
continue as a going concern is contingent upon, among other things,
its ability to formulate a plan of reorganization that will be
confirmed by the Bankruptcy Court, to achieve satisfactory levels of
profitability and cash flow from operations, to maintain compliance
with the debtor-in-possession trade financing agreement and terms of
the cash stipulation (Note 6), and the ability to obtain sufficient
financing sources to meet future obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements
include the accounts of Barry's Jewelers Inc. and its wholly owned
subsidiary for the fiscal years ended May 31, 1997 and 1996;
intercompany transactions and balances have been eliminated.
F-8
<PAGE> 39
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Prior Reorganization On February 26, 1992, the Company voluntarily
initiated a case under Chapter 11 of the United States Bankruptcy
Code and filed a 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 (the "Prior Reorganization Plan"). The
effective date of the Prior Reorganization Plan was June 30, 1992.
Cash and Cash Equivalents The Company considers all highly liquid
investments with an original maturity of three months or less to be
cash equivalents.
Customer Receivables The Company offers its merchandise on credit
terms to qualified customers. The Company's policy is to attempt to
obtain a cash down payment on all credit sales, with remaining
monthly payments established such that the payment of the credit
balance will occur, generally, over a period ranging from 24 to 36
months. In accordance with industry practice, customer receivables
are included in current assets in the Company's consolidated balance
sheet. The Company routinely assesses the collectibility of its
customer receivables.
The Company's receivables are with customers residing principally in
Texas and California, with approximately 40% and 33%, respectively,
of all customer accounts. The Company does business in 18 states,
primarily California, Texas, Arizona, North Carolina, Utah, Indiana,
Ohio, Colorado, Idaho, and Montana.
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 adopted in connection with the Prior Reorganization
Plan. Additions since June 30, 1992 are stated at cost.
Depreciation and amortization of leasehold improvements, furniture
and fixtures, and equipment are computed by the straight-line method
over the lesser of related lease terms or the estimated useful lives
of such assets as set forth in the following table:
<TABLE>
<CAPTION>
Useful Lives
in Years
-----------
<S> <C>
Leasehold improvements 10-15
Furniture and fixtures 5-10
Computers and equipment 5
</TABLE>
Impairment of Long-lived Assets The Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of," which is effective for
fiscal years beginning after December 15, 1995. The standard requires
an entity to review long-lived assets for impairment and recognize a
loss if expected future cash flows are less than the carrying amount
of the assets; such losses are measured as the difference between the
carrying value and the estimated fair value of the assets. The
estimated fair value is determined based on expected future cash
flows. The Company adopted this standard in fiscal 1997 and
recognized an impairment loss of approximately $3,947. This
impairment loss is comprised of leasehold improvements and fixtures
at 37 closed stores, as well as computer equipment and software
related to the Company's plan to replace its merchandise management
and point-of-sale systems.
Deferred Debt Issuance Costs Deferred debt issuance costs are
reported on the Company's consolidated balance sheet as other assets
and are being amortized on a straight-line basis over the terms of
the related financing agreements.
F-9
<PAGE> 40
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
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.
Reorganization Costs Professional fees and expenditures directly
related to the Chapter 11 filing are classified as reorganization
costs and are expensed as incurred. Reorganization costs for the year
ended May 31, 1997, consisted primarily of estimated store lease
rejection claims and professional fees. Cash paid for reorganization
costs during the year ended May 31, 1997 amounted to $1,205,
including amounts paid to professionals as retainers. The retainers
are included in prepaid and other current assets in the accompanying
consolidated balance sheet.
Income Taxes Income taxes are computed using the liability
method. The provision for income taxes includes income taxes payable
for the current period and the deferred income tax consequences of
transactions that have been recognized in the Company's financial
statements or income tax returns. The carrying value of deferred
income tax assets is determined based on an evaluation of whether the
realization of such assets is more likely than not. Temporary
differences result primarily from accrued liabilities, valuation
allowances, depreciation and amortization, and state franchise taxes.
Income (Loss) per Share Income (loss) per share is 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 million shares 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.
Accounting for Stock-based Compensation In October 1995, the FASB
issued SFAS No. 123, "Accounting for Stock-based Compensation." SFAS
No. 123 requires compensation expense equal to the fair value of the
option grant to be estimated using accepted option policy formulas
when the option is granted. The compensation may either be charged to
the statement of operations or set forth as pro forma information in
the footnotes to the financial statements, depending on the method
elected by the Company upon adoption of the standard. During fiscal
1997, the Company adopted the disclosure requirements of SFAS No. 123
and elected to continue using the intrinsic value method prescribed
in Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," for stock option expense recognition.
The Company omitted the pro forma information required to be
disclosed due to immateriality.
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expense during the reporting period.
Actual results could differ from those estimates.
Fair Market Value of Financial Instruments The carrying amounts
of cash and cash equivalents, trade accounts payable and accrued
liabilities approximate fair value because of the short maturity of
these financial instruments. As a result of the Company's Chapter 11
filing, a limited market has developed for the trading of financial
instruments included as liabilities subject to compromise. Since the
market for claims against the Company under Chapter 11 is not well
developed, no reliable source of market price is available.
Reclassifications Certain reclassifications have been made to
prior year amounts to conform to the current year presentation.
F-10
<PAGE> 41
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Prospective Accounting Changes The FASB has issued SFAS No. 128,
"Earnings Per Share". The Company will adopt SFAS No. 128 in fiscal
1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which will be
effective for the Company beginning with fiscal 1998. SFAS No. 131
redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about an
enterprise's operating segments. The Company has not yet completed
its analysis of which operating segments it will report, if any.
3. INVENTORY VALUATION
In connection with the change in merchandising strategy developed
by the Company's new management team, an inventory valuation reserve
of $3,033 was established as of May 31, 1997 to adjust the carrying
value of ending inventory to its estimated net realizable value.
4. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
May 31, 1997 1996
--------------------------- ------ ------
<S> <C> <C>
Accrued wages and benefits $2,277 $2,325
Other accrued expenses 1,707 1,392
Sales tax 633 581
Accrued interest 617 594
Layaway and customer refunds 453 346
------ ------
$5,687 $5,238
====== ======
</TABLE>
F-11
<PAGE> 42
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
5. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization proceedings
consist of the following as of May 31, 1997:
<TABLE>
<S> <C>
Secured liabilities:
Borrowings outstanding under
Revolving Credit Agreement (Note 6) $ 57,855
Senior Secured Notes (includes interest payable
of $3,073 accrued through Petition Date) 53,073
Other notes payable and capital lease obligations 88
--------
111,016
Unsecured liabilities:
Trade accounts payable 10,344
Other accrued expenses (includes restructuring
and reorganization expenses) 8,911
--------
19,255
--------
$130,271
========
</TABLE>
Any plan of reorganization ultimately approved by the Company's
impaired prepetition creditors and shareholders and confirmed by the
Bankruptcy Court may materially change the amounts and terms of these
prepetition liabilities. Such amounts are estimated as of May 31,
1997, and the Company anticipates that claims filed with the
Bankruptcy Court by the Company's creditors will be reconciled to the
Company's financial records. The additional liability arising from
this reconciliation process, if any, is not subject to reasonable
estimation, and accordingly, no provision has been recorded for these
possible claims. The termination of other contractual obligations and
the settlement of disputed claims may create additional prepetition
liabilities. Such amounts, if any, will be recognized in the balance
sheet as they are identified and become subject to reasonable
estimation.
6. LONG-TERM DEBT
Long-term debt consists of the following (amounts as of May 31, 1997
are included with Liabilities Subject to Compromise -- Note 5):
<TABLE>
<CAPTION>
MAY 31, 1997 1996
------------------------------------------------- -------- --------
<S> <C> <C>
Revolving Credit Agreement $ 57,855 $ 8,190
Senior Secured Notes 50,000 50,000
Other notes payable and capital lease obligations 88 270
Accounts Receivable Securitization Facility -- 45,119
-------- --------
107,943 103,579
Less: current portion -- 181
-------- --------
$107,943 $103,398
======== ========
</TABLE>
F-12
<PAGE> 43
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
On December 21, 1995, the Company completed an accounts receivable
securitization (the "Securitization Facility"). In connection with
the Securitization Facility, the Company also entered into an amended
and restated revolving credit facility (the "Revolving Credit
Agreement"), which amended the original December 22, 1993 credit
agreement. The Company 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
were three-year facilities.
The Senior Secured Notes bear interest at 11% per annum, payable
semiannually on April 30 and October 31, are due December 22, 2000,
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. Accrued interest payable on the Senior Secured Notes was
$3,234 and $458 at May 31, 1997 and 1996, respectively.
During the first quarter of fiscal 1997, the Company was notified
that the Agent of the Securitization Facility desired to extinguish
the commitment under the facility. On August 30, 1996, in conjunction
with the termination of the Securitization Facility, the Company
entered into an amended revolving credit agreement (the "Amended
Revolving Credit Agreement") and paid fees of approximately $2,305,
which it deferred and is amortizing over the term of the agreement.
On August 30, 1996, the indenture governing the Senior Secured Notes
was also amended to the extent required to permit the consummation of
the Amended Revolving Credit Agreement and the termination of the
Securitization Facility. The Company recorded an extraordinary charge
of $876 in connection with the early extinguishment of the
Securization Facility.
On January 27, 1997, the Company's Amended Revolving Credit Agreement
was amended again (the "Second Amended Revolving Credit Agreement")
and the bank waived the Company's non-compliance with certain
financial covenants therein for the quarter ended November 30, 1996
and reduced its commitment to lend to the Company from $85,000 to
$70,000 as of January 27, 1997 through May 31, 1997, at which time
the commitment would be further reduced to $65,000 from June 1, 1997
through the final maturity date of August 31, 1999. Outstanding
borrowings bear interest at the agent bank's reference rate plus 1.5%
unless an Event of Default (as defined in the Second Amended
Revolving Credit Agreement) has occurred and is continuing, or is not
waived, in which case such outstanding borrowings bear interest at
3.0% above the rate otherwise payable.
The Company again failed to meet certain financial covenants
contained in the Second Amended Revolving Credit Agreement at
February 28, 1997, which constituted an Event of Default, and the
bank did not waive the Company's non-compliance with these financial
covenants. Additionally, the Event of Default prohibited the Company
from paying the interest on the Senior Secured Notes due on April 30,
1997.
Loans outstanding of $57,855 under the Second Amended Revolving
Credit Agreement at May 31, 1997 bear a weighted average interest
rate of 13.3%. All debt has been classified as liabilities subject to
compromise in the accompanying consolidated balance sheet as a result
of the Chapter 11 filing (Note 1).
On May 14, 1997, the Company received interim approval of the
Bankruptcy Court of an Agreement to Use Cash Collateral. At May 31,
1997, approximately $1,313 of the Company's consolidated cash balance
was restricted from use in accordance with the terms of the
agreement. The Company operated under this agreement until July 22,
1997, at which time it received final court approval of an Amended
and Restated Stipulation Pursuant to Sections 361 and 363 of the
Bankruptcy Code Authorizing Debtor's Use of Cash Collateral and
Granting Adequate Protection to Collateral Agent, Lenders and
Bondholders (the "Cash Stipulation"). Pursuant to the terms of the
Cash Stipulation, the lenders agreed to increase the availability
under the Company's Second Amended Revolving Credit Agreement to 82%
of eligible accounts receivable, as defined, and to 45% of eligible
inventory, as defined, subject to various reductions stipulated in
the Cash Stipulation. As of the Petition Date, the Company had no
availability under the Second Amended Revolving Credit Agreement.
F-13
<PAGE> 44
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
7. INCOME TAXES
At May 31, 1997, the Company had a net operating loss carryforward
for federal income tax purposes of $61,700 which is scheduled to
expire in the years May 31, 2006 through May 31, 2012. Of this
$61,700, approximately $14,000 is scheduled to expire in the years
May 31, 2006 through May 31, 2008, and is subject to the limitations
imposed under Internal Revenue Code ("IRC") Section 382.
Section 382 of the Code provides a limitation (Section 382
limitation) on the use of net operating loss carryovers, net
operating losses, and certain built-in losses and deduction items of
a loss corporation that has an ownership change. For financial
statement purposes, utilization of a net operating loss, under
Section 382 of the Code, is recorded as a credit to common stock.
The balance of the net operating losses, approximately $47,700, is
not subject to the limitations imposed under IRC Section 382 and is
scheduled to expire through May 31, 2012.
At May 31, 1997 and 1996, the Company has recorded a noncurrent
deferred tax asset of $72 and $122, respectively, representing
alternative minimum tax (AMT) credit carryforwards. Unlike net
operating loss carryforwards, the AMT credit has an indefinite
carryforward periods as it will be available to reduce the Company's
regular tax liability in any future year.
The Company maintains a valuation allowance against the net deferred
tax assets, which, in management's opinion, reflects the net
deferred tax asset which is more likely than not to be realized.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
For the years ended May 31, 1997 1996 1995
--------------------------- ---- ----- -----
<S> <C> <C> <C>
Current:
Federal $204 $(630) $ 853
State 30 40 29
---- ----- -----
234 (590) 882
Deferred:
Federal 50 285 (652)
State - 593 (230)
---- ----- -----
50 878 (882)
---- ----- -----
$284 $ 288 $ -
==== ===== ====
</TABLE>
F-14
<PAGE> 45
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
The Company's effective tax rate differs from the statutory federal
income tax rate as follows:
For the years ended May 31, 1997 1996 1995
- --------------------------- ------ ------ ------
Statutory rate -35.0% -35.0% 35.0%
Surtax benefit 1.0 1.0 (1.0)
State taxes (net of federal benefit) -- 1.1 3.6
Valuation allowance 35.4 41.7 (34.8)
Alternative minimum tax credits -- -- (3.8)
Other (0.8) 2.7 1.0
---- ---- ----
0.6% 11.5% 0.0%
==== ==== ====
Significant components of the Company's deferred income taxes are as
follows:
Current tax assets: May 31, 1997 May 31, 1996
------------ ------------
Customer accounts receivable $ 4,460 $ 4,734
Merchandise inventories 896 1,225
Vacation accrual 211 283
State franchise taxes (741) (4)
Other -- (64)
-------- --------
4,826 6,174
Noncurrent tax assets:
State franchise taxes (1,039) (745)
Property and equipment (36) (111)
Inventory valuation allowance 1,313 --
Net operating loss carryforwards 22,492 6,053
Other 362 421
-------- --------
23,092 5,618
-------- --------
Total deferred tax assets 27,918 11,792
Valuation allowance (27,846) (11,670)
-------- --------
Net deferred tax assets $ 72 $ 122
======== ========
F-15
<PAGE> 46
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
8. 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 2007. 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>
For the years ended May 31, 1997 1996 1995
- --------------------------- ------- ------- -------
<S> <C> <C> <C>
Minimum rentals $11,616 $10,514 $ 9,914
Contingent rentals 2,706 2,829 2,816
------- ------- -------
$14,322 $13,343 $12,730
======= ======= =======
</TABLE>
Included in the above table is rent expense paid to officers/
shareholders related to certain stores and the office facility of
$649, $684, and $787, respectively for the fiscal years ended May
31, 1997, 1996, and 1995.
Subject to the approval of the Bankruptcy Court, the Company can
reject executory contracts, including leases, under the relevant
provisions of the Bankruptcy Code. Rejection of a lease gives the
lessor the right to assert a prepetition claim against the Company.
However, the amount of the claim may be limited by the Bankruptcy
Court. In connection with the closure of certain stores (Note 1),
certain leases have been renegotiated, settled, or rejected. The
expected costs of such lease terminations are included in
reorganization expenses in the statement of operations. The analysis
of minimum rental commitments has not been adjusted to reflect
possible additional future lease rejections.
Minimum rental commitments for all remaining noncancelable leases
in effect as of May 31, 1997 are as follows:
<TABLE>
<CAPTION>
For the years ending May 31, Shareholders Others Total
- ---------------------------- ------------ ------- -------
<S> <C> <C> <C>
1998 $ 683 $ 7,896 $ 8,579
1999 683 7,374 8,057
2000 688 6,679 7,367
2001 786 5,941 6,727
2002 786 5,360 6,146
Thereafter 2,357 17,535 19,892
------ ------- -------
$5,983 $50,785 $56,768
====== ======= =======
</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, other than its Chapter 11 proceedings previously discussed,
will not have a material adverse effect on the Company's financial
position or results of operations.
9. SHAREHOLDERS' (DEFICIENCY) EQUITY
Stock Option Plans In 1992, the Company adopted a stock incentive
plan (the "1992 Stock Option Plan") to enable key employees to
acquire shares of the Company's common stock. The 1992 Stock Option
Plan was terminated and replaced by the Company's 1994 Employee Stock
Option Plan. At May 31, 1997, there were options to purchase 16,080
shares of the Company's common stock outstanding under the 1992 Stock
Option Plan.
F-16
<PAGE> 47
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
The 1994 Employee Stock Option Plan provides for the grant of Incentive Stock
Options (ISOs) and Nonqualified Stock Options (NSOs). Options granted are at the
fair market value at the 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 the 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. Up to 420,000 shares of common stock may be
issued under the 1994 Employee Stock Option Plan, amended.
Under the 1994 Employee Stock Option Plan, nonemployee 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 at which they are reelected
to the Board.
Changes for all options are summarized as follows:
Weighted
Average
Number Option Price Exercise
Of Shares Per Share Price
--------- ------------- --------
Outstanding at May 31, 1994 157,130 $4.13 - $4.13 $4.13
Granted 105,800 $4.13 - $4.13 $4.13
Terminated (5,830) $4.13 - $4.13 $4.13
--------- ------------- --------
Outstanding at May 31, 1995 257,100 $4.13 - $4.13 $4.13
Granted 254,600 $3.44 - $4.43 $4.05
Terminated (78,424) $4.13 - $4.13 $4.13
--------- ------------- --------
Outstanding at May 31, 1996 433,276 $3.44 - $4.43 $4.08
Granted 180,400 $1.69 - $3.88 $2.27
Terminated (395,296) $3.38 - $4.43 $4.08
--------- ------------- --------
Outstanding at May 31, 1997 218,380 $1.69 - $4.13 $2.58
========= ============= ========
May 31, 1997 1996 1995
- ----------------------------------------------------------------------------
Shares exercisable 24,888 120,329 85,084
Shares available for grant at end of year 217,700 97,600 116,800
The Company omitted the pro forma information required to be disclosed by SFAS
No. 123 due to its immateriality. Because options vest over several years and
additional options are granted each year, the effects on pro forma net loss and
related per share amounts in the current year are not representative of the
effect for future years.
<TABLE>
<CAPTION>
Weighted Weighted
Weighted Average Average Average
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- ----------------- ------------- ---------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$1.69 to $3.56 169,000 9.5 $2.17 1,160 $3.50
$3.56 to $4.13 49,380 7.3 $3.96 23,728 $4.07
-------- ------ ------- ------
218,380 $2.58 24,888 $4.05
</TABLE>
F-17
<PAGE> 48
BARRY'S JEWELERS, INC. AND SUBSIDIARY
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Warrants In connection with the Prior Reorganization Plan, the
Company's then lenders received warrants to purchase an aggregate of
50,000 shares of the Company's common stock at a price of $16.75 per
share, expiring June 30, 2002.
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 was initially reserved for issuance pursuant to the
Employee Incentive Stock Plan. A total of 90,000 shares was issued
under the plan during 1992 and 1993. The fair market value of the
shares of $150,000 at the date of grant was charged to expense over
the three-year vesting period.
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 was authorized for issuance under
this plan; 9,956 and 30,441 shares of common stock were purchased
under this plan during fiscal 1997 and 1996, respectively.
Additionally, on February 13, 1997, the Company issued 20,000 shares
of common stock to two former executives in accordance with their
employment agreements. The Company recognized compensation expense of
approximately $37 in connection with this stock issuance.
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 continued growth,
development and business success of the Company. The plan is unfunded
for tax purposes and for the purposes of Title I of ERISA.
401(k) Retirement Plan 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. No employer matching contributions were granted during
fiscal 1997 or 1996. Participants are partially vested in employer
matching contributions after 2 years and fully vested after 5 years
of employment with the Company.
F-18
<PAGE> 49
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Restated Articles of Incorporation filed November 16, 1994 in
connection with the Reverse Stock Split (5).
3.2 Bylaws (10).
4.1(a) 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 the form of Note certificate (4).
4.1(b) Amendment No. 1 to Indenture, dated as of February 14, 1994,
between Barry's Jewelers, Inc. and the Trustee (5).
4.1(c) Amendment No. 2 to Indenture, dated as of March 18, 1994, between
Barry's Jewelers, Inc. and the Trustee (6).
4.1(d) Amendment No. 3 to Indenture, dated as of December 21, 1995,
between Barry's Jewelers, Inc. and the Trustee (6).
4.1(e) Amendment No. 4 to Indenture, dated as of August 30, 1996, between
Barry's Jewelers, Inc. and the Trustee (9).
4.2 Exchange Agreement, dated as of December 22, 1993, by and among the
Company and the holders signatories thereto (1).
4.3 Senior Secured Notes Registration Rights Agreement, dated as of
December 22, 1993, by and among the Company and the holders
signatories thereto (1).
4.4 Common Stock Registration Rights Agreement, dated as of December 22,
1993, by and among the Company and the holders signatories thereto
(1).
4.5 Second Amended and Restated Revolving Credit Agreement, dated as of
August 30, 1996, by and among the Company, The First National Bank of
Boston ("FNBB"), as lender and agent thereunder (9).
4.6(a) Collateral Agency and Intercreditor Agreement, dated as of December
22, 1993, among FNBB, as collateral agent for the secured parties and
as agent for the lenders (under the New Revolving Credit Agreement),
the Trustee, on behalf of the holders of the Notes and the Company
(1).
4.6(b) Amendment Agreement No. 1, dated as of December 21, 1995, to
Collateral Agency and Intercreditor Agreement, dated as of December
22, 1993, among FNBB, the Trustee, and the Company (6).
4.6(c) Amendment Agreement No. 2, dated as of August 30, 1996, to
Collateral Agency and Intercreditor Agreement, dated as of December
22, 1993, among FNBB, the Trustee, and the Company (5).
4.7 Second Amended and Restated Security Agreement, dated as of August
30, 1996, between the Company and FNBB, as collateral agent for the
secured parties (9).
4.8 Second Amended and Restated Trademark Collateral Security and Pledge
Agreement, dated as of August 30, 1996, between the Company and FNBB
(9).
10.1 Lease dated February 1, 1990 between the El Monte Partnership as
Landlord and Barry's Jewelers, Inc. as Tenant (8).
10.2 Executive Incentive Bonus Plan for the year ended May 31, 1994 (2).*
10.3 Executive Incentive Bonus Plan for the year ended May 31, 1995 (5).*
10.4 Lease dated December 1, 1990, between Gerson I. Fox and David Blum,
as Lessors, and BBF Jewelers Management, Inc., as Lessee (2).
10.5 Deferred Compensation Plan (4).*
10.6 Executive Deferral plan (6).*
10.7 Executive Bonus Plan - Master Plan Document (4).*
10.8 Executive Bonus Plan - Trust Agreement (4).*
10.9 Employee Stock Purchase Plan (5).*
10.10 Employment Agreement dated April 8, 2996, between the Company and
Thomas S. Liston (9).*
10.11 Employment Agreement dated April 8, 1996, between the Company and
Robert Bridel (9).*
10.12 Agreement dated March 19, 1997, between the Company and thomas S.
Liston (10).*
10.13 Agreement dated March 19, 1997, between the Company and Robert Bridel
(10).*
10.14(a) Form of Employment Agreement to be entered into between the Company
and each of Samuel J. Merksamer, as President and Chief Executive
Officer, E. Peter Healey, as Executive Vice President, Chief
Financial Officer and Secretary, Randy N. McCullough, as Senior Vice
President - Merchandising, Chad C. Haggar, as Vice President -
Operations, and Bill R. Edgel, as Vice President - Marketing (10).*
10.14(b) Term Sheet between the Company and certain of the Company's creditors
evidencing their compromise regarding the terms of such employment
agreements (10).*
10.14(c) Schedule of Certain Terms of such employment agreements (10).*
10.15(a) Trade Financing Agreement Term Sheet (10).
10.15(b) Form of Trade Financing Agreement (10).
10.15(c) Exhibit B to Form of Trade Financing Agreement (10).
10.15(d) Form of Consignment Agreement (10).
23 Consent of Independent Auditors (10).
27 Financial Data Schedule (10).
--------------------------------------------
(1) Incorporated herein by reference to the Company's Current Report on
Form AK filed December 22, 1993.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) Incorporated herein by reference to the Company's Current Report on
Form 8-K filed December 21, 1995.
(7) 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/A for the year ended May 31, 1995.
(8) 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.
(9) 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, 1996.
(10) Filed herewith.
Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
for the regulation, except as
otherwise provided by statute or
the Articles of Incorporation, as amended or restated, of
BARRY'S JEWELERS, INC.
a California corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
ARTICLE I. GENERAL PROVISIONS
1.01 Principal Executive Office 1
1.02 Number of Directors 1
ARTICLE II. SHARES AND SHAREHOLDERS
2.01 Meetings of Shareholders 1
(a) Place of Meetings 1
(b) Annual Meetings 1
(c) Special Meetings 2
(d) Notice of Meetings 2
(e) Manner of Bringing Business
Before Meeting 3
(f) Adjourned Meeting and Notice
Thereof 4
(g) Waiver of Notice 4
(h) Quorum 4
2.02 Organization and Conduct of Meeting 5
(a) Chairman of the Meeting 5
(b) Right to Attend 6
2.03 Voting of Shares 6
(a) In General 6
(b) Cumulative Voting 6
(c) Voting by Ballot 6
2.04 Proxies 6
2.05 Inspectors of Election 7
(a) Appointment 7
(b) Duties 7
2.06 Record Date 8
2.07 Informalities and Irregularities 8
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
2.08 Share Certificates 9
(a) In General 9
(b) Two or More Classes or Series 9
(c) Special Restrictions 9
2.09 Transfer of Certificates 10
2.10 Lost Certificates 10
ARTICLE III. DIRECTORS
3.01 Powers 10
3.02 Committees of the Board 11
3.03 Election and Term of Office 11
3.04 Vacancies 11
3.05 Removal 12
3.06 Resignation 12
3.07 Meetings of the Board of Directors and
Committees 12
(a) Regular Meetings 12
(b) Organization Meeting 12
(c) Special Meetings 12
(d) Notices; Waivers 13
(e) Adjournment 13
(f) Place of Meeting 13
(g) Presence by Conference Telephone
Call 13
(h) Quorum and Voting 13
3.08 Action Without Meeting 14
3.09 Committee Meetings 14
ARTICLE IV. OFFICERS
4.01 Officers 14
4.02 Elections 14
4.03 Other officers 14
4.04 Removal 14
4.05 Resignation 14
4.06 Vacancies 15
4.07 Chairman of the Board 15
4.08 President 15
4.09 Vice President 15
4.10 Secretary 16
4.11 Chief Financial officer 16
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
4.12 Treasurer 16
ARTICLE V. MISCELLANEOUS
5.01 Records and Reports 16
(a) Books of Account and Proceedings 16
(b) Annual Report 17
(c) Shareholders Requests for
Financial Reports 17
5.02 Rights of Inspection 17
(a) By Shareholders 17
(1) Record of Shareholders 17
(2) Corporate Records 15
(3) Bylaws 18
(b) By Directors 18
5.03 Checks, Drafts, Etc 18
5.04 Representation of Shares of Other
corporations 15
5.05 Indemnification and Insurance 19
(a) Right to Indemnification 19
(b) Right of Claimant to Bring Suit 19
(c) Non-Exclusivity of Rights 20
(d) Insurance 20
(e) Indemnification of Employees and
Agents of the Corporation 21
5.06 Employee Stock Purchase Plans 21
5.07 Construction and Definitions 21
ARTICLE VI. AMENDMENTS
6.01 Power of Shareholders 21
6.02 Power of Directors 22
</TABLE>
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<PAGE> 5
BYLAWS
for the regulation, except as otherwise provided
by statute or the Articles of Incorporation,
as amended or restated (the "Articles
of Incorporation"), of
BARRY'S JEWELERS, INC.
ARTICLE I. GENERAL PROVISIONS
Section 1.01 Principal Executive Office. The principal executive office of the
corporation shall be located at 111 West Lemon Avenue, Monrovia, California
90160. The Board of Directors shall have the power to change the principal
office to another location and may fix and locate one or more subsidiary offices
within or without the State of California.
Section 1.02 Number of Directors. The affairs of the corporation shall be
managed by a Board of Directors consisting of seven (7) directors.
ARTICLE II. SHARES AND SHAREHOLDERS
Section 2.01 Meetings of Shareholders.
(a) Place of Meetings. Meetings of shareholders shall be held at the
principal executive office of the corporation or at any other location within or
without the State of California designated by the Board of Directors. In the
absence of a specific designation, shareholders' meetings shall be held at the
principal executive office of the corporation.
(b) Annual Meetings. An annual meeting of the shareholders of the
corporation shall be held on the second Wednesday of each November commencing at
10:00 a.m. local time or on such other date and time as may be designated by the
Board of Directors, in no case more than 15 months after (i) in the case of the
first such meeting following the confirmation of the corporation's plan of
reorganization in its case under chapter 11 of the United States Bankruptcy
Code, the effective date of such plan, or (ii) in the case of each such meeting
thereafter, the last preceding annual meeting, all in accordance with Section
600 of the California General Corporation Law. Should any day set for an annual
meeting fall upon a legal holiday, the annual meeting of shareholders shall be
held at the same time on the next day thereafter ensuing which is a full
business day. At each annual meeting directors shall be elected and any other
business properly brought before the meeting (as prescribed in subpart (e) of
this Section 2.01) may be transacted.
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<PAGE> 6
(c) Special Meetings. Special meetings of the shareholders may be
held whenever and wherever (subject to subpart (a) of this Section 2.01) called
by the Chairman of the Board, any two directors, the President of the
corporation or upon the delivery of proper written request of the holders of
shares entitled to cast not less than ten percent (10%) of the votes at such
meeting. The business which may be conducted at any such special meeting will be
confined to the purposes stated in the notice thereof provided by the
corporation to the shareholders and to such additional matters as the Chairman
of such meeting may rule to be germane to such purposes.
For purposes of this section, proper request for the call of
a special meeting shall be made by a written request (i) specifying the purposes
for any special meeting requested and providing the information required by
subpart (e) of this Section 2.01, (ii) delivered either in person or by
registered or certified mail, return receipt requested, (iii) to the Chairman of
the Board, or such other person as may be specifically authorized by law to
receive such request. Within 20 days after receipt of proper written request, a
special meeting shall be called by the corporation and notice given in the
manner required by these Bylaws and the meeting shall be held at a time
requested by the person or persons who requested the calling of the meeting, but
not less than 35 days nor more than 60 days after receipt by the Chairman of the
Board or such other person of such proper written request.
(d) Notice of Meetings. Notice of any shareholders, meeting shall be
given by the Board of Directors, on behalf of the corporation, not less than 10
nor more than 60 days before the date of the meeting to each shareholder
entitled to vote thereat. Such notice shall state the place, date and hour of
the meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of an annual meeting, those
matters which the Board, at the time of the giving of the notice, intends to
present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by the Board for election.
If action is proposed to be taken at any meeting, which
action is within Sections 310, 902, 1201, 1900 or 2007 of the General
Corporation Law of the State of California, the notice shall also state the
general nature of that proposal.
Notice of a shareholders' meeting shall be given either
personally or by first-class mail, or other means of written communication,
charges prepaid, addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice; or if no such
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<PAGE> 7
address appears or is given, at the place where the principal executive office
of the corporation is located or by publication at least once in a newspaper of
general circulation in the county in which the principal executive office is
located. The notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any notice executed by the secretary,
assistant secretary or any transfer agent, shall be prima facie evidence of the
giving of the notice.
(e) Manner of Bringing Business Before Meeting. At any annual or
special meeting of shareholders only such business (including nomination as a
director) shall be conducted as shall have been properly brought before the
meeting. In order to be properly brought before the meeting, such business must
have either been (1) specified in the written notice of the meeting (or any
supplement thereto) given to shareholders who were such on the record date for
such meeting by or at the direction of the Board of Directors pursuant to
subpart (d) of this Section 2.01, (2) brought before the meeting at the
direction of the Board of Directors or the Chairman of the meeting, selected as
provided in Section 2.02(a) of this Article II, (3) specified in a written
notice given by or on behalf of a shareholder who was such on the record date
for such meeting and entitled to vote thereat or a duly authorized proxy for
such shareholder, in accordance with all of the following requirements. A notice
referred to in clause (3) hereof must be delivered personally to, or mailed to
and received at, the principal executive office of the Company, addressed to the
attention of the Secretary, not more than fifteen (15) days after the date of
the initial notice referred to in clause (1) hereof, in the case of business to
be brought before a special meeting of shareholders, and not less than thirty
(30) days prior to the anniversary date of the initial notice referred to in
clause (1) hereof with respect to the previous year's annual meeting, in the
case of business to be brought before an annual meeting of shareholders. Such
notice referred to in clause (3) hereof shall set forth (i) a full description
of each such item of business proposed to be brought before the meeting and the
reasons for conducting such business at such meeting, (ii) the name and address
of the person proposing to bring such business before the meeting, (iii) the
number of shares held of record, held beneficially, and represented by proxy by
such person as of the record date for the meeting, if such date has been made
available, or as of a date not later than thirty days prior to the anniversary
date of the initial notice referred to in clause (1) hereof, if the record date
has not been made available, (iv) if any item of such business involves a
nomination for director, the name, age, address and business experience during
the past five years of such nominee, (v) any material interest of such
shareholder in the specified business, and (vi) whether or not such shareholder
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<PAGE> 8
is a member of any group pursuant to any agreement, arrangement, relationship,
understanding, or otherwise, whether or not in writing, formed in whole or in
part for the purpose of acquiring, owning, or voting shares of the corporation.
No business shall be brought before any meeting of the shareholders of the
corporation otherwise than as provided in this Section.
The Chairman of the meeting may, if the facts warrant,
determine that any proposed item of business or nomination as director was not
brought before the meeting in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the improper item of
business or nomination shall be disregarded.
(f) Adjourned Meeting and Notice Thereof. Any meeting of shareholders
may be adjourned from time to time by the vote of a majority of the shares
represented either in person or by proxy whether or not a quorum is present.
When a shareholders' meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. However, if the adjournment is for more than
45 days or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting (in accordance with subpart (d) of
this Section 2.01) shall be given to each shareholder of record entitled to vote
at the meeting.
(g) Waiver of Notice. The transaction of any meeting of shareholders,
however called and noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or within fifteen (15) days after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify either the business to be transacted or the purpose of any
annual or special meeting of shareholders, except that if action is taken or
proposed to be taken for approval of any of those matters specified in the
second paragraph of subpart (d) of this Section 2.01, the waiver of notice or
consent shall state the general nature of the proposal. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
(h) Quorum. The presence in person or by proxy of the persons
entitled to vote a majority of the shares entitled to vote at any meeting shall
constitute a quorum for the transaction of business. If a quorum is present, the
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<PAGE> 9
affirmative vote of the majority of the shares represented and voting at the
meeting (which shares voting affirmatively also constitute at least a majority
of the required quorum) shall be the act of the shareholders, unless the vote of
a greater number or voting by classes is required by law, the Articles of
Incorporation of the corporation or these Bylaws, as applicable.
The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, provided that any action taken (other than adjournment) must be approved
by at least a majority of the shares required to constitute a quorum.
Section 2.02 Organization and Conduct of Meeting.
(a) Chairman of the Meeting. Each shareholders' meeting will be
called to order and thereafter chaired by the Chairman of the Board if there
then is one; or, if not, or if the Chairman of the Board is absent or so
requests, then by the President; or if both the Chairman of the Board and the
President are unavailable, then by such other officer of the corporation or such
shareholder as may be appointed by the Board of Directors. The Secretary (or in
his or her absence an Assistant Secretary) of the corporation will act as
secretary of each shareholders' meeting; if neither the Secretary nor an
Assistant Secretary is in attendance, the Chairman of the meeting may appoint
any person (whether a shareholder or not) to act as secretary thereat. After
calling a meeting to order, the Chairman thereof may require the registration of
all shareholders intending to vote in person, and the filing of all proxies,
with the election inspector or inspectors, if one or more have been appointed
(or, if not, with the secretary of the meeting). After the announced time for
such filing of proxies has ended, no further proxies or changes, substitutions,
or revocations of proxies will be accepted. Absent a showing of bad faith on his
or her part, the Chairman of a meeting will, among other things, have absolute
authority to determine the order of business to be conducted at such meeting and
to establish rules for, and appoint personnel to assist in, preserving the
orderly conduct of the business of the meeting (including any informal, or
question and answer, portions thereof). Any informational or other informal
session of shareholders conducted under the auspices of the corporation after
the conclusion of or otherwise in conjunction with any formal business meeting
of the shareholders will be chaired by the same person who chairs the formal
meeting, and the foregoing authority on his or her part will extend to the
conduct of such informal session.
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<PAGE> 10
(b) Right to Attend. Except only to the extent of persons designated
by the Board of Directors or the Chairman of the meeting to assist in the
conduct of the meeting, and except as otherwise permitted by the Board or such
Chairman, the persons entitled to attend any meeting of shareholders may be
confined to (i) shareholders entitled to vote thereat and (ii) the persons upon
whom proxies valid for purposes of the meeting have been conferred or their duly
appointed substitutes (if the related proxies confer a power of substitution). A
person otherwise entitled to attend any such meeting will cease to be so
entitled if, in the judgment of the Chairman of the meeting, such person engages
thereat in disorderly conduct impeding the proper conduct of the meeting in the
interests of all shareholders as a group.
Section 2.03 Voting of Shares.
(a) In General. Except as otherwise provided in the Articles of
Incorporation and subject to subpart (b) hereof, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of shareholders.
(b) Cumulative Voting. At any election of directors, every
shareholder complying with this subpart (b) and entitled to vote may cumulate
his or her votes and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or distribute the shareholder's votes on the
same principle among as many candidates as the shareholder thinks fit. No
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of votes which such
shareholder normally is entitled to cast) unless such candidate or candidates
names have been placed in nomination prior to the voting and the shareholder has
given notice at the meeting prior to the voting of the shareholder's intention
to cumulate the shareholder's votes. If any one shareholder has given such
notice, all shareholders may cumulate their votes for candidates in nomination.
In any election of directors, the candidates receiving the highest number of
affirmative votes up to the number of directors to be elected by such shares
will be elected; votes against a director and votes withheld shall have no legal
effect.
(c) Voting by Ballot. Voting will be by ballot on any matter as to
which a ballot vote is demanded, prior to the time the voting begins, by any
person entitled to vote on such matter; otherwise a voice vote will suffice.
Section 2.04 Proxies. Every person entitled to vote shares may authorize another
person or persons to act by proxy with respect to such shares. No proxy shall be
valid after the expiration of 11 months from the date thereof unless otherwise
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<PAGE> 11
provided in the proxy. Every proxy continues in full force and effect until
revoked by the person executing it prior to the vote pursuant thereto, except as
otherwise provided herein or in the California General Corporation Law. Such
revocation may be effected by a writing delivered to the corporation stating
that the proxy is revoked or by a subsequent proxy executed by the person
executing the prior proxy and presented to the meeting, or as to any meeting by
attendance at such meeting and voting in person by the person executing the
proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed. A proxy is not revoked by the death or incapacity of the maker
unless, before the vote is counted, written notice of such death or incapacity
is received by the corporation. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Sections
705(e) and 705(f) of the California General Corporation Law.
Section 2.05 Inspectors of Election.
(a) Appointment. In advance of any meeting of shareholders the Board
may appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed, or if any persons so
appointed fail to appear or refuse to act, the Chairman of any meeting of
shareholders may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
or refuse) at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed.
(b) Duties. The inspectors of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders. The inspectors of election shall perform
their duties impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three inspectors of election, the
decision, act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. Any report or certificate made by the
inspectors of election is prima facie evidence of the facts stated therein.
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Section 2.06 Record Date. In order that the corporation may determine the
shareholders entitled to notice of any meeting or to vote or entitled to receive
payment of any dividend or other distribution or allotment of any rights or
entitled to exercise any rights in respect of any other lawful action, the Board
may fix, in advance, a record date, which shall not be more than 60 nor less
than 10 days prior to the date of such meeting nor more than 60 days prior to
any other action. If no record date is fixed:
(1) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(2) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board has been taken, shall be the day on which the first written
consent is given.
(3) The record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto, or the 60th day prior to the date of
such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless the
Board fixes a new record date for the adjourned meeting, but the Board shall fix
a new record date if the meeting is adjourned for more than 45 days from the
date set for the original meeting.
Shareholders at the close of business on the record date are entitled
to notice and to vote or to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided in the Articles of Incorporation or by agreement or
in the California General Corporation Law.
Section 2.07 Informalities and Irregularities.
All informalities or irregularities in any call or notice of a meeting,
or in the areas of credentials, proxies, quorums, voting, and similar matters,
will be deemed waived if no objection is made at the meeting. Attendance of a
person at a meeting shall also constitute a waiver of notice of such meeting,
except when the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened, and except that
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<PAGE> 13
attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice of such meeting if such
objection is expressly made at the meeting.
Section 2.08 Share Certificates.
(a) In General. The corporation shall issue a certificate or
certificates representing shares of its capital stock. Each certificate so
issued shall be signed in the name of the corporation by the Chairman or Vice
Chairman of the board or the President or a Vice President and by the Chief
Financial Officer or an Assistant Treasurer or the Secretary or any Assistant
Secretary, shall state the name of the record owner thereof and shall certify
the number of shares and the class or series of shares represented thereby. Any
or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
(b) Two or More Classes or Series. If the shares of the corporation
are classified or if any class of shares has two or more series, there shall
appear on the certificate one of the following:
(1) A statement of the rights, preferences, privileges, and
restrictions granted to or imposed upon the respective classes or series of
shares authorized to be issued and upon the holders thereof; or
(2) A summary of such rights, preferences, privileges and
restrictions with reference to the provisions of the Articles of Incorporation
and any certificates of determination establishing the same; or
(3) A statement setting forth the office or agency of the
corporation from which shareholders may obtain upon request and without charge,
a copy of the statement referred to in subparagraph (1).
(c) Special Restrictions. There shall also appear on the certificate
(unless stated or summarized under subparagraph (1) or (2) of subpart (b) above)
the statements required by all of the following clauses to the extent
applicable:
(1) The fact that the shares are subject to restrictions
upon transfer.
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(2) If the shares are assessable, a statement that they are
assessable.
(3) If the shares are not fully paid, a statement of the
total consideration to be paid therefor and the amount paid thereon.
(4) The fact that the shares are subject to a voting
agreement or an irrevocable proxy or restrictions upon voting rights
contractually imposed by the corporation.
(5) The fact that the shares are redeemable.
(6) The fact that the shares are convertible and the period
for conversion.
Section 2.09 Transfer of Certificates. Where a certificate for shares is
presented to the corporation or its transfer clerk or transfer agent with a
request to register a transfer of shares, the corporation shall register the
transfer, cancel the certificate presented, and issue a new certificate if: (a)
the security is endorsed by the appropriate person or persons; (b) reasonable
assurance is given that those endorsements are genuine and effective; (c) the
corporation has no notice of adverse claims or has discharged any duty to
inquire into such adverse claims; (d) any applicable law relating to the
collection of taxes has been complied with; (e) the transfer is not in violation
of any federal or state securities laws; and (f) the transfer is in compliance
with any and all applicable agreements governing the transfer of the shares.
Section 2.10 Lost Certificates. Where a certificate has been lost, destroyed or
wrongfully taken, the corporation shall issue a new certificate in place of the
original if the owner: (a) so requests before the corporation has notice that
the certificate has been acquired by a bona fide purchaser; (b) files with the
corporation a lost instrument affidavit and a sufficient indemnity bond, if so
requested by the Board of Directors; and (c) satisfies any other reasonable
requirements as may be imposed by the Board. Except as above provided, no new
certificate for shares shall be issued in lieu of an old certificate unless the
corporation is ordered to do so by a court in the judgment in an action brought
under Section 419(b) of the California General Corporation Law.
ARTICLE III. DIRECTORS
Section 3.01 Powers. Subject to the provisions of the California General
Corporation Law and the Articles of Incorporation, the business and affairs of
the corporation shall be managed and all corporate powers shall be exercised by
or under the direction of the Board of Directors. The Board may delegate the
management of the day-to-day operations
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<PAGE> 15
of the business of the corporation to a management company or other person
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board.
Section 30.2 Committees of the Board. The Board may, by resolution adopted by a
majority of the authorized number of directors, designate one or more
committees, each consisting of two or more directors, to serve at the pleasure
of the Board. Such committees may include, without limitation, an Audit
Committee and a Compensation Committee. Except to the extent provided in the
applicable resolution of the Board passed in accordance with subpart (h) of
Section 3.07 of the Bylaws, no such committee shall have any of the authority of
the Board but, rather, shall act in an advisory capacity only; and, in any
event, no such committee shall possess the Board's authority with respect to:
(1) The approval of any action which also requires, under
the California General Corporation Law, shareholders' approval or approval of
the outstanding shares;
(2) The filling of vacancies on the Board or in any
committee.
(3) The fixing of compensation of the directors for serving
on the Board or on any committee.
(4) The amendment or repeal of bylaws or the adoption of
bylaws.
(5) The amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable.
(6) A distribution (within the meaning of the California
General Corporation Law) to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board.
(7) The appointment of other committees of the Board or the
members thereof.
Section 3.03 Election and Term of Office. The directors shall be elected only at
each annual meeting of shareholders but, if any such annual meeting is not held
or the directors are not elected thereat, the directors may be elected at any
special meeting of shareholders held for that purpose. Each director, including
a director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and qualified.
Section 3.04 Vacancies. Vacancies on the Board may be filled, except as
otherwise provided in the Articles of
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Incorporation, by resolution of the Board (i) passed by unanimous written
consent or at a Board meeting if the number of directors signing such consent
would constitute a quorum at a meeting or a quorum is established at such
meeting and the vote meets the requirements of subpart (h) of Section 3.07 of
the Bylaws, or (ii) passed by unanimous written consent of the remaining
directors, if the number of directors remaining is insufficient to constitute a
quorum. The shareholders may elect a director or directors to fill any vacancy
or vacancies not filled by the directors.
The Board of Directors shall have the power to declare vacant the
office of a director who has been declared of unsound mind by an order of court,
or convicted of a felony.
Section 3.05 Removal. Any or all of the directors may be removed without cause
if such removal is approved by the vote of a majority of the outstanding shares
entitled to vote, except that no director may be removed (unless the entire
board is removed) when the votes cast against removal, or not consenting in
writing to such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes were cast
(or, if the action is taken by written consent, all shares entitled to vote were
voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected.
Section 3.06 Resignation. Any director may resign effective upon giving written
notice to the Chairman of the Board, the President, the Secretary or the Board
of Directors of the corporation, unless the notice specifies a later time for
the effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.
Section 3.07 Meetings of the Board of Directors and Committees.
(a) Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place within or without the State as may
be designated from time to time by resolution of the Board or by written consent
of all members of the Board or in these bylaws.
(b) Organization Meeting. Immediately following each annual meeting
of shareholders the Board of Directors shall hold a regular meeting for the
purpose of organization, election of officers, and the transaction of other
business. Notice of such meetings is hereby dispensed with.
(c) Special Meetings. Special meetings of the Board of Directors for
any purpose or purposes may be called at any
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time by the Chairman of the Board, by the President, by any Vice President, by
the Secretary, or by any two directors.
(d) Notices; Waivers. Special meetings shall be held upon forty-eight
hours' notice by mail or telegram or twenty four hours notice delivered
personally or by telephone. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
(e) Adjournment. One-half (1/2) of the authorized number of directors
may adjourn any meeting to another time and place. If the meeting is adjourned
for more than 24 hours, notice of such adjournment to another time and place
shall be given prior to the time of the adjourned meeting to the directors who
were not present at the time of adjournment.
(f) Place of Meeting. Meetings of the Board may be held at any place
within or without the State of California which has been designated in the
notice of the meeting or, if not stated in the notice or there is no notice,
then such meeting shall be held at the principal executive office of the
corporation.
(g) Presence by Conference Telephone Call. Members of the Board may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Such participation constitutes presence in person at such
meeting.
(h) Quorum and Voting. For the transaction of business and other
actions by the Board, (i) a majority of the number of directors then specified
pursuant to Section 1.02 hereof shall constitute a quorum, and (ii) except as
otherwise expressly provided in these Bylaws, every act or decision done or made
by greater than one-half (1/2) of the number of directors present at a meeting
duly held at which a quorum is present shall be the act of the Board of
Directors; except that if an alternate quorum or majority is required by law or
by the Articles of Incorporation and such alternate provisions expressly permit
no change in the numerical requirements, such alternate provisions shall apply.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for such meeting.
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Section 3.08 Action Without Meeting. Any action required or permitted to be
taken by the Board of Directors, may be taken without a meeting if all members
of the Board shall individually or collectively consent in writing to such
action, provided that the number of such directors consenting meets the minimum
quorum requirement of subpart (h) of Section 3.07 of the Bylaws. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
Section 3.09 Committee Meetings. The provisions of Sections 3.07 and 3.08 of
these bylaws apply also to committees of the Board and action by such
committees, mutatis mutandis.
ARTICLE IV. OFFICERS
Section 4.01 Officers. The officers of the corporation shall consist of a
Chairman of the Board or a President, or both, a Secretary, a Chief Financial
Officer, and such additional officers as may be elected or appointed in
accordance with Section 4.03 of these bylaws and as may be necessary to enable
the corporation to sign instruments and share certificates. Any number of
offices may be held by the same person.
Section 4.02 Elections. All officers of the corporation, except such officers as
may be otherwise appointed in accordance with Section 4.03, shall be chosen by
the Board of Directors, and shall serve at the pleasure of the Board of
Directors, subject to the rights, if any, of an officer under any contract of
employment.
Section 4.03 Other Officers. The Board of Directors, the Chairman of the Board,
or the President at their or his discretion, may appoint one or more Vice
Presidents, one or more Assistant Secretaries, a Treasurer, one or more
Assistant Treasurers, or such other officers as the business of the corporation
may require, each of whom shall hold office for such period, have such authority
and perform such duties as the Board of Directors, the Chairman of the Board, or
the President, as the case may be, may from time to time determine.
Section 4.04 Removal. Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with or without
cause, by the Board of Directors, or, except in case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors, without prejudice to the rights, if any, of
the corporation under any contract to which the officer is a party.
Section 4.05 Resignation. Any officer may resign at any time by giving written
notice to the Board of Directors or to the
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President, or to the Secretary of the corporation without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party. Any such resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 4.06 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these bylaws for regular appointments to such office.
Section 4.07 Chairman of the Board. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors and of shareholders and exercise and perform such other powers and
duties as may be from time to time assigned to him by the Board of Directors. If
there is no President, the Chairman of the Board shall in addition be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 4.08 below.
Section 4.08 President. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be general manager and chief executive officer
of the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and affairs of
the corporation. He may preside, in the absence of the Chairman of the Board, or
if there be none, at meetings of the shareholders and of the Board of Directors.
He shall be ex-officio a member of all the standing committees, including the
executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these Bylaws.
Section 4.09 Vice President. In the absence of the President or in the event of
the President's inability or refusal to act, the Senior Vice President or Vice
President, or in the event there be more than one Senior Vice President or Vice
President, the Senior Vice President or Vice President designated by the Board
of Directors, or if no such designation is made, in order of their election,
shall perform the duties of President and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any Senior
Vice President or Vice President shall perform such other duties as from time to
time may be assigned to such Senior Vice President or Vice President by the
President or the Board of Directors.
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Section 4.10 Secretary. The Secretary shall keep or cause to be kept the minutes
of proceedings and record of shareholders, as provided for and in accordance
with Section 5.01(a) of these Bylaws.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors.
Section 4.11 Chief Financial Officer. The Chief Financial officer shall have
general supervision, direction and control of the financial affairs of the
corporation and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws. In the absence of a named treasurer, the
Chief Financial Officer shall also have the powers and duties of the Treasurer
as hereinafter set forth and shall be authorized and empowered to sign as
Treasurer in any case where such officer's signature is required.
Section 4.12 Treasurer. The Treasurer shall keep or cause to be kept the books
and records of account as provided for and in accordance with Section 5.01(a) of
these Bylaws. The books of account shall at all reasonable times be open to
inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the Board of Directors. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, shall render to the President and
directors, whenever they request it, an account of all of his transactions as
Treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or these Bylaws. In the absence of a named Chief Financial Officer,
the Treasurer shall be deemed to be the Chief Financial Officer and shall have
the powers and duties of such office as hereinabove set forth.
ARTICLE V. MISCELLANEOUS
Section 5.01 Records and Reports.
(a) Books of Account and Proceedings. The corporation shall keep
adequate and correct books and records of account and shall keep minutes of the
proceedings of its shareholders, Board and committees of the Board and shall
keep at its principal executive office, or at the office of its transfer agent
or registrar, a record of its shareholders, giving the names and addresses of
all shareholders and the number and class of shares held by each. Such minutes
shall be kept in written form. Such other books and records shall be kept
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either in written form or in any other form capable of being converted into
written form.
(b) Annual Report. An annual report to shareholders referred to in
Section 1501 of the California General Corporation Law is expressly dispensed
with, but nothing herein shall be interpreted as prohibiting the Board of
Directors from issuing annual or other periodic reports to the shareholders of
the corporation as they consider appropriate.
(c) Shareholders' Requests for Financial Reports. If no annual report
for the last fiscal year has been sent to shareholders, the corporation shall,
upon the written request of any shareholder made more than 120 days after the
close of that fiscal year, deliver or mail to the person making the request
within 30 days thereafter the financial statements for that year required by
Section 1501(a) of the California General Corporation Law. Any shareholder or
shareholders holding at least five percent (5%) of the outstanding shares of any
class of stock of this corporation may make a written request to the corporation
for an income statement of the corporation for the three-month, six-month or
nine-month period of the current fiscal year ended more than 30 days prior to
the date of the request and a balance sheet of the corporation as of the end of
such period, and the corporation shall deliver or mail the statements to the
person making the request within 30 days thereafter. A copy of the statements
shall be kept on file in the principal office of the corporation for 12 months
and they shall be exhibited at all reasonable times to any shareholder demanding
an examination of them or a copy shall be mailed to such shareholder upon
demand.
Section 5.02 Rights of Inspection.
(a) By Shareholders.
(1) Record of Shareholders. Any shareholder or shareholders
holding at least five percent (5%) in the aggregate of the outstanding voting
shares of the corporation shall have an absolute right to do either or both of
the following: (i) inspect and copy the record of shareholders names and
addresses and shareholdings during usual business hours upon five business days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent for the corporation, upon written demand and upon the tender of its usual
charges for such a list (the amount of which charges shall be stated to the
shareholder by the transfer agent upon request), a list of the shareholders
names and addresses, who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which it has been
compiled or as of a date specified by the shareholder subsequent to the date of
demand. The list shall be made available on or before the later of five business
days after
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demand is received or the date specified therein as the date as of which the
list is to be compiled.
The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interests as a
shareholder or holder of a voting trust certificate.
(2) Corporate Records. The accounting books and records and
minutes of proceedings of the shareholders and the Board and committees of the
Board shall be open to inspection upon the written demand on the corporation of
any shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for a purpose reasonably related to such holder's
interests as a shareholder or as the holder of such voting trust certificate.
This right of inspection shall also extend to the records of any subsidiary of
the corporation.
(3) Bylaws. The corporation shall keep at its principal
executive office in this state, the original or a copy of its Bylaws as amended
to date, which shall be open to inspection by the shareholders at all reasonable
times during office hours.
(b) By Directors. Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and documents of every
kind and to inspect the physical properties of the corporation of which such
person is a director and also of its subsidiary corporations, domestic or
foreign. Such inspection by a director may be made in person or by agent or
attorney and the right of inspection includes the right to copy and make
extracts.
Section 5.03 Checks, Drafts, Etc. All checks, drafts or other orders for payment
of money, notes or other evidences of indebtedness, issued in the name of or
payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
Section 5.04 Representation of Shares of other Corporations. The Chairman of the
Board, if any, the President or any Vice President of this corporation, or any
other person authorized to do so by the Chairman of the Board, the President or
any Vice President, is authorized to vote, represent and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by
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such officers in person or by any other person authorized so to do by proxy or
power of attorney duly executed by said officers.
Section 5.05 Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party
to or is threatened to be made a party to or is involuntarily involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "Proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the corporation or is or was serving (during such
person's tenure as director or officer) at the request of the corporation, any
other corporation, partnership, joint venture, trust or other enterprise in any
capacity, whether the basis of such Proceeding is an alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by California General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all expenses, liability
and loss (including, without limitation, attorneys fees, judgments, fines, ERISA
excise taxes or penalties and amounts to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such Proceeding in advance of its final disposition; provided,
however, that, if California General Corporation Law requires, the payment of
such expenses in advance of the final disposition of a Proceeding shall be made
only upon receipt by the corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. No amendment to or repeal of this Section 5.05 shall
apply to or have any effect on any right to indemnification provided hereunder
with respect to any acts or omissions occurring prior to such amendment or
repeal.
(b) Right of Claimant to Bring Suit. If a claim for indemnity,
advance or other payment under paragraph (a) of this Section is not paid in full
by the corporation within ninety (90) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim, together with
interest thereon, and, if successful in whole or in part, the claimant shall be
entitled to be paid
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also the expense of prosecuting such claim including reasonable attorneys' fees
incurred in connection therewith. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
California General Corporation Law for the corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in California General Corporation Law,
nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(c) Non-Exclusivity of Rights. The rights conferred in this Section
shall not be exclusive of any other right which any director, officer, employee
or agent may have or hereafter acquire under any statute, provisions of the
Articles of Incorporation, bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, to the extent such additional rights to
indemnification are authorized in the Articles of Incorporation of the
corporation.
(d) Insurance. In furtherance and not in limitation of the powers
conferred by statute:
(1) the corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the California General Corporation Law; and
(2) the corporation may create a trust fund, grant a
security interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing indemnification to the full extent authorized or
permitted by law and including as part thereof provisions with respect to any or
all of the foregoing to ensure the payment
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of such amounts as may become necessary to effect indemnification as provided
therein, or elsewhere.
(e) Indemnification of Employees and Agents of the Corporation. The
corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, including the right to be paid by
the corporation the expenses incurred in defending any Proceeding in advance of
its final disposition, to any employee or agent of the corporation to the
fullest extent of the provisions of this Section or otherwise with respect to
the indemnification and advancement of expenses of directors and officers of the
corporation.
Section 5.06 Employee Stock Purchase Plans. The corporation may adopt and carry
out a stock purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be fixed of its
unissued shares, or of issued shares acquired or to be acquired, to one or more
of the employees or directors of the corporation or of a subsidiary or to a
trustee on their behalf and for the payment for such shares in installments or
at one time, and may provide for aiding any such persons in paying for such
shares by compensation for services rendered, promissory notes or otherwise.
A stock purchase plan or agreement or stock option plan or agreement
may include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment therefor, the
effect of the termination of employment, an option or obligation on the part of
the corporation to repurchase the shares upon termination of employment, subject
to the provisions of the California General Corporation Law, restrictions upon
transfer of the shares and the time limits of and termination of the plan.
Section 5.07 Construction and Definitions. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the California General Corporation Law shall govern the
construction of these Bylaws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.
ARTICLE VI. AMENDMENTS
Section 6.01 Power of Shareholders. New Bylaws may be adopted or these Bylaws
may be amended or repealed by the
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affirmative vote of a majority of the outstanding shares entitled to vote.
Section 6.02 Power of Directors. Subject to the right of shareholders as
provided Section 6.01 to adopt, amend or repeal any provision of these Bylaws,
any such provision may be adopted, amended or repealed by the affirmative vote
of the directors present at a meeting duly held at which a quorum is present or
by the unanimous written consent of directors, provided that the number of
directors signing such consent would constitute a quorum at a meeting.
Notwithstanding the foregoing provision of this Section 6.02, no amendment or
repeal of any provision of Section 2.01(c)-(e) (Special Meetings, Etc.), Section
2.02 (Organization and Conduct of Meeting), Section 3.07 (Meetings of the Board
of Directors and Committees), Section 5.05 (Indemnification and Insurance), or
this Section 6.02 shall be made by the Board of Directors unless the number of
directors approving such amendment or repeal constitutes at least a majority of
the number of directors then specified pursuant to Section 1.02 hereof.
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THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of Barry's
Jewelers, Inc. and that the foregoing Bylaws were adopted as the Bylaws of said
corporation as of the 30th day of June, 1992 as a result of the order of the
United States Bankruptcy Court confirming the corporation's Plan of
Reorganization in its case under chapter 11 of the United States Bankruptcy
Code, in accordance with Section 1400(b) of the California General Corporation
Law.
Dated as of June 30, 1992.
/s/ GERSON I. FOX
----------------------------------
Gerson I. Fox
Secretary
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EXHIBIT 10.12
AGREEMENT
1. This agreement ("Agreement") is entered into between Thomas S. Liston
("Liston") and Barry's Jewelers, Inc., a California corporation ("Barry's"), to
set forth the severance arrangements Barry's has made for Liston and to resolve
all other matters between Barry's and Liston. Specifically, the purpose of this
Agreement is, among other things, to (i) set forth the parties' agreements
concerning severance and other benefits to be provided to Liston pursuant to the
Employment Agreement between the parties dated as of April 8, 1996 (the
"Employment Agreement"), as well as other benefits described herein, and (ii)
provide for mutual general releases. A copy of the Employment Agreement is
attached hereto as Exhibit "A".
2. The parties agree and acknowledge that Liston resigned as an officer,
director and employee of Barry's (and each of its subsidiary and affiliated
entities, as applicable) effective as of February 13, 1997.
3A. Pursuant to the Employment Agreement (as modified herein), Barry's
agrees to provide the following severance and other benefits to Liston:
3A.1 In accordance with Section 4.3(x) of the Employment Agreement,
$342,692.33 (the "Severance Amount"), computed as the amount of salary at
Liston's rate of salary in effect immediately prior to February 13, 1997, for
the period from February 17, 1997 through April 8, 1998, payable in cash as
follows (subject to the last paragraph of this Section 3A): Liston will receive
monthly or biweekly payments from Barry's in the same amounts and with the same
periodicity that salary was paid to Liston immediately prior to February 13,
1997, commencing with the next regular payroll after that date and through and
including a final payment (on or about April 8, 1998) to fully satisfy the
Severance Amount. The Severance Amount does not include Liston's salary for the
period up through and including February 16, 1997, which he acknowledges has
previously been paid in cash by Barry's.
3A.2 In accordance with Section 3.2 and Section 4.3 of the
Employment Agreement, the 10,000 shares of restricted Common Stock of Barry's
referred to therein is deemed immediately and fully vested as of February 13,
1997. Accordingly, Barry's has paid Liston $8,230.63 in cash, representing the
special bonus in respect of certain tax obligations of Liston (fully "grossed
up" for taxes) corresponding to one-half (1/2) of the restricted stock referred
to in said Section 3.2.
3A.3 In accordance with Section 3.2 and Section 4.3 of the
Employment Agreement, the stock options referred to therein are hereby deemed
immediately and fully vested as of February 13, 1997.
3A.4 In accordance with Section 3.7 and Section 4.3 of the
Employment Agreement and applicable law, Barry's will pay Liston $2,464.62 in
cash promptly following the execution date hereof, representing Barry's
obligation for accrued vacation benefits.
<PAGE> 2
3A.5 In accordance with Section 3.5 and Section 4.3 of the
Employment Agreement, for the period from February 13, 1997 through April 8,
1998, Liston shall continue to be included, at Barry's expense, in Barry's
medical insurance plan. This benefit shall be effected by Liston's election of
COBRA coverage; Barry's will then pay or reimburse Liston for the cost of the
election of such coverage during the period specified in the preceding sentence.
In addition to the foregoing items of severance and benefits, nothing in this
Agreement shall be deemed to affect Liston's benefits and rights under Barry's
401(k) plan and deferred compensation plan for senior managers (the "Tophat
Plan"); all rights and elections that may be available to Liston under the terms
of those plans with respect to his account interests therein shall continue to
be available to him. Among other things, in the event that Barry's elects to
terminate the Tophat Plan, then Liston shall have all of the rights specified
therein in connection with a termination. In addition, in the event of such a
termination of the Tophat Plan, Barry's agrees that it will establish a separate
"rabbi trust" for maintenance of funds previously elected to be deferred for tax
purposes by Liston, to enable Liston to continue to achieve deferral to the
maximum extent reasonably achievable under applicable tax law. All amounts
payable to Liston and other benefits to be provided to Liston in accordance with
this Section 3A and Section 3B below shall be subject to withholding in
accordance with applicable law.
3B. In addition to the benefits provided for in the Employment
Agreement, Barry's agrees to provide the following benefits to Liston:
3B.1 Barry's will pay the fees of an outplacement services firm for
outplacement services to be provided to Liston, up to a maximum of $25,000, upon
presentation of invoices and/or other appropriate supporting documentation
evidencing such fees.
3B.2 For the period from February 13, 1997 through April 8, 1998,
Liston shall continue to be included, at Barry's expense, in Barry's life
insurance and disability insurance plans.
3B.3 For the period from February 13, 1997 through April 8, 1998,
Barry's shall continue to provide the same automobile-related benefits to Liston
as provided under the existing Employment Agreement (including lease payments
and payment of maintenance, gas, oil, insurance and license as provided in the
existing Employment Agreement).
3C. In the event of Liston's death prior to the full Severance Amount
having been paid as provided in Section 3A above, Barry's shall be obligated to
continue to provide such benefit to Liston's spouse, subject to the terms and
elections available under the Tophat Plan, as applicable.
4. Liston agrees that he will comply with Section 9 of the Employment
Agreement, notwithstanding the termination of his employment by Barry's. In this
regard, Barry's acknowledges that Liston has made himself reasonably available
to Barry's for the purpose of returning confidential information to Barry's as
provided in said Section 9.
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<PAGE> 3
Liston acknowledges, however, that Barry's has no means of independently
verifying full compliance by Liston with said Section 9, and as a result Liston
agrees that he will in the future fully comply with the document return and
other provisions of said Section.
5. Liston agrees that any and all claims or obligations, including any
claim for violation of any state or federal statute (such as statutes concerning
discrimination based on disability or perceived disability, race, sex, or
national origin), which he may have against Barry's are fully and completely
settled by this Agreement, and all liability or potential liability on any such
claim is hereby released. This release of claims includes claims against Barry's
directors, officers, employees and representatives (collectively,
"Representatives"), and against any and all present and future affiliated
companies of Barry's and their respective Representatives. This release also
includes all claims arising out of Liston's employment with Barry's and the
termination of that employment, including all rights and benefits under the
Employment Agreement. Liston does not, by signing this Agreement, release claims
with respect to fulfillment of the promises contained in this Agreement. Barry's
(on behalf of itself and its present and future affiliated companies and their
respective Representatives) similarly agrees that any and all claims or
obligations which it may have against Liston relating to Liston's service as an
officer, director and employee of Barry's are fully and completely settled by
this Agreement, and all liability or potential liability on any such claim is
hereby released. Barry's does not, by signing this Agreement, release claims
with respect to fulfillment of the promises contained in this Agreement.
6. Except as specifically noted in Section 5 above, each of Barry's and
Liston waives any and all rights it/he may have to invoke, or in any other way
to seek the benefits of, Section 1542 of the California Civil Code (or any other
similar statute). Section 1542 provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
7. Liston understands and acknowledges that (a) this Agreement
constitutes a voluntary waiver of any and all claims he has against Barry's as
of the date of his execution of this Agreement, including claims under the Age
Discrimination in Employment Act of 1967, 29 U.S. C. Sec. 621 et seq.; (b) he
has waived any and all such claims pursuant to this Agreement and in exchange
for consideration, the value of which is substantial; (c) he has been, and is
now, advised to consult with an attorney concerning this Agreement before
signing it; (d) he has been, and is now, informed that he has a period of at
least 21 days to consider the terms of this Agreement (though he need not take
the full 21 days if he, in his sole discretion, does not wish to do so); and (e)
he may revoke this Agreement at any time during the 7 days following the date of
his signing of the Agreement, and this Agreement shall not become effective or
enforceable until the eighth day after Liston's signing of the Agreement. If
Liston so revokes this Agreement, Liston agrees and acknowledges that Barry's
will likewise not be bound by the agreements set forth herein and will reserve
the right, among others, to assert that Liston's termination is for "cause"
under the Employment Agreement, seek a return of the Severance Amount and other
benefits described in Section 3 above and seek other remedies available at law
or in equity.
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<PAGE> 4
8. Each party agrees that this Agreement is confidential and neither
will voluntarily disclose its terms, except that Liston and the management of
Barry's may discuss the Agreement with their spouses, their attorneys, and their
tax advisers (including, in the case of Barry's management, Barry's attorneys
and tax advisers).
9. In connection with Liston's separation from Barry's, Barry's is
providing a reference letter, addressed to Liston, in the form attached hereto
as Exhibit "B".
10. Liston promises that he will not in the future file a claim against
Barry's with respect to a matter released herein. Barry's promises that it will
not in the future file a claim against Liston with respect to a matter released
herein.
11. If either Barry's or Liston files a claim to enforce this Agreement
or a claim otherwise arising in any way out of this Agreement, the claim will be
decided by binding and final arbitration. The procedures for conducting that
arbitration will be decided by the parties.
12. Each party acknowledges that he or it has had an opportunity to
negotiate with regard to the terms of this Agreement, to receive advice with
regard to it, and carefully to read and consider the terms of the Agreement
before signing it.
13. This Agreement contains the entire agreement of Barry's and Liston
concerning the subjects covered in the Agreement. This Agreement supersedes any
previous discussions or agreements about those subjects.
Date: 3/19/97 /Thomas S. Liston/
- ------------------------------ ----------------------------------------
Thomas S. Liston
Date: BARRY'S JEWELERS, INC.
- ------------------------------
By:/William Eberle/
----------------------------------------
Its: Chairman of the Board of Directors
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<PAGE> 1
EXHIBIT 10.13
AGREEMENT
1. This agreement ("Agreement") is entered into between Robert Bridel
("Bridel") and Barry's Jewelers, Inc., a California corporation ("Barry's"), to
set forth the severance arrangements Barry's has made for Bridel and to resolve
all other matters between Barry's and Bridel. Specifically, the purpose of this
Agreement is, among other things, to (i) set forth the parties' agreements
concerning severance and other benefits to be provided to Bridel pursuant to the
Employment Agreement between the parties dated as of April 8, 1996 (the
"Employment Agreement"), as well as other benefits described herein, and (ii)
provide for mutual general releases. A copy of the Employment Agreement is
attached hereto as Exhibit "A".
2. The parties agree and acknowledge that Bridel resigned as an officer,
director and employee of Barry's (and each of its subsidiary and affiliated
entities, as applicable) effective as of February 13, 1997.
3A. Pursuant to the Employment Agreement (as modified herein), Barry's
agrees to provide the following severance and other benefits to Bridel:
3A.1 In accordance with Section 4.3(x) of the Employment Agreement,
$371,250.00 (the "Severance Amount"), computed as the amount of salary at
Bridel's rate of salary in effect immediately prior to February 13, 1997, for
the period from February 17, 1997 through April 8, 1998, payable in cash as
follows (subject to the last paragraph of this Section 3A): Bridel will receive
monthly or biweekly payments from Barry's in the same amounts and with the same
periodicity that salary was paid to Bridel immediately prior to February 13,
1997, commencing with the next regular payroll after that date and through and
including a final payment (on or about April 8, 1998) to fully satisfy the
Severance Amount. The Severance Amount does not include Bridel's salary for the
period up through February 16, 1997, which he acknowledges has previously been
paid in cash by Barry's.
3A.2 In accordance with Section 3.2 and Section 4.3 of the
Employment Agreement, the 10,000 shares of restricted Common Stock of Barry's
referred to therein is deemed immediately and fully vested as of February 13,
1997. Accordingly, Barry's has paid Bridel $8,230.63 in cash, representing the
special bonus in respect of certain tax obligations of Bridel (fully "grossed
up" for taxes) corresponding to one-half (1/2) of the restricted stock referred
to in said Section 3.2.
3A.3 In accordance with Section 3.2 and Section 4.3 of the
Employment Agreement, the stock options referred to therein are hereby deemed
immediately and fully vested as of February 13, 1997.
3A.4 In accordance with Section 3.7 and Section 4.3 of the
Employment Agreement and applicable law, Barry's will pay Bridel $3,082.50 in
cash promptly following the execution date hereof, representing Barry's
obligation for accrued vacation benefits.
<PAGE> 2
3A.5 In accordance with Section 3.5 and Section 4.3 of the
Employment Agreement, for the period from February 13, 1997 through April 8,
1998, Bridel shall continue to be included, at Barry's expense, in Barry's
medical insurance plan. This benefit shall be effected by Bridel's election of
COBRA coverage; Barry's will then pay or reimburse Bridel for the cost of the
election of such coverage during the period specified in the preceding sentence.
In addition to the foregoing items of severance and benefits, nothing in this
Agreement shall be deemed to affect Bridel's benefits and rights under Barry's
401(k) plan and deferred compensation plan for senior managers (the "Tophat
Plan"); all rights and elections that may be available to Bridel under the terms
of those plans with respect to his account interests therein shall continue to
be available to him. Among other things, in the event that Barry's elects to
terminate the Tophat Plan, then Bridel shall have all of the rights specified
therein in connection with a termination. All amounts payable to Bridel and
other benefits to be provided to Bridel in accordance with this Section 3A and
Section 3B below shall be subject to withholding in accordance with applicable
law.
3B. In addition to the benefits provided for in the Employment
Agreement, Barry's agrees to provide the following benefits to Bridel:
3B.1 Barry's will pay the fees of an outplacement services firm for
outplacement services to be provided to Bridel, up to a maximum of $25,000, upon
presentation of invoices and/or other appropriate supporting documentation
evidencing such fees.
3B.2 For the period from February 13, 1997 through April 8, 1998,
Bridel shall continue to be included, at Barry's expense, in Barry's life
insurance and disability insurance plans.
3B.3 For the period from February 13, 1997 through April 8, 1998,
Barry's shall continue to provide the same automobile-related benefits to Bridel
as provided under the existing Employment Agreement (including lease payments
and payment of maintenance, gas, oil, insurance and license as provided in the
existing Employment Agreement). Further, at April 8, 1998, if Bridel so
requests, Barry's will consider (but shall be under no obligation to) transfer
the lease (including the purchase option contained therein, if any) relating to
the automobile currently provided for Bridel's use to Bridel.
3C. In the event of Bridel's death prior to the full Severance Amount
having been paid as provided in Section 3A above, Barry's shall be obligated to
continue to provide such benefit to Bridel's spouse, subject to the terms and
elections available under the Tophat Plan, as applicable.
4. Bridel agrees that he will comply with Section 9 of the Employment
Agreement, notwithstanding the termination of his employment by Barry's. In this
regard, Barry's acknowledges that Bridel has made himself reasonably available
to Barry's for the purpose of returning confidential information to Barry's as
provided in said Section 9. Bridel acknowledges, however, that Barry's has no
means of independently verifying full
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<PAGE> 3
compliance by Bridel with said Section 9, and as a result Bridel agrees that he
will in the future fully comply with the document return and other provisions of
said Section.
5. Bridel agrees that any and all claims or obligations, including any
claim for violation of any state or federal statute (such as statutes concerning
discrimination based on disability or perceived disability, race, sex, or
national origin), which he may have against Barry's are fully and completely
settled by this Agreement, and ad] liability or potential liability on any such
claim is hereby released. This release of claims includes claims against Barry's
directors, officers, employees and representatives (collectively,
"Representatives"), and against any and all present and future affiliated
companies of Barry's and their respective Representatives. This release also
includes all claims arising out of Bridel's employment with Barry's and the
termination of that employment, including all rights and benefits under the
Employment Agreement. Bridel does not, by signing this Agreement, release claims
with respect to fulfillment of the promises contained in this Agreement. Barry's
(on behalf of itself and its present and future affiliated companies and their
respective Representatives) similarly agrees that any and all claims or
obligations which it may have against Bridel relating to Bridel's service as an
officer, director and employee of Barry's are fully and completely settled by
this Agreement, and a liability or potential liability on any such claim is
hereby released. Barry's does not, by signing this Agreement, release claims
with respect to fulfillment of the promises contained in this Agreement.
6. Except as specifically noted in Section 5 above, each of Barry's and
Bridel waives any and all rights it/he may have to invoke, or in any other way
to seek the benefits of, Section 1542 of the California Civil Code (or any other
similar statute). Section 1542 provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
7. Bridel understands and acknowledges that (a) this Agreement
constitutes a voluntary waiver of any and all claims he has against Barry's as
of the date of his execution of this Agreement, including claims under the Age
Discrimination in Employment Act of 1967, 29 U.S.C. Sec. 621 et seq.; (b) he has
waived any and all such claims pursuant to this Agreement and in exchange for
consideration, the value of which is substantial; (c) he has been, and is now,
advised to consult with an attorney concerning this Agreement before signing it;
(d) he has been, and is now, informed that he has a period of at least 21 days
to consider the terms of this Agreement (though he need not take the full 21
days if he, in his sole discretion, does not wish to do so); and (e) he may
revoke this Agreement at any time during the 7 days following the date of his
signing of the Agreement, and this Agreement shall not become effective or
enforceable until the eighth day after Bridel's signing of the Agreement. If
Bridel so revokes this Agreement, Bridel agrees and acknowledges that Barry's
will likewise not be bound by the agreements set forth herein and will reserve
the right, among others, to assert that Bridel's termination is for "cause"
under the Employment Agreement, seek a return of the Severance Amount and other
benefits described in Section 3 above and seek other remedies available at law
or in equity.
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<PAGE> 4
8. Each party agrees that this Agreement is confidential and neither
will voluntarily disclose its terms, except that Bridel and the management of
Barry's may discuss the Agreement with their spouses, their attorneys, and their
tax advisers (including, in the case of Barry's management, Barry's attorneys
and tax advisers).
9. In connection with Bridel's separation from Barry's, Barry's is
providing a reference letter, addressed to Bridel, in the form attached hereto
as Exhibit "B".
10. Bridel promises that he will not in the future file a claim against
Barry's with respect to a matter released herein. Barry's promises that it will
not in the future file a claim against Bridel with respect to a matter released
herein.
11. If either Barry's or Bridel files a claim to enforce this Agreement
or a claim otherwise arising in any way out of this Agreement, the claim will be
decided by binding and final arbitration. The procedures for conducting that
arbitration will be decided by the parties.
12. Each party acknowledges that he or it has had an opportunity to
negotiate with regard to the terms of this Agreement, to receive advice with
regard to it, and carefully to read and consider the terms of the Agreement
before signing it.
13. This Agreement contains the entire agreement of Barry's and Bridel
concerning the subjects covered in the Agreement. This Agreement supersedes any
previous discussions or agreements about those subjects.
Date: 3/20/97 /Robert Bridel/
--------------------------- -------------------------------------------
Robert Bridel
Date: BARRY'S JEWELERS, INC.
By:/William Eberle/
----------------------------------------
Its: Chairman of the Board of Directors
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<PAGE> 1
EXHIBIT 10.14(a)
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") dated as of
_______________, 199_ (the "Effective Date") is made by and between
_______________ (the "Executive") and Barry's Jewelers, Inc., a California
corporation (the "Company").
RECITALS
WHEREAS, the Company wishes to obtain the future services of the
Executive for the Company; and
WHEREAS, the Executive is willing, upon the terms and conditions herein
set forth, to provide services hereunder;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound hereby, the parties agree as
follows:
1. EMPLOYMENT.
1.1 Position as an Officer. Subject to Section 8, the Company hereby
employs the Executive, and the Executive hereby accepts such employment, during
the Term of Employment, as ________________________ of the Company to perform
such duties and responsibilities, consistent with such position, as may be
reasonably assigned to the Executive from time to time by the Board of Directors
of the Company (the "Board"). (The definitions of capitalized terms used in this
Agreement are contained in Section 11 of this Agreement.)
1.2 Position as a Director. The Company shall cause the Executive to be
nominated and renominated as a director of the Company for each term of office
commencing during the Term of Employment.
2. Devotion of Time.
During the Term of Employment, the Executive shall perform his duties
hereunder faithfully and to the best of his ability, at the principal executive
office of the Company, under the direction of the Board. Except for
<PAGE> 2
vacations and reasonable absences due to temporary illness and incapacity, the
Executive shall devote his full business time and attention to the performance
of his duties hereunder. Notwithstanding the foregoing, the Executive may (i)
make and manage passive personal business investments of his choice and serve in
any capacity with any civic, educational or charitable organization, without
seeking or obtaining approval by the Board, provided such activities and service
do not materially interfere or conflict with the performance of his duties
hereunder and (ii) with the approval of the Board, serve on the boards of
directors of other corporations or any trade association. Nothing contained
herein shall require Executive to follow any directive or to perform any act
which would violate any laws, ordinances, regulations or rules of any
governmental, regulatory or administrative body, agency or authority, any court
or judicial authority, or any public, private, industry, professional,
regulatory or licensing authority (collectively, the "Regulations"). Executive
shall act in good faith in accordance with all Regulations.
3. Term of Employment.
The term of the Executive's employment hereunder shall commence on the
Effective Date and shall end on ____________________ (the "Expiration Date");
provided, however, that on the Expiration Date, and on each anniversary of the
Expiration Date (the Expiration Date and the date of each anniversary thereof
being a "Renewal Date"), the term shall be automatically extended so as to
terminate _______ year from such Renewal Date, unless at least 90 days prior to
such Renewal Date either party hereto gives written notice to the other that the
term shall not be so extended. Notwithstanding anything to the contrary herein,
it is hereby acknowledged and understood that either party may give notice to
the other at least 90 days prior to the Expiration Date or any Renewal Date of
its intent to renegotiate the Terms of this Agreement in good faith, and such
notice shall not be treated as a notice of non-renewal for purposes of the
definition of "Good Reason" or any other purpose hereunder. The term, as
extended in the manner described in the preceding sentence, is referred to
herein as the "Term of Employment." Notwithstanding the foregoing, the Term of
Employment may be terminated prior to the expiration thereof, by the Company
pursuant to Section 8.2 or by the Executive pursuant to Section 8.3, in which
event the Term of Employment shall end on the Date of Termination.
4. Compensation.
<PAGE> 3
During the Term of Employment, the Executive shall be compensated as
follows:
4.2 Base Salary. The Company shall pay the Executive a base salary
at the rate of $_______ per annum, payable in arrears not less frequently than
monthly in accordance with the normal payroll practices of the Company. Such
base salary shall be subject to review each year by the Board in its sole
discretion, but shall in no event be decreased from its then-existing level.
4.2 Annual Bonus. In addition, the Executive shall be eligible to
receive a bonus ("Annual Bonus") with respect to each fiscal year of the
Company, beginning with its year ended May 31, 1998, to the extent that the
performance targets for such year are achieved; provided, however, that his
Annual Bonus shall not exceed an amount (the "Annual Bonus Cap") equal to ____%
of his base salary for such year. Such performance targets shall be agreed upon
by the Executive and the Board, in writing, prior to the beginning of each
fiscal year. On the Annual Bonus Payment Date for such year, the Company shall
pay the Executive his Annual Bonus determined based on actual achievement of the
performance targets. On November 1 of each year during the Term of Employment,
the Company shall advance to the Executive an amount equal to ____ percent of
his Annual Bonus Cap for the fiscal year of the Company that includes such date.
The Executive shall be entitled to retain this advance whether or not any of the
performance targets are actually achieved and whether or not his employment by
the Company terminates during such fiscal year.
4.3 Incentive Bonus.
4.3.1 In addition, the Executive shall be entitled to receive
a one-time incentive bonus (the "Incentive Bonus"), in an amount equal to ___
(__) times the Executive's average annual base salary over the Term of
Employment, upon the achievement of performance goals (including, without
limitation, cash flow and pre-tax earnings goals) and other terms of an
incentive bonus program to be mutually agreed upon by the Board and the
Executive prior to ______, 1997 and set forth on a schedule which shall be
attached hereto (the "Incentive Bonus Targets"). The Incentive Bonus shall be
paid in a cash lump sum within thirty days after the Incentive Bonus Targets
are achieved; provided, however, that, except to the extent provided herein,
the Incentive Bonus will not be paid to the Executive if he is not employed by
the Company on the date such Incentive Bonus is payable.
3
<PAGE> 4
4.3.2 In the event that Company has become subject to a
Bankruptcy Proceeding during the Term of Employment, in lieu of the Incentive
Bonus under Section 4.3.1 (assuming it has not previously been paid), the
Executive shall be eligible to earn an Incentive Bonus in an amount equal to
___ (__) times the Executive's average annual base salary over the Term of
Employment. The Incentive Bonus shall be subject to Incentive Bonus Targets
which shall be set by mutual agreement between the Company and the Executive
prior to the commencement of any Bankruptcy Proceeding, provided that the
Incentive Bonus Target for _____ (__) percent of such Incentive Bonus shall be
the consummation of a plan of reorganization that has been approved by the
Bankruptcy Court within two years of the date the order for relief is entered
in connection with such proceeding (the "Reorganization Target"). In the event
that the parties cannot reach agreement as to the additional Incentive Bonus
Targets as provided above, than _____ (__) percent of such Incentive Bonus
shall be based on the Reorganization Target. The Incentive Bonus shall be paid
in a cash lump sum within thirty days after all Incentive Bonus Targets are
achieved, provided, however, that, except to the extent provided in Section 8
hereof, the Incentive Bonus will not be paid to the Executive if he is not
employed by the Company on the date such Incentive Bonus is payable.
4.4 Stock Options. The Company and the Executive will enter into a
stock option agreement substantially in the form of Exhibit A hereto.
4.5 Other Incentive Compensation. In addition, the Executive
shall be eligible to receive awards under the Company's 1994 employee Stock
Option Plan (the "Option Plan") and any other stock option or other equity
based incentive compensation plan or arrangement now in effect or hereafter
adopted by the company for which senior executives are eligible. The level of
the Executive's future participation in any such plan or arrangement shall be
in the sole discretion of the Board.
5. Reimbursement of Expenses.
During the Term of Employment, the Company shall reimburse the
Executive for expenses in accordance with the Company's policies and the rules
and regulations of the Internal Revenue Service.
4
<PAGE> 5
6. Benefits.
During the Term of Employment, the Executive shall be entitled to
benefits, as follows:
6.1 Company Plans. The Executive shall be entitled to perquisites
and benefits established by the Company, from time to time, for management of
the Company (including, without limitation, health and dental insurance,
disability insurance, participation in the Company's 401(k) and deferred
compensation plans), subject to the policies and procedures of the Company of
general applicability in effect, from time to time, regarding participation in
such benefits.
6.2 Automobile. In addition, the Company, at its expense, shall
provide the Executive with an automobile of a kind to be selected by the
Executive for the business use of the Executive, provided that its payments for
such automobile and related costs for maintenance and insurance shall not
exceed, on average, $____ per month. At the Executive's option, the Company
shall pay the Executive a monthly allowance of $______ in lieu of providing him
with an automobile.
6.3 Insurance. In addition, the Company shall be obligated to pay
the premium on a life insurance policy for the benefit of the Executive with a
face amount of $______ and long-term disability insurance with coverage equal
to (i) one times the Executive's base salary, less (ii) the amount of long-term
disability insurance coverage provided to the Executive under Company-sponsored
long-term disability plans.
6.4 Relocation Allowance. In addition, the Company shall pay the
Executive a relocation allowance equal to the lesser of (i) ten percent of his
annual base salary and (ii) the actual cost of the Executive's relocation to
Los Angeles, at such time as the Executive leases or purchases a residence in
the Los Angeles area.
6.5 Vacation. In addition, the Executive shall be entitled to four
(4) weeks of paid vacation during each year.
7. Purchase of Shares. The Executive shall have the right, but not the
obligation, to be exercised no later than ________, 199__, to purchase from the
Company ______ shares of common stock of the Company for an aggregate purchase
price of $______, $______ of which shall be
5
<PAGE> 6
payable in cash and $_________ of which shall be payable by delivery of a
non-recourse promissory note due ____ months after the date of purchase,
bearing interest at the applicable federal rate and secured by all of such
shares. In the event that the Executive elects to purchase such shares, the
Company shall use its best efforts to grant the Executive demand registration
rights with respect thereto, exercisable at any time after the first
anniversary of the Effective Date.
8. TERMINATION OF EMPLOYMENMT.
8.1 Termination Due to Death or Disability. Subject to the payments
contemplated by Section 8.8, the Executive's employment by the Company shall
terminate upon the death of the Executive or upon the Executive becoming
Disabled.
8.2 Early Termination by the Company. Subject to the payments
contemplated by Sections 8.4 and 8.5, the Executive's employment by the Company
may be terminated at any time by the Company (after adoption of a resolution by
the Board to do so) as follows:
8.2.1 For Cause; or
8.2.2 For any other reason or no reason, it being understood that no
reason is required.
Such termination by the Company shall be effected by delivery by the Company to
the Executive of a written notice of termination (which notice shall include a
copy of the resolution adopted by the Board) specifying the Date of Termination
and stating in the case of termination for Cause, the grounds which the Board
has determined exist for such termination, and shall be subject to the
requirements for advance notice and opportunity to cure provided in this
Agreement, if and to the extent applicable.
8.3 Early Termination by the Executive. Subject to the payments
contemplated by Sections 8.4 and 8.5, the Executive's employment by the Company
may be terminated at any time by the Executive, as follows:
8.3.1 For Good Reason; or
8.3.2 For any other reason or no reason, it being understood that no
reason is required.
Such termination by the Executive shall be effected by delivery by the
Executive to the Company of a written notice
6
<PAGE> 7
of termination, specifying the Date of Termination and stating in the case of
termination for Good Reason, the grounds which the Executive has determined
exist for such termination, and shall be subject to the requirements for
advance notice and opportunity to cure provided in this Agreement, if and to
the extent applicable.
8.4 Payments if Termination by the Company for Cause or by the
Executive without Good Reason. In the event that the Executive's employment by
the Company is terminated by the Company for Cause or by the Executive without
Good Reason, the Company shall be obligated to:
8.4.1 Pay to the Executive his Accrued Salary and Benefits, in a lump
sum in cash, within five (5) business days after the Date of Termination
(provided, however, that any portion of the Accrued Salary and Benefits which
consists of deferred compensation or post-termination benefits shall be
determined and paid in accordance with the terms of the relevant plan as
applicable to the Executive); and
8.4.2 Pay to the Executive a prorated portion of the Annual Bonus
with respect to the fiscal year of the Company in which such termination
occurs, in a lump sum in cash, on the Annual Bonus Payment Date for such year,
provided that the performance targets for such year are met.
8.5 Payments if Termination by the Company Without Cause or by the
Executive for Good Reason. In the event that the Executive's employment by the
Company is terminated by the Company without Cause or by the Executive for
Good Reason, the Company shall be obligated to:
8.5.1 Pay to the Executive his Accrued Salary and Benefits in a lump
sum, in cash, within five (5) business days after the Date of Termination
(provided, however, that any portion of the Accrued Salary and Benefits which
consists of deferred compensation or post-termination benefits shall be
determined and paid in accordance with the terms of the relevant plan as
applicable to the Executive);
8.5.2 Pay to the Executive a prorated portion of the Annual Bonus
with respect to the fiscal year of the Company in which such termination
occurs, in a lump sum in cash, on the Annual Bonus Payment Date for such year,
based on the Annual Bonus Cap for such year (without regard to whether the
performance targets for such year have been met);
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<PAGE> 8
8.5.3 Pay to the Executive, in a lump sum in cash, within five (5)
business days after the Date of Termination, an amount equal to the amount of
the Incentive Bonus (as applicable to the Executive under Section 4.3.1 or
4.3.2 hereof), prorated by a fraction the numerator of which is the total
number of months the Executive was employed by the Company (including the month
in which his employment was terminated) and the denominator of which is (i) in
the case of 4.3.1., 36 months and (ii) in the case of 4.3.2, 24 months;
provided, however, that in no event shall such prorated amount exceed 100% of
the Incentive Bonus; and provided, further, that if such termination occurs
within the one-year period following a Change of Control or results from
termination by the Company without Cause in anticipation of a Change of
Control, the full amount of the Incentive Bonus shall be paid without any
proration, unless the three-year incentive bonus period has expired as of the
Date of Termination. Such Incentive Bonus shall be paid to the Executive
whether or not the Incentive Bonus Targets are achieved prior to the Date of
Termination. The amount, if any, of such Incentive Bonus shall be reduced by
the amount of any such Bonus paid to the Executive prior to the Date of
Termination;
8.5.4 Continuation of Executive's base salary in the same manner as it
was being paid as of the Date of Termination for a period of ____________
(____) months following the Date of Termination, unless such termination occurs
either (a) within the one-year period following a Change of Control or results
from termination by the Company without Cause in anticipation of a Change of
Control or (b) as a result of Good Reason pursuant to item (ix) of the
definition thereof (relating to a Bankruptcy Proceeding), in which events such
amount shall be equal to a multiple of the Executive's base compensation (which
shall be _________ (____) in the case of item (a) above and ________ (____) in
the case of item (b) above) reduced by the "Acceleration Amount", if any. For
purposes hereof the "Acceleration Amount" is the amount of the Incentive Bonus
paid to the Executive pursuant to 8.5.4 hereof that is in excess of the portion
of the Incentive Bonus that has been earned by the Executive as of the Date of
Termination, with such earned amount to be determined based on the Company's
degree of achievement (expressed on a percentage basis) under the Incentive
Bonus Targets. In the event the parties cannot reach agreement as to the
Acceleration Amount, the determination of the Acceleration Amount shall be made
by a nationally recognized independent compensation consulting firm selected by
mutual agreement of the parties hereto, the cost of which shall be
8
<PAGE> 9
borne solely by the Company. The determination of such firm shall be final and
binding on the parties;
8.5.5 If the Executive determines that he would become subject to the
excise tax imposed by Section 4999 of the Code for any reason, he may notify
the Company that he wishes to renegotiate certain payments provided by this
Agreement so that such excise tax will not apply, and the Company shall
negotiate with the Executive in good faith to accomplish such result; and
8.5.6 In its sole discretion, the Company may elect prior to the Date
of Termination to extend the Restricted Period for twelve (12) months beyond
the Date of Termination, in which case it shall pay to the Executive, in a cash
lump sum within five (5) business days after the Date of Termination, an amount
equal to twelve (12) months of the Executive's base salary as of the Date of
Termination.
8.6 Proration of Annual Bonus. For purposes of Sections 8.4 and 8.5,
the Executive's Annual Bonus with respect to any fiscal year of the Company
shall be prorated by a fraction, the numerator of which is the number of months
in such fiscal year in which the Executive was employed by the Company
(including the month in which his employment was terminated) and the
denominator of which is 12. The amount advanced, if any, to the Executive
pursuant to Section 4.2 shall be credited against the payment of such prorated
Annual Bonus. Notwithstanding anything to the contrary contained in this
Agreement, if the Executive's employment by the Company is terminated due to
his death or Disability, he shall be entitled to receive his full Annual Bonus
without any proration thereof, but less any portion of such Bonus already paid
him.
8.7 Election to Defer. Not later than July 31, 1997, the Company
shall implement a deferred compensation plan which shall entitle the Executive
to elect to defer a portion of his Base Salary, Annual Bonus and Incentive
Bonus.
8.8 Payment if Termination due to Death or Disability. In the event
that the Executive's employment by the Company is terminated due to the
Executive's death or disability, the Company shall be obligated to:
8.8.1 Pay to the Executive his Accrued Salary and Benefits, in a lump
sum in cash, within five (5) business days after the Date of Termination
(provided, however, that any portion of the Accrued Salary and Benefits would
9
<PAGE> 10
consists of deferred compensation or post-termination benefits shall be
determined and paid in accordance with the terms of the relevant plan as
applicable to the Executive);
8.8.2 Pay to the Executive his full Annual Bonus without proration
with respect to the fiscal year of the Company in which such Termination
occurs, in a lump sum in cash, on the Annual Bonus Payment Date for such year,
based on the Annual Bonus Cap for such year (without regard to whether the
performance targets for such year have been met);
8.8.3 Pay to the Executive the Incentive Bonus, prorated by a fraction
the numerator of which is the total number of months the Executive was employed
by the Company (including the month in which his employment was terminated) and
the denominator of which is 36 months; provided, however, that in no event
shall such prorated amount exceed 100% of the Incentive Bonus. Such Incentive
Bonus shall be paid to the Executive whether or not the Incentive Bonus Targets
are achieved prior to the Date of Termination. The payment, if any, of such
Incentive Bonus shall be reduced to the extent that it was paid to the
Executive prior to the Date of Termination;
8.8.4 Pay to the Executive an amount equal to ___ months of the
Executive's base salary as of the Date of Termination, with such payment to be
made in equal monthly installments.
The payments described in this Section 8.8 shall be in addition to any
life insurance and disability benefits payable to the Executive from the
Company.
8.9 No Additional Severance Payments. Except for the payments
provided in this Section 8, the Executive shall not be entitled to any payments
by the Company in the event of the termination of his employment by the
Company. In such event, the Executive shall have no obligation to seek other
employment to mitigate damages and any income earned by the Executive from
other employment or self-employment shall not be offset against any of the
Company's payment obligations under this Section 8.
9. Confidential Information.
9.1 Nondisclosure of Confidential Information. During and after the
Term of Employment, Executive will not disclose to any person, or use or
otherwise exploit for the Executive's own benefit or for the benefit of anyone
other
10
<PAGE> 11
than the Company, any Confidential Information of the Company, whether prepared
by the Executive or not. At the request of the Company, the Executive agrees to
deliver to the company, at any time during the Term of Employment, or
thereafter, all Confidential Information which he may possess or control. The
Executive agrees that all Confidential Information of the Company (whether now
or hereafter existing) conceived, discovered or made by him during the Term of
Employment exclusively belongs to the Company (and not to the Executive). The
Executive will promptly disclose such Confidential Information to the Company
and perform all actions reasonably requested by the Company to establish and
confirm such exclusive ownership.
9.2 Exceptions to Nondisclosure Obligations. The provisions of
Section 9.1 shall not apply to (i) information disclosed in the performance of
the Executive's duties to the Company based on his good faith belief that such
disclosure is in the best interests of Company; (ii) information that is public
knowledge; (iii) information disseminated by the Company to third parties in
the ordinary course of business; (iv) information lawfully received by the
Executive from a third party who, based upon inquiry by the Executive, is not
bound by a confidential relationship to the Company; (v) information disclosed
under a requirement of law or as directed by applicable legal authority having
jurisdiction over the Executive; or (vi) information necessary in order to
enforce his rights under this Agreement or necessary to defend himself against
a claim asserted directly or indirectly by the Company or any of its affiliated
companies.
9.3 Survival of Nondisclosure Obligations. The terms of this Section
9 shall survive the termination of this Agreement regardless of who terminates
this Agreement or the reasons therefor.
10. Non-competition; Non-Solicitation. During the Restricted Period, the
Executive shall not, without the prior written approval of the Board, directly
or indirectly, as an employee, agent, consultant, stockholder, director,
co-partner or in any other individual or representative capacity, (i) recruit
or solicit for employment any person who is employed by the Company on the Date
of Termination; or (ii) engage in any business which competes, directly or
indirectly, with the Business in the Market ("Competitive Business") without
regard to (A) whether the Competitive Business has its office, manufacturing or
other business facilities within or without the Market, (B) whether any of the
activities of the Executive referred to above occur or
11
<PAGE> 12
are performed within or without the Market or (C) whether the Executive
resides, or reports to an office, within or without the Market; provided,
however, that the Executive may, directly or indirectly, in one or a series of
transactions, own, invest or acquire an interest in up to five percent (5%) of
the capital stock of a corporation whose capital stock is traded publicly.
11. Definitions. Capitalized terms used in this Agreement shall have the
meanings set forth in this Section 11.
"Accrued Salary and Benefits" means, as of the applicable date, the sum
of (i) the Executive's base salary under Section 4.1 through such date to the
extent not theretofore paid, and (ii) any vacation pay, expense reimbursements
and other cash entitlements accrued by the Executive as of such date to the
extent not theretofore paid.
"Annual Bonus" is defined in Section 4.2.
"Annual Bonus Cap" is defined in Section 4.2.
"Annual Bonus Payment Date" means with respect to any fiscal year of
the Company, a date which is no later than thirty days after the day on which
the Company's independent public accountants sign their report with respect to
such year.
"Bankruptcy Proceeding" means a case commenced under Title 11 of the
United States Code in which an order for relief is entered in respect of the
Company under either Chapter 11 or Chapter 7 thereof.
"Board" is defined in Section 1.1.
"Business" means any business conducted, or engaged in, by the Company
or its subsidiaries at any time during the Term of Employment.
"Cause" shall mean any of the following:
(i) The Executive's conviction for, or plea of nolo
contendere to, any felony:
(ii) The Executive's willful fraud or material dishonesty in
connection with the Executive's performance of his duties hereunder;
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<PAGE> 13
(iii) The Executive's failure, other than due to illness,
disability or death or as a result of any event that constitutes Good Reason
hereunder, to substantially perform his duties hereunder that results in
material harm to the Company; or
(iv) The Executive's gross negligence in the performance of
his duties hereunder (other than arising solely due to physical or mental
disability) that results in material harm to the Company;
in each case, for purposes of clauses (iii) and (iv), after the Board has
provided the Executive with 30 days' written notice of such circumstances and
the possibility of an event giving rise to termination for Cause, and the
Executive fails to cure such circumstances within those 30 days.
"Change of Control" shall mean the occurrence of (i) the dissolution or
liquidation of the Company, (ii) a reorganization, merger or consolidation of
the Company with one or more corporations as a result of which the Company is
not the surviving corporation or as a result of which it is the surviving
corporation and its outstanding voting securities are converted to or
reclassified as cash, securities of another corporation or other property
(unless the principal purpose of such transaction is to change the state of the
Company's incorporation), (iii) upon a sale of assets of the Company or its
subsidiaries having a fair market value equal to more than 50% of the total
fair market value of the Company's assets to an entity which is not
controlling, controlled by or under common control with the Company, or (iv)
the acquisition of a record or beneficial interest in more than 30% of the then
outstanding voting securities of the Company, either in a single transaction or
a series of transactions, by an entity or "group" within the meaning of Section
13(d) of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder which is not an affiliate of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Company" is defined in the introduction.
"Confidential Information" means any confidential information of the
Company including, without limitation, any study, data, calculations, software
storage media or other compilation of information, patent, patent application,
copyright, trademark, trade name, service mark, service name, "know-how," trade
secrets, customer lists,
13
<PAGE> 14
details of client or consultant contracts, pricing policies, operational
methods, marketing plans or strategies, product development techniques or plans,
business acquisition plans or any portion or phase of any scientific or
technical information, ideas, discoveries, designs, computer programs (including
source or object codes), processes, procedures, formulas, improvements of other
proprietary or intellectual property of the Company or relating to its business,
whether or not in written or tangible form, and whether or not registered, and
including all files, records, manuals, books, catalogues, memoranda, notes,
summaries, plans, reports, records, documents and other evidence thereof,
whether existing now or hereafter discovered or developed.
"Date of Termination" means (i) in the event of a termination of the
Executive's employment pursuant to Section 8.2, the date specified in the
written notice of termination from the Company, (ii) in the event of a
termination of the Executive's employment pursuant to Section 8.3, the date
specified in the written notice of termination from the Executive, (iii) in the
event of the Executive's death, the date of the Executive's death and (iv) in
the event of the Executive's Disability, the date he is determined to be
Disabled.
"Disabled" or "Disability" means, with respect to the Executive, the
occurrence of an event or events that renders the Executive with respect to his
physical or mental condition unable to perform, in the view of the Board and as
certified in writing by a competent medical physician, his duties hereunder and
which results in his being entitled to benefits under the Company's disability
insurance plan.
"Effective Date" is defined in the introduction.
"Executive" means __________________ or his estate, if deceased.
"Good Reason" means any of the following:
(i) A material diminution in the Executive's duties or
responsibilities as set forth in Section 1;
(ii) Failure of the shareholders or the Board to elect or
re-elect the Executive as a director of the Company;
14
<PAGE> 15
(iii) A breach by the Company of the compensation and benefit
provisions set forth in Sections 4 through 6;
(iv) A written notice of non-renewal of this Agreement being
given by the Company to the Executive pursuant to Section 3.
(v) The inability of the Company and the Executive to reach
agreement on the terms of a new employment agreement prior to the
Expiration Date or any Renewal Date that follows notice by the Company
to the Executive of its intent to renegotiate the terms of this
Agreement.
(vi) Any termination by the Executive within twelve (12) months
following the occurrence of a Change in Control;
(vii) The inability of the Company to perform its obligations
under the Incentive Stock Option Agreement attached as Exhibit A hereto;
(viii) A material breach by the Company of any other term of
this Agreement; or
(ix) During the pendency of a Bankruptcy Proceeding, (a) an
order of the Bankruptcy Court providing for the assumption of this
Agreement is not entered within 90 days of the order for relief (b) a
motion to reject this Agreement is filed with the Bankruptcy Court, or
(c) the Company fails to satisfy its obligations under Section 12.16;
provided that in any such case, the Executive agrees, if requested by
the Company, to continue to serve in his position (and on the same terms
and conditions applicable under this Agreement) until a successor can be
hired by the Company, but for a period that shall not exceed 120 days
from the date of the event that gives rise to Good Reason hereunder.
"Incentive Bonus" is defined in Section 4.3.
"Incentive Bonus Target" is defined in Section 4.3.
"Market" means any state in the United States of America in which the
Business is conducted by or engaged in by the Company at any time during the
Term of Employment.
"Plan" is defined in Section 4.4.
15
<PAGE> 16
"Renewal Date" is defined in Section 3.
"Restricted Period" means the period beginning on the Effective Date
and ending on (i) the Date of Termination, or (ii) if the Term of Employment is
terminated prior to the Expiration Date by the Company without Cause or by the
Executive for Good Reason and if the Company elects, pursuant to Section 8.5.6,
to extend the provisions of Section 10, the date which is twelve (12) months
following the Date of Termination, provided the Company continues to make all
payments to the Executive required by Section 8.5 hereof.
"Term of Employment" is defined in Section 3.
12. General.
12.1 Notice. Any notice, request, demand or other communication
required or permitted to be given under this Agreement shall be given in
writing and delivered personally, or sent by certified or registered mail,
return receipt requested, as follows (or to such other addressee or address as
shall be set forth in a notice given in the same manner).
If to Executive: -------------------------------------
-------------------------------------
-------------------------------------
If to Company: Barry's Jewelers, Inc.
111 West Lemon Avenue
Monrovia, California 91016
Attn: Chairman of the Board
Any such notices shall be deemed to be given on the date personally delivered or
such return receipt is issued.
12.2 Executive's Representations. The Executive hereby warrants and
represents to the Company that the Executive has carefully reviewed this
Agreement, including his obligations hereunder, and has consulted with such
attorneys and advisors as the Executive considers appropriate in connection
with this Agreement, and is not subject to any covenants, agreements or
restrictions, including without limitation any covenants, agreements or
restrictions arising out of the Executive's prior employment which would be
breached or violated by the Executive's execution of this Agreement or by the
Executive's performance of his duties hereunder.
16
<PAGE> 17
12.3 Validity. If, for any reason, any provision hereof shall be
determined to be invalid or unenforceable, the validity and effect of the other
provisions hereof shall not be affected thereby.
12.4 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12.5 Tax Withholding. The Company shall provide for the withholding of
any taxes required to be withheld by federal, state, or local law with respect
to any payment in cash, shares of stock and/or other property made by or on
behalf of the Company to or for the benefit of the Executive under this
Agreement or otherwise. The Company may, at its option: (i) withhold such taxes
from any cash payments owing from the Company to the Executive, (ii) require
the Executive to pay to the Company in cash such amount as may be required to
satisfy such withholding obligations and/or (iii) make other satisfactory
arrangements with the Executive to satisfy such withholding obligations.
12.6 Waiver of Breach; Attorneys' Fees. The waiver by the Company or
the Executive of a breach of any provision of this Agreement by the other party
shall not operate or be construed as a waiver of any other breach of such other
party. Each of the parties to this Agreement will be entitled to enforce its
respective rights under this Agreement and to exercise all other rights existing
in its favor. In the event either party takes legal action or commences an
arbitration proceeding to enforce any of the terms or provisions of this
Agreement, the nonprevailing party shall pay the successful party's costs and
expenses, including but not limited to, attorneys' fees, incurred in such
action or proceeding.
12.7 Governing Law. This Agreement shall be governed by, construed,
applied and enforced in accordance with the laws of the state of California,
except that no doctrine of choice of law shall be used to apply any law other
than that of California, and no defense, counterclaim or right of setoff given
or allowed by the laws of any other state or
17
<PAGE> 18
jurisdiction, or arising out of the enactment, modification or repeal of any
law, regulation, ordinance or decree of any foreign jurisdiction, shall be
interposed in any action hereon.
12.8 Specific Performance. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of Section 9 or 10 of this Agreement and that the Company may in its
sole discretion apply for specific performance and/or injunctive relief,
including temporary restraining orders, preliminary injunctions and permanent
injunctions in order to enforce or prevent any violations of such provisions of
this Agreement.
12.9 Forum. The Executive and the Company agree that any action or
proceeding arising out of this Agreement (excluding any actions or proceedings
subject to the mandatory arbitration provisions of Section 12.10, but including
any action to confirm an award of such arbitrators and enter judgment thereon)
may be commenced in the courts of the State of California located in the County
of Los Angeles or the United States District Courts located in the County of
Los Angeles. The Executive and the Company consent to in personam jurisdiction
with respect to such courts, agree that venue will be proper in such courts
and waive any objections based upon forum non conveniens. The choice of forum
set forth in this Section 12.9 shall not be deemed to preclude the enforcement
of any judgment obtained in such forum or the taking of any action under this
Agreement to enforce same in any other jurisdiction.
12.10 Arbitration. The Company and the Executive agree that, with the
exception of actions for specific performance, restraining orders or other
injunctive relief pursuant to Section 12.8 and actions to enforce an
arbitration award, all claims and disputes between the Company and the
Executive in connection with this Agreement or otherwise related to the
Executive's employment by the Company (including without limitation the
termination of Executive's employment) shall be submitted to final and binding
arbitration administered and conducted by the American Arbitration Association
in Los Angeles, California pursuant to its Labor Arbitration Rules then in
effect; provided that, the party seeking to submit a claim or dispute
hereunder to arbitration shall give the other party written notice of any
arbitration proceeding at least 60 days prior to such proceeding; provided,
further, that the parties mutually agree to negotiate in good faith to resolve
their differences prior to such arbitration proceeding.
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<PAGE> 19
12.11 Assignment; Third Parties. The Executive may not assign,
transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement
or any of his respective rights or obligations hereunder, without the prior
written consent of the Company. Except as expressly provided herein, the
Company may not assign or transfer this Agreement or any of its rights or
obligations hereunder, without the prior written consent of the Executive. The
Company may assign its rights and obligations hereunder to its successor in
connection with a merger, consolidation, sale of assets, acquisition,
recapitalization or other similar transaction (and such successor shall
thereafter be deemed the "Company" for purposes of this Agreement). The
provisions of this Agreement shall be binding upon, and shall inure to the
benefit of, the respective heirs, legal representatives and successors of the
parties hereto.
12.12 Prior Understandings. This Agreement, together with the
exhibits and schedules attached hereto which are incorporated herein by this
reference, embodies the entire understanding of the parties hereto and
supersedes all other oral or written agreements or understandings between them
regarding the subject matter hereof. No change, alteration or modification
hereof may be made except in a writing specifically referring hereto and signed
by the Executive and the Chairman of the Board of the Company or his designee.
The headings in this Agreement are for convenience and reference only and shall
not be construed as part of this Agreement or to limit or otherwise affect the
meaning hereof. Section references refer to this Agreement unless otherwise
specified.
12.13 Further Action. The Executive and the Company agree to perform
any further acts and to execute and deliver any document which may be
reasonable to carry out the provisions hereof.
12.14 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.15 Indemnification. During the Term of Employment and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by
applicable law, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its directors and officers, with respect to all expenses, judgments, fines,
settlements and other amounts (including, without limitation, attorneys'
19
<PAGE> 20
fees) incurred or sustained by the Executive in connection with any action,
suit or proceeding to which he may be made a party by reason of being or having
been a director, officer or employee of the Company or his serving or having
served any other enterprise as a director, officer or employee at the request
of the Company.
12.16 Bankruptcy Proceeding. In the event that the Company becomes
subject to a Bankruptcy Proceeding during the Term of Employment, and the
Company is reorganized as a result of the Bankruptcy Proceeding, the
Executive's rights to purchase the Company's common stock under Section 4.4 and
Section 7 hereof shall be converted into rights to purchase an equivalent
interest in the common voting shares of the entity into which the Company is
reorganized. The aggregate number of new shares (the "New Share") of the
reorganized entity that the Executive shall attain the right to acquire
hereunder shall represent the same percentage equity ownership interest of the
Company, on a fully diluted basis, as is represented by __________ shares of
the Company's common stock on the Effective Date. The Executive may purchase
all or any portion of the New Shares, at his option, but shall not be required
to purchase the New Shares. The purchase price of the New Shares shall be set
at the closing trading price of the New Shares on the date that is 30 days
following the date of consummation of a plan or reorganization. The Executive's
right to acquire the new Shares shall otherwise be exercisable on terms and
conditions that are comparable to those applicable under Sections 4.4 and 7
hereof.
(Signature Page Follows)
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first written above.
EXECUTIVE:
---------------------------------------
[NAME]
COMPANY:
BARRY'S JEWELERS, INC.
By: -----------------------------------
William D. Eberle
Chairman of the Board
21
<PAGE> 1
EXHIBIT 10.14(b)
BARRY'S JEWELERS EXECUTIVE COMPENSATION PACKAGE
COMPARISON OF TERMS REVISED BY DEBTOR (9/3/97) AND BANK GROUP (9/12/97)
PART ONE - BASE SALARY
<TABLE>
<CAPTION>
EXECUTIVE BARRY'S BASE LENDERS' BASE
- --------- ------------ -------------
<S> <C> <C>
Merksamer $ 400,000 $ 400,000
Healey 275,000 275,000
McCullough 225,000 225,000
Haggar 165,000 165,000
Edgel 120,000 120,000
---------- ----------
Totals $1,185,000 $1,185,000
</TABLE>
PART TWO - ANNUAL BONUS PARAMETERS(a)
<TABLE>
<CAPTION>
% BARRY'S PARAMETERS % LENDERS' PARAMETERS
- --- ------------------ --- -------------------
<S> <C> <C> <C>
50% Payable if Barry's achieves its FYE 50% Payable if Barry's achieves projected
EBITDA target. Monthly and year- EBITDA for the FYE 5/31/98 based on
end EBITDA targets to be audited numbers(a)
established by debtor and approved
by the board.
50% Payable if debtor achieves its target 10% *Match or exceed 11/30/97 projected
for aggregate cash, eligible A/R, Inventory Levels(b).
and eligible inventory as of the end 10% *Match or exceed 12/31/97 projected cash
of the calendar year. Targets have deposit, receivable and Inventory Levels.
been approved by the court in 10% *Match or be lower than 12/31/97
connection with the cash collateral projected G&A expenses.
stipulation. 10% *Total Availability(c) at end of February
1998 of $4.1 Million and payables are
maintained within agreed upon vendor
terms as of February 1998.
10% Receipt of 1.4x amount of inventory returned
by November 1997 and at end of February 1998.
</TABLE>
(a) Projected EBITDA will be determined by Barry's board of directors. The
Bank Group and Committees will be provided with a written notice by
November 1, 1997 of the forecasted EBITDA monthly and for the fiscal year
ending 5/31/98 and shall have the right to object to such projections and
have the Court determine the reasonableness of the EBITDA projections.
<PAGE> 2
(b) Inventory Levels is defined as owned plus consigned inventory as set forth
in the Budget annexed to the Amended Cash Collateral Stipulation.
(c) Total Availability is defined as excess (or deficit) availability under
the borrowing base plus total cash balances.
PART THREE (A) - ANNUAL BONUS CAP (a)
<TABLE>
<CAPTION>
EXECUTIVE BARRY'S CAP LENDERS' CAP
- --------- ----------- ------------
<S> <C> <C>
Merksamer 100% ($400,000) 100% ($400,000)
Healey 75% ($206,250) 75% ($206,250)
McCullough 60% ($135,000) 60% ($135,000)
Haggar 50% ($82,500) 50% ($82,500)
Edgel 33% ($40,000) 33% ($40,000)
-------- --------
Totals $863,750 $863,750
</TABLE>
(a) Calculated as a percentage of Barry's Base Salary.
PART THREE (B) - EXECUTIVE'S EMPLOYMENT TERMINATED BY COMPANY WITHOUT CAUSE OR
BY THE EXECUTIVE FOR GOOD REASON OR DUE TO DEATH OR DISABILITY
<TABLE>
<CAPTION>
EXECUTIVE BARRY'S BONUS (a) LENDERS' BONUS (b)
- --------- ----------------- ------------------
<S> <C> <C>
Merksamer 100% ($400,000) 100% ($400,000)
Healey 75% ($206,250) 75% ($206,250)
McCullough 60% ($135,000) 60% ($135,000)
Haggar 50% ($82,500) 50% ($82,500)
Edgel 33% ($40,000) 33% ($40,000)
-------- --------
Totals $863,750 $863,750
</TABLE>
(a) This full Annual Bonus will be payable WHETHER OR NOT any calendar
year-end or fiscal year-end targets have been achieved. Bonus amounts
are based on the Annual Bonus Cap for each executive. Bonus will be due
and payable on the Date of Termination. Bonuses are based on the annual
bonus cap for each employee.
(b) This full annual bonus will be payable IF AND ONLY if (i) the fiscal year
end 5/31/98 targets have been achieved or (ii) (x) in the event of a
change in control of the company at a time when the company is a going
concern or (y) death or disability of an executive, provided, in either
event, that any applicable Annual Bonus parameters at such time have been
met. Bonus amounts are based on the Annual Bonus Cap for each executive.
-2-
<PAGE> 3
PART THREE (C) - EXECUTIVE'S EMPLOYMENT TERMINATED BY COMPANY FOR CAUSE OR BY
THE EXECUTIVE WITHOUT GOOD REASON
<TABLE>
<CAPTION>
EXECUTIVE BARRY'S BONUS (a) LENDERS' BONUS (b)
- --------- ----------------- ------------------
<S> <C>
Merksamer 100% ($400,000)
Healey 75% ($206,250)
McCullough 60% ($135,000) (None)
Haggar 50% ($82,500)
Edgel 33% ($40,000)
--------
Total (Varies)
</TABLE>
(a) The amount of the bonus for each executive will be a pro-rated portion
of the executive's Annual Bonus Cap. Figures shown here are the maximum
possible bonus each executive could receive. This bonus will be payable
on the date(s) on which such amounts would have been due had termination
not occurred and will be payable ONLY IF calendar year-end or fiscal
year-end targets are achieved.
(b) No bonus would be paid because new management would have to be hired.
"Cause" is assumed to be malfeasance or misfeasance.
PART THREE (D) - BONUS IF EXECUTIVE NOT TERMINATED PRIOR TO CONFIRMATION AND
CONFIRMATION OCCURS PRIOR TO THE END OF ANY FISCAL YEAR
<TABLE>
<CAPTION>
EXECUTIVE BARRY'S BONUS (a) LENDERS' BONUS
- --------- ----------------- --------------
<S> <C> <C>
Merksamer 100% ($400,000)
Healey 75% ($206,250) Same as Part Three (B).
McCullough 60% ($135,000) It is understood, however,
Haggar 50% ($82,500) that the FYE 5/31/98 condition
Edgel 33% ($40,000) set forth in footnote (b)(i) of
-------- Part Three (B) would be prospective.
Total (Varies)
</TABLE>
(a) The executive's employment agreement will terminate on the Confirmation
Date. The executive will be entitled to his full annual bonus amount for
the fiscal year, payable in full for the fiscal year ended 5/31/98 and
prorated for any fiscal year thereafter, provided that the Company has
achieved its year-to-date EBITDA target up to the month prior to the
Confirmation. Bonuses are based on the annual bonus cap for each employee.
-3-
<PAGE> 4
PART FOUR (A) - CONFIRMATION BONUS (a)
<TABLE>
<CAPTION>
EXECUTIVE BARRY'S BONUS (b) LENDERS' BONUS (c)
- --------- ----------------- ------------------
Before 5/l/98 5/1/98-6/30/98 7/1/98-9/30/98
<S> <C> <C> <C> <C>
Merksamer 1.5x ($600,000) 1.25x ($500,000) l.0x ($400,000) .75x ($300,000)
Healey 1.0x ($275,000) 1.25x ($343,750) 1.0x ($275,000) .75x ($206,250)
McCullough 1.0x ($225,000) 1.25x ($282,250) 1.0x ($225,000) .75x ($168,750)
Haggar 1.0x ($165,000) 1.25x ($206,250) 1.0x ($165,000) .75x ($123,750)
Edgel 1.0x ($120,000) 1.25x ($150,000) 1.0x ($120,000) .75x ($ 90,000)
---------- ---------- ---------- --------
Total $1,385,000 $1,481,250 $1,185,500 $888,750
</TABLE>
(a) Based on a percentage of Barry's Base Salary.
(b) If the Confirmation Date is after 5/31/98, potential bonuses are
reduced by 5% per month, including the month in which the
Confirmation Date occurs. Confirmation bonuses are based on Barry's
Base Salary schedule.
(c) Confirmation bonus is based on (i) the entry of an confirmation order
of a plan of reorganization (provided that the sole conditions to the
effective date of the confirmed plan are tied to the performance of a
third party) on the above dates, and (ii) demonstration of capacity
on confirmation date to finance seasonal working capital requirements
in the form of an asset based working capital facility that contains
market advance rates and market collateral eligibility parameters.
PART FOUR (B) - BONUS IF EXECUTIVE TERMINATED PRIOR TO CONFIRMATION BY COMPANY
WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD REASON (a)
<TABLE>
<CAPTION>
EXECUTIVE BARRY'S BONUS (b) LENDERS' BONUS
- --------- ----------------- --------------
<S> <C> <C>
Merksamer 1.5x ($600,000) Same as Part Four (A); provided, however
Healey 1.0x ($275,000) if the executive terminates his or her
McCullough 1.0x ($225,000) employment because Barry's has been sold
Haggar 1.0x ($165,000) pursuant to section 363 of the Bankruptcy
Edgel 1.0x ($120,000) Code prior to confirmation of a plan of
---------- reorganization and a plan is confirmed
Total $1,385,000 within the frames set forth in Part
Four (A), the applicable Confirmation
Bonus in Part Four (A) will be due.
</TABLE>
(a) Good Reason would include a sale of Barry's under section 363 of the
Bankruptcy Code.
(b) If termination occurs for Cause or by the Executive without Good
Reason, the
-4-
<PAGE> 5
Confirmation Bonus will not be payable; however, due to the Executive's
death or Disability, this bonus will be prorated. Bonuses are based on
each executive's annual salary.
PART FOUR (C) - BONUS IF EXECUTIVE TERMINATED PRIOR TO CONFIRMATION BY COMPANY
WITH CAUSE OR BY THE EXECUTIVE WITHOUT GOOD REASON
No bonus would be paid because new Management would have to be hired. Cause is
assumed to be malfeasance or misfeasance.
PART FIVE - STOCK OPTIONS
No stock options or warrants shall be included in the management agreements.
Stock options can be negotiated in connection with a Plan of Reorganization. The
debtor has agreed to this requirement in its most recent proposal.
PART SIX - TERM OF EMPLOYMENT
In the original executive management contract motion, the Employment Agreements
extend through 5/31/00, subject to automatic renewal thereafter. The debtor has
proposed to terminate the Employment Agreements upon confirmation of a plan of
reorganization and eliminate the clause about automatic renewals.
PART SEVEN - NON-COMPETITION CLAUSES
The Employment Agreements include non-competition and non-solicitation
provisions for Mr. Merksamer only. The debtor proposes to remove these
provisions from Mr. Merksamer's Employment Agreement, regardless of the reason
for termination.
-5-
<PAGE> 1
EXHIBIT 10.14(c)
Schedule of Certain Terms of Employment Agreements
At a hearing of the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court") held on September 24, 1997, the
Bankruptcy Court authorized the Company to enter into employment agreements (the
"Employment Agreements") with Mr. Merksamer and each of Messrs. Healey,
McCullough, Haggar and Edgel (each an "Executive"). Upon entry of the related
Bankruptcy Court order, the Company will enter into such Employment Agreements,
which extend through confirmation of a plan of reorganization of the Company.
Set forth below is a summary of certain other terms of such Employment
Agreements.
<PAGE> 2
CERTAIN TERMS OF EMPLOYMENT AGREEMENTS
<TABLE>
<CAPTION>
Plan of Reorganization Confirmation
Bonus (as a percentage of annual base salary)(2)
------------------------------------------------------------
If confirmation
Maximum Annual occurs on or after If confirmation
Cash Bonus May 1, 1998 occurs on or after
(as a percentage If confirmation through and July 1, 1998
Annual Base of annual occurs prior to including and prior to
Executive/Title Salary base salary(1) May 1, 1998 June 30, 1998 September 30, 1998
- --------------- ----------- ---------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Samuel J. Merksamer.... $400,000 100% 125% 100% 75%
President and Chief
Executive Officer
E. Peter Healey........ $275,000 75% 125% 100% 75%
Executive Vice
President, Chief
Financial Officer
and Secretary
Randy N. McCullough.... $225,000 60% 125% 100% 75%
Senior Vice President
- Merchandising
Chad C. Haggar......... $165,000 50% 125% 100% 75%
Vice President -
Operations
Bill R. Edgel.......... $120,000 33% 125% 100% 75%
Vice President -
Marketing
</TABLE>
- -----------------------
(1) Such bonuses are payable as follows: (i) 50% thereof are payable if the
Company achieves projected earnings before interest, taxes, depreciation
and amortization for its 1998 fiscal year, (ii) 10% thereof are payable if
the Company meets or exceeds its November 30, 1997 projected inventory
levels, (iii) 10% thereof are payable if the Company meets or exceeds its
December 31, 1997 projected cash deposit, receivable and inventory levels,
(iv) 10% thereof are payable if the Company meets its December 31, 1997
projected general and administrative expenses, (v) 10% thereof are payable
if, as of February 1998, there is total availability under the borrowing
base in the Company's revolving credit facility (as modified by the cash
collateral stipulation field with the Bankruptcy Court) plus total cash
balances of at least $4.1 million, and payables are maintained within
agreed upon vendor terms, and (vi) the remaining 10% are payable upon
receipt from vendors of 1.4 times the amount of inventory returned by
November 1997 and at the end of February 1998.
(2) A condition to the payment of such bonus will require that the Company have
an asset-based, working capital credit facility on market terms on the
confirmation date of a plan or reorganization.
2
<PAGE> 3
Under the Employment Agreements, if an Executive's employment is
terminated by the Company without cause, by the Executive with good reason
(including a sale of the Company under the Bankruptcy Code), due to an
Executive's death or disability, or as a result of the confirmation of a plan
of reorganization, such Executive is entitled to receive (i) accrued annual
base salary and vacation, (ii) his maximum annual cash bonus if (A) the fiscal
year end 1998 performance targets have been achieved (provided that such target
will be prospectively applicable with respect to termination resulting from
confirmation of a plan prior to the end of such fiscal year) or (B) in the
event of a Change-in-Control (as defined below) of the Company at a time when
the Company is a going concern or the death or disability of an Executive if
any applicable performance conditions have been met, and (iii) if such
termination without cause or with good reason occurs prior to confirmation of a
plan of reorganization of the Company, his confirmation bonus. If the
Executive's employment is terminated by the Company for cause (i.e.,
malfeasance or misfeasance) or by the Executive without good reason, such
Executive is entitled to receive accrued annual base salary and vacation, but
no annual cash bonus or confirmation bonus (if such termination occurs prior to
confirmation). Under the Employment Agreements, a "Change-in-Control" includes
the dissolution or liquidation of the Company, a reorganization, merger or
consolidation of the Company with one or more corporations in which the Company
is not the surviving entity or as a result of which the Company's outstanding
voting securities are converted to or reclassified as cash, securities of
another corporation or other property, a sale of assets of the Company or its
subsidiaries having a fair market value equal to more than 50% of the total
fair market value of the Company's assets to a nonaffiliate of the Company, or
the acquisition of more than 30% of the then-outstanding voting securities of
the Company by a nonaffiliate.
3
<PAGE> 1
EXHIBIT 10.15(a)
TRADE FINANCING AGREEMENT TERM SHEET
This term sheet with respect to the principle terms of a Trade Financing
Agreement is entered into this 22nd day of July, 1997, subject only to approval
by the United States Bankruptcy Court for the Central District of California
(the "Bankruptcy Court") in Case No. LA 97-27988-VZ (the "Bankruptcy Case"), by
and among Barry's Jewelers. Inc. ("Barry's" or the "Debtor"), the Official
Committee of Unsecured Creditors appointed in the Bankruptcy Case (the
"Creditors' Committee") the Official Committee of Bondholders appointed in the
Bankruptcy Case (the "Bondholder Committee"), and BankBoston, N.A. f/k/a The
First National Bank of Boston (the "Collateral Agent"), Jackson National Life
Insurance Company, Sanwa Business Credit Corporation and The CIT Group/Business
Credit, Inc. (collectively, the "Bank Group"). Barry's, the Creditors'
Committee, the Bondholder Committee, the Collateral Agent and the Bank Group are
collectively referred to herein as the "Parties."
1. A vendor return program will be open to all of Barry's
prepetition Jewelry vendors. In order to participate in the program, each
participating vendor must execute a Trade Financing Agreement (the "Trade
Financing Agreement") and agree to provide, on the terms set forth herein,
revolving credit for merchandise purchases to Barry's on 90-day terms ("Credit
Merchandise") in an amount equal to two and one-half times the value (as
determined pursuant to Paragraph 2(b) below and hereinafter referred to as
"Value") of the prepetition merchandise to be returned to the participating
vendor (the "Minimum Credit Commitment").
2. Barry's will return to each participating vendor prepetition
merchandise with a Value equal to 75% (or such lesser amount as specified by the
vendor) of the relevant vendor's prepetition claim against Barry's based upon
the provision of prepetition merchandise (the "Prepetition Claim") up to an
aggregate maximum Prepetition Claim amount of $10.55 million (e.g.. the Value of
the prepetition merchandise returned shall not exceed $7.912.500) (the "Maximum
Return Amount").
a. On or before September 30, 1997, returns shall equal no more
than thirty-seven and one-half percent (37.5%) of any particular
participating vendor's Prepetition Claim. No further returns shall be
made until a minimum of thirty (30) days following the bar date
established for filing proofs of claim in the Bankruptcy Case (the "Bar
Date"), which Bar Date shall be no later than October 31, 1997.
Following the Bar Date, if the claims of merchandise vendors exceed
S10.55 million. Barry's shall not return merchandise to any vendor which
exceeds such vendor's pro-rata share of the Maximum Return Amount based
on the face amount of the Prepetition Claims filed and deemed filed by
merchandise vendors. To the extent that the aggregate claims of
merchandise vendors on account of Prepetition Claims subsequently are
reduced. Barry's will return additional merchandise to the vendors, on a
pro-rata basis, up to the Maximum Return Amount.
b. For purposes of the vendor return program, the prepetition
merchandise shall be valued, in accordance with Bankruptcy Code section
546(g), based solely on the purchase price set forth in the prepetition
invoice for such prepetition merchandise, subject to
<PAGE> 2
verification by Barry's as to accuracy. Barry's will use reasonable and
good faith efforts, in cooperation with the vendor, to identify the
prepetition Invoice pursuant to which the vendor shipped the
merchandise. Should Barry's be unable, despite such reasonable and good
faith efforts, to match the vendor's goods with the vendor's invoices,
the vendor will then nonetheless be required to accept the goods under
the return program, so long as such goods are of the same Category and
to reduce its Prepetition Claim accordingly. The Categories shall be:
(1) Diamond Merchandise; (2) Watches; (3) Gold Merchandise; (4) Colored
Stone Merchandise; and (5) Miscellaneous. Barry's may select the
prepetition merchandise to be returned in its sole and absolute
discretion subject to the requirement that the Value of prepetition
merchandise returned does not exceed the Maximum Return Amount; the
prepetition merchandise to be returned shall not include merchandise
obtained by Barry s on consignment or memo.
3. The prepetition merchandise returned to a vendor shall be
credited dollar-for-dollar against and shall offset the vendor's Prepetition
Claim. Under any plan of reorganization, the return of the prepetition
merchandise shall not be treated as an early "distribution" or earl "dividend"
to the vendor on account of the vendor' Prepetition Claim, but rather, the
amount of the vendor's claim entitled to distributions or dividends under such a
plan shall be the amount remaining after the credit and offset of such claim for
the Value of the prepetition merchandise returned.
4. Upon execution of a Trade Financing Agreement with a prepetition
vendor, Barry's shall promptly provide the vendor with an inventory of
approximately fifty percent (50%) of the prepetition merchandise to be returned
to the vendor. Subject to paragraph 2 (including the, Maximum Return Amount)
Barry's shall return the prepetition merchandise to participating vendors no
later than (a) on or prior to September 30, 1997, one week after Barry's receipt
of merchandise with an aggregate Value of $5.54 million (1.4 times the Value of
the prepetition merchandise to be returned prior to September 30, 1997); and (b)
on or after October 1, 1997 and prior to November 30, 1997, one week after
Barry's receipt of merchandise with a Value which when added to the Value of
merchandise received prior to September 30, will equal or exceed $9.9 million.
Barry's must (and is required to) purchase and have received at least $5.54
million of merchandise on or before September 30, 1997 and an aggregate total of
$9.9 million by November 30, 1997.
5. The Collateral Agent shall have liens upon the Credit Merchandise
to the same extent and with the same priority and validity as the liens on the
prepetition merchandise returned hereunder.
6 . Barry's and the vendor will cooperate with each other in
conducting a joint review and reconciliation of Barry's prepetition accounts
payable to the vendor, with a view to determining and agreeing upon the exact
amount of the Prepetition Claim. Pending agreement on the amount of the
Prepetition Claim, solely for purposes of determining the maximum amount of
prepetition merchandise that may be returned initially and credited against the
vendor's Prepetition Claim, Barry's records shall be determinative. If Barry's
and the participating vendor have not reconciled the vendor's Prepetition Claim
before September 1, 1997, the participating vendor may ask the Court to resolve
the dispute. The Collateral Agent, the Bank Group and the Bondholder Committee
shall be deemed parties-in-interest in this reconciliation proceeding before the
Court. If the Court determines that the Prepetition Claim is greater than that
asserted by Barry's, Barry's
-2-
<PAGE> 3
will return additional prepetition merchandise to the vendor as set forth herein
(subject, of course, to the vendor complying with the terms of the Trade
Financing Agreement and to the Maximum Return Amount limitations set forth in
paragraph 2).
7. The Minimum Credit Commitment will continue for one (1) year from
the execution by the vendor of a Trade Financing Agreement but shall terminate
earlier if there is an Event of Default (as defined below) under this Term Sheet
or as set forth herein. Upon an Event of Default under this Term Sheet other
than as set forth in paragraph 8(d) below. all post-petition payables for
merchandise (i) consigned and sold or (ii) shipped on credit pursuant to this
Term Sheet shall be immediately due and payable, and subject to the Amended Cash
Collateral Stipulation, the Trade Subordination and the Trade Trust (1) shall be
paid and (2) all merchandise ordered but not yet received by Barry's shall be
paid for C.O.D.
8. Unless waived in writing by the Creditors' Committee in its sole
discretion, each of the following shall constitute an "Event of Default" under
this Term Sheet and the Trade Financing Agreements:
a. With respect to all participating vendors, default in the
payment or performance of any of Barry's obligations or agreements under
Trade Financing Agreements with participating vendors with Prepetition
Claims totaling in excess of $2 million, which continues for more than
ten (10) business days after such vendors or the Creditors' Committee
gives Barry's written notice thereof, or
b. With respect to all participating vendors, any representation
or warranty made by Barry's in any certificate, statement or agreement,
including but not limited to any of such furnished in connection with
the Trade Financing Agreement to the Committee or participating vendors
with Prepetition Claims totaling in excess of $2 million, should prove
to be false or misleading in any material respect; or
C. An order of the Bankruptcy Court is entered (i) prohibiting
Barry's us, of cash and cash proceeds constituting cash collateral in
an amount sufficient to meet its obligations under Trade Financing
Agreements prior to the confirmation of a plan of reorganization; or
(ii) if the Amended Cash Collateral Stipulation is approved, if at any
time the use of cash collateral is subsequently restricted in a manner
which renders Barry's unable to timely pay its obligations under Trade
Financing Agreements; or (iii) appointing a chapter 11 trustee in the
Chapter 11 Case; or (iv) converting the Chapter 11 Case to a chapter 7;
or (v) dismissing the Chapter 11 Case. The Amended Cash Collateral
Stipulation shall be deemed to provide sufficient cash to satisfy
Barry's obligations under Trade Financing Agreements and shall not
therefore be a basis for a default under clause (i) or (ii) above so
long as it remains in effect in the form agreed to by the Parties.
d. A plan of reorganization is confirmed and becomes effective
which does not provide for (i) all post-petition trade payables to be
paid in full on or before the later of the effective date of the plan or
the date such trade payables become due and payable unless a
participating vendor agrees to a less favorable treatment in its sole
discretion, (ii) all prepetition memo merchandise still in the Debtor's
possession to be paid for in full or
-3-
<PAGE> 4
returned subject to the provisions of paragraph 17 below unless a
participating vendor agrees to a less favorable treatment in its sole
discretion; (iii) the Trade Trust and Subordination to be maintained in
accordance with paragraph 13 hereof; and (iv) satisfying any of Barry's
obligations to return merchandise hereunder which remain unperformed at
confirmation; or
e. The occurrence of a material adverse event that materially
impairs Barry's performance under the Trade Financing Agreements.
The Creditors' Committee (on behalf of participating vendors) shall
be deemed to be the sole beneficiary of the Trade Trust (as hereinafter defined)
which, if there is an Event of Default, shall, after giving the Debtor, the
Collateral Agent, the Bank Group and Bondholder Committee written notice of
default and a ten (10) business day opportunity to cure or obtain injunctive
relief or a judicial determination that an Event of Default has not occurred, be
immediately distributed to participating vendors on a pro-rata basis, based on
participating vendors' claims under Trade Financing Agreements, without further
order of the Court.
9. The following shall constitute an Event of Default under a Trade
Financing Agreement but not under this Term Sheet:
a. With respect to any particular vendor's obligations under its
Trade Financing Agreement, default in the payment or performance of any
of Barry's obligations or agreements under the Trade Financing Agreement
which continues for more than ten (10) business days after the vendor
gives Barry's written notice thereof; or
b. With respect to any particular vendor's obligations under its
Trade Financing Agreement, any representation or warranty made by
Barry's in any certificate, statement or agreement, including but not
limited to any of such furnished in connection with the Trade Financing
Agreement, should prove to be false or misleading in any material
respect.
10. Any material breach of a Trade Financing Agreement by a vendor
which remains uncured for ten (10) business days after the vendor's receipt of
written notice of such alleged material breach, shall result in the vendor
forfeiting all rights and protections under its Trade Financing Agreement.
Barry's agrees to promptly provide written notice of any material breach.
11. Unless waived in writing by the Creditors' Committee in its sole
discretion, any material breach of this Term Sheet by Barry's or the occurrence
of an Event of Default which, in either case, remains uncured for ten (10)
business days after Barry's receipt of written notice of such breach or Event of
Default under this Term Sheet, shall entitle participating vendors to retain all
benefits hereunder but be relieved of any and all further obligations to provide
Barry's with merchandise. Any material breach of a Trade Financing Agreement or
Event of Default under a particular vendor's Trade Financing Agreement which, in
either case, remains uncured for ten (10) business days after Barry's receipt of
written notice of such breach or Event of Default under the particular vendor's
Trade Financing Agreement, shall entitle such vendor to retain all benefits
hereunder but be relieved of any and all further obligations to provide Barry's
with merchandise. All Parties agree to promptly provide written notice of a
material breach or Event of Default.
-4-
<PAGE> 5
12. Each participating vendor must accept orders from Barry's for
the purchase of any goods offered by the vendor for sale to retailers at the
same prices offered by the vendor to the vendor's other mall-based customers of
a similar size ("Similar Customers"), and all shipments must be upon the
industry's normal and customary delivery schedules for the particular type of
merchandise. Any and all Credit Merchandise shall be delivered and accepted
pursuant to written policies and procedures reasonably adopted by Barry's and
reasonably approved by the vendor. Each vendor must accept from Barry's
returns of any and all Credit Merchandise on terms no less favorable than the
vendor extends to Similar Customers.
13.
a. The members of the Bondholder Committee hereby subordinate
four million dollars ($4 million) of the members' allegedly secured
claims to post-petition trade payables relating to the purchase by the
Debtor of Credit Merchandise or to post-petition payables arising out of
the sale of goods consigned by any consignor participating in the
program set forth in the second sentence of paragraph 17 (the "Trade
Subordination") (without prejudice to their rights to seek to adjust any
recovery of the bondholders from the Debtor or their interest in the
collateral (whether through a plan or otherwise) to ensure that in the
event the Trade Subordination is ever enforced, the bondholders will
share the burden of such subordination on a pro-rata basis). The Trade
Subordination is irrevocable and indefeasible.
b. The Debtor agrees to fund promptly upon entry of an order
approving the Amended Cash Collateral Stipulation on a final basis two
million dollars ($2 million) into a trust for the sole benefit of the
Creditors' Committee on behalf of participating vendors hereunder (the
"Trade Trust"). The Debtor may not fund more than $2 million into the
Trade Trust. The Bank Group and the Collateral Agent shall subordinate
their security interests and the replacement liens granted to them under
the Amended Stipulation to the interest granted herein to the vendors in
the Trade Trust. The Trade Trust shall be placed in an interest-bearing
account in a bank that is not affiliated with the Bank Group in the name
of the Creditors' Counting in trust for trade vendors. The Creditors'
Committee, with the cooperation of Barry's, shall have the sole
responsibility for administering the Trade Trust, and neither the Bank
Group nor the Bondholders shall have any such responsibility.
Notwithstanding any other provision of this Agreement, if the Amended
Cash Collateral Stipulation is terminated pursuant to paragraph 17
thereof, the funds in the Trade Trust shall be applied as set forth in
paragraph 18 of the Amended Cash Collateral Stipulation and any funds
remaining shall be immediately returned to the Debtor.
c. If the Trade Trust is eliminated or reduced, the members of
the Bondholders' Committee hereby indefeasibly and irrevocably
subordinate to post-petition trade payables relating to the purchase by
the Debtor of Credit Merchandise or to post-petition payables arising
out of the sale of goods consigned by any consignor participating in the
program set forth in the second sentence of paragraph 17, an additional
amount equal to two million dollars ($2 million) minus any amounts
previously paid to vendors from the
-5-
<PAGE> 6
Trade Trust; provided that the aggregate Trade Subordination shall not
exceed six million dollars ($6 million).
On the Wednesday following the Debtor's funding of the Trade Trust,
the Debtor shall provide the Parties with a borrowing base certificate,
reflecting that, on the date the Trade Trust was funded, the borrowing base had
not been exceeded, and a certificate from the Chief Financial Officer attesting
that there were, to the best of his knowledge, on the date the Trade Trust was
funded, no existing defaults under the Amended Cash Collateral Stipulation.
Within 2 business days after receipt of these certificates, the Collateral Agent
must give the other Parties written notice of any objection to the funding of
the Trade Trust or be forever barred from raising any such objection as to the
Trade Trust, the Creditors' Committee or participating vendors. Thereafter,
subject only to the last sentence of 13(b), the Parties agree that the Trade
Trust will not be subject to challenge even if the Amended Cash Collateral
Stipulation is terminated and shall be maintained solely for the Creditors'
Committee for the benefit of participating vendors. Subject to the Amended Cash
Collateral Stipulation, the Trade Trust and Trade Subordination, all Credit
Merchandise payables arising from goods shipped prior to December 31, 1997 must
be paid in full by the earlier of February 28, 1998 or ninety (90) days
following receipt by Barry's of the invoice for the merchandise in question. On
disbursement (following an Event of Default), the Trade Trust shall first be
disbursed pro-rata to participating vendors based upon the amount of credit such
vendors have outstanding under Trade Financing Agreements. Any funds remaining
following payment in full of all trade payables generated from Credit
Merchandise shall be distributed on a pro-rata basis to vendors who remain owed
post-petition trade payables as a result of memo merchandise sold pursuant to
paragraph 17 hereof. The Trade Trust shall be returned to the Debtor after the
Debtor has paid all trade payables outstanding at the time all Trade Financing
Agreements have either expired or terminated.
14. The participating vendors will receive a superpriority
administrative claim pursuant to Bankruptcy Code Section 364(c)(1) for all
unpaid post-petition trade payables in excess of $6 million subordinate only to
any superpriority administrative claim of the Collateral Agent for a failure of
adequate protection by use of cash collateral.
15. Barry's will offer participation in the Trade Financing
Agreement to every prepetition merchandise vendor and to every vendor from whom
Barry's wishes to order asset merchandise post-petition; provided that vendors
who do not have Prepetition Claims do not receive returns of prepetition
merchandise.
16. Barry's will not use the provisions of Bankruptcy Code section
1129, or any other section of the Bankruptcy Code, to alter its obligations
under the Trade Financing Agreement unless any such alteration is agreed to by
the vendor in its sole discretion. The effectiveness of a plan of reorganization
shall constitute a termination of a Trade Financing Agreement, and all
outstanding payables hereunder shall be paid as set forth in paragraph 8(d)
hereof unless the vendor agrees otherwise. Nothing herein shall constitute an
express or implied obligation by the Bank Group or the members of the
Bondholders' Committee to fund the payments required for a plan to become
effective, including, but not limited to the trade payables referenced in this
paragraph 16.
-6-
<PAGE> 7
17. Barry's will agree to a global UCC filing to cover consigned
goods provided to Barry's post-petition. If a prepetition consignor agrees that
Barry's may sell consigned goods provided to Barry's prepetition, Barry's will
pay the consignor on 30-day terms as the goods are sold; provided however, that
Barry's must sell the prepetition consigned goods for an average of no less than
50% off the retail price for such goods. On or before February 28, 1998, Barry's
may return up to (but not more than) $500,000 at cost of unsold prepetition memo
inventory to vendors and prior to May 1, 1998, Barry's may return up to (but not
more than) an additional $200,000 at cost of prepetition memo merchandise to
vendors (in both cases based upon the price of the goods as set forth in the
prepetition memo for such goods), provided however that to participate under
this paragraph 17, such prepetition memo vendor must have agreed to provide
Barry's with new memo merchandise under the post-petition consignment agreement
equal to or greater than one and one-half times the amount of prepetition memo
inventory returned, and memo vendors in the aggregate must in fact have provided
to Barry's in excess of one hundred-fifty percent (150%) of the prepetition memo
inventory in new memo merchandise. No party shall challenge any payments or
returns made under and in accordance with this paragraph. The Bank Group has no
responsibility for any proration hereunder.
18. This Agreement may be executed in counterparts, each of which
shall constitute an original, and all of which taken together shall be the
Agreement of the signatories. This Agreement will be deemed executed upon
receipt by the Debtor of a faxed or telecopied signature.
19. The Bondholder Committee shall promptly obtain signatures of
each of its members reaffirming the Term Sheet and specifically the Trade
Subordination.
20. This Term Sheet shall be binding upon the Debtor, the Creditors'
Committee, the Collateral Agent, the Bank Group, each member of the Bondholders'
Committee, participating vendors, and each of their respective successors and
assigns and shall inure to the benefit of the Debtor, the Creditors' Committee,
the Collateral Agent, the Bank Group, the Bondholder Committee, participating
vendors, and each of their respective successors and assigns.
21. The Debtor shall move promptly for Court approval of this Term
Sheet, and all Parties hereto shall support, and use their best efforts to
obtain, expeditious entry of an order approving this Term Sheet.
-7-
<PAGE> 8
Agreed to subject only to Bankruptcy Court approval.
Barry's Jewelers. Inc.
By: /s/ SAMUEL J. MERKSAMER
-----------------------------------------
Name: Samuel J. Merksamer
---------------------------------------
Its: President
----------------------------------------
Official Committee of Bondholders
By: /s/ S. RICHARDS
-----------------------------------------
Name: S. Richards
---------------------------------------
Its: Counsel
----------------------------------------
Official Committee of Unsecured Creditors
By: /s/ SHELLY ROTHSCHILD
-----------------------------------------
Name: Shelly Rothschild
---------------------------------------
Its: Counsel
----------------------------------------
BankBoston. N.A.
f/k/a The First National Bank of Boston
Individually and as Collateral Agent
By: /s/ STEVEN ATWATER
-----------------------------------------
Name: Steven Atwater
---------------------------------------
Its: Vice President
----------------------------------------
Jackson National Life Insurance Company
By PPM America, Attorney-in-fact
By: /s/ JOEL KLEIN
-----------------------------------------
Name: Joel Klein
---------------------------------------
Its: Vice President
----------------------------------------
-8-
<PAGE> 9
Sanwa Business Credit Corporation
By: /s/ JEFF G. GERRY
-----------------------------------------
Name: Jeff G. Gerry
---------------------------------------
Its: Vice President
----------------------------------------
CIT Business Credit, Inc.
By: /s/ JAMES CONBEENEY
-----------------------------------------
Name: James Conbeeney
---------------------------------------
Its: Vice President
----------------------------------------
-9-
<PAGE> 10
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re Case No. LA 97-27988 VZ
Chapter 11
BARRY'S JEWELERS, INC., a
California corporation; et NOTICE OF ENTRY OF JUDGMENT OR
al., ORDER AND CERTIFICATE OF
MAILING
Debtor
TO: THOSE PARTIES LISTED ON EXHIBIT "A" ATTACHED HERETO AND INCORPORATED HEREIN
BY REFERENCE.
You are hereby notified, pursuant to Bankruptcy Rules 7005 and 9022, and
Local Bankruptcy Rule 116(l)(a)(iv), that a judgment* or order entitled ORDER
APPROVING "TRADE FINANCING AGREEMENT TERM SHEET" AND AUTHORIZING (A) DEBTOR'S
ENTRY INTO TRADE FINANCING AGREEMENTS; (B) RETURN OF PREPETITION MERCHANDISE
FREE AND CLEAR OF LIENS AND CLAIMS PURSUANT TO BANKRUPTCY CODE SECTION 546(G);
(C) MAINTENANCE OF TRADE TRUST; AND (D) GRANTING OF SUPERPRIORITY ADMINISTRATIVE
CLAIMS PURSUANT TO TRADE FINANCING AGREEMENTS was entered on .
I hereby certify that I mailed a copy of this notice and a true copy of
the Order or judgment to the above-named persons on_____________________.
DATED: JON D. CERETTO
CLERK OF COURT
By
---------------------------------
Deputy Clerk
If a judgment is by default, then a copy of the judgment must be
attached to this notice.
<PAGE> 11
<TABLE>
<S> <C> <C>
Linda Bailey, Esq. Michael L. Tuchin, Esq. Gregory Bray
Office of the United States Trustee Stutman Treister & Glatt Professional Stroock & Stroock & Lavan
221 North Figueroa Street Corporation 2029 Century Park East, Suite 1800
Suite 800 3699 Wilshire Boulevard Los Angeles, CA 90067-3089
Los Angeles, CA 90012 Suite 900
Los Angeles, CA 90010
Jeremy Richards Shelly Rothschild, Esq. Ms. Deborah Schner-Rape, Esq.
Pachulski, Stang, Ziehl & Young Andrews & Kurth, LLP Andrews & Kurth
10100 Santa Monica Boulevard 601 South Figueroa Street 1717 Main Street
Suite 1100 Suite 4200 Suite 3700
Los Angeles, CA 90067 Los Angeles, CA 90017 Dallas, TX 75201
</TABLE>
<PAGE> 1
EXHIBIT 10.15(b)
FORM OF
TRADE FINANCING AGREEMENT
This Trade Financing Agreement ("Agreement") made as of the __ th
day of, 1997, is by and between (Company), ("Supplier"), with its principal
offices at (Address1) (Address2), (City), (State) (PostalCode), and Barry's
Jewelers, Inc., a California corporation ("Barry's"), with its principal offices
at 111 West Lemon Avenue, Monrovia, California 91016.
WITNESSETH:
A. RECITALS.
WHEREAS, on May 11, 1997 ("Petition Date"), Barry's filed a
voluntary petition for relief with the United States Bankruptcy Court for the
Central District of California ("Bankruptcy Court") under chapter 11, title 11
of the United States Code, Case No. CA 97-27988-VZ ("Chapter 11 Case");
WHEREAS, Barry's utilizes inventory and other merchandise in its
operations;
WHEREAS, Barry's obtained inventory from Supplier on credit terms
prior to the Petition Date;
WHEREAS, Barry's desires to return to Supplier certain
merchandise purchased prior to the Petition Date, for credit against Supplier's
prepetition claim against Barry's in accordance with the terms of this Agreement
and that certain Trade Financing Agreement Term Sheet ("Term Sheet") by and
among Barry's, the Official Committee of Unsecured Creditors appointed in the
Chapter 11 Case (the "Creditors' Committee"), the Official Committee of
Bondholders appointed in the Chapter 11 Case (the Bondholders' Committee"), and
Bank Boston (the "Collateral Agent"), Jackson National Life Insurance Company,
Sanwa Business Credit Corporation and the CIT Group/Business Credit, Inc.
(collectively, the "Bank Group"), a copy of which is attached hereto as Exhibit
"A" and incorporated herein by this reference;
WHEREAS, Supplier is willing to accept the return of merchandise
purchased by Barry's prior to the Petition Date, for credit against Supplier's
prepetition claim against Barry's in accordance with this Agreement and the Term
Sheet;
WHEREAS, Barry's desires to obtain merchandise on credit from
Supplier following the Petition Date in accordance with the terms of this
Agreement and the Term Sheet;
WHEREAS, Supplier is willing to supply merchandise following the
Petition Date to Barry's on credit, on the terms and conditions set forth in
this Agreement and the Term Sheet;
1
<PAGE> 2
WHEREAS, the Term Sheet was approved, and Barry's was authorized
to enter into Trade Financing Agreements such as this Agreement, pursuant to an
order of the United States Bankruptcy Court for the Central District of
California entered on August 7, 1997; and
WHEREAS, the foregoing Recitals shall be construed as part of
this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter contained, the parties do hereby agree as follows:
B. RETURN OF GOODS.
1. Subject to, and in accordance with, the terms of the Term
Sheet, Barry's agrees to return and deliver, and Supplier agrees to accept
return of $amt75 in merchandise purchased by Barry's prior to the Petition Date
(the "Prepetition Merchandise"). For purposes of this Agreement, in accordance
with Bankruptcy Code section 546(g), the Prepetition Merchandise shall be valued
based solely on the purchase price set forth in the prepetition invoice for such
Prepetition Merchandise, subject to verification by Barry's as to accuracy.
Barry's will use reasonable and good faith efforts, in cooperation with
Supplier, to identify the prepetition invoice pursuant to which Supplier shipped
the Prepetition Merchandise. Should Barry's be unable, despite such reasonable
and good faith efforts, to match the Prepetition Merchandise to be returned to
Supplier with Supplier's invoices, Supplier will nonetheless be required to
accept the Prepetition Merchandise (as long as the Prepetition Merchandise being
returned to Supplier is of the same Category or Categories as the merchandise
supplied to Barry's by Supplier prepetition) and to reduce its Prepetition Claim
(as described in paragraph D.1) accordingly. The Categories shall be: (1)
Diamond Merchandise; (2) Watches; (3) Gold Merchandise; (4) Colored Stone
Merchandise; and (5) Miscellaneous. Barry's may select the Prepetition
Merchandise to be returned in its sole and absolute discretion. For all
purposes, as used in this Agreement, the term Prepetition Merchandise does not
include merchandise obtained by Barry's on consignment or memo.
2. Prepetition Merchandise returned to Supplier shall be credited
dollar-for-dollar against and shall offset Supplier's Prepetition Claim.
3. Under any plan of reorganization, the return of the
Prepetition Merchandise shall not be treated as an early "distribution" or early
"dividend" to Supplier on account of Supplier's Prepetition Claim, but rather,
the amount of Supplier's Prepetition Claim entitled to distributions or
dividends under such a plan shall be the amount remaining after the credit and
offset of such claim for the value of the Prepetition Merchandise returned.
4. In accordance with the terms of the Term Sheet, on or before
September 30, 1997, Barry's shall not return Prepetition Merchandise having more
than
2
<PAGE> 3
a value of thirty-seven and one-half percent (37.5%) of Supplier's Prepetition
Claim. Any additional returns shall be made in accordance with the Term Sheet.
Barry's shall keep Supplier apprised of the timing and amount of any additional
returns.
C. POSTPETITION CREDIT.
1. Supplier hereby agrees to provide postpetition revolving
credit for merchandise purchases to Barry's on 90-day terms in an amount not
less than $amt25, an amount equal to two and one-half times the value of the
Prepetition Merchandise to be returned to Supplier (which minimum level of
credit is hereinafter referred to as the "Minimum Credit Commitment"), for a
period of one year form the date of this Agreement. The Minimum Credit
Commitment shall terminate earlier if there is an uncured and unwaived Event of
Default by Barry's under this Agreement (as set forth in Section F hereof) or an
Event of Default by Barry's under the Term Sheet (as set forth in Section G
hereof).
2. Supplier will accept orders from Barry's for the purchase of
any goods offered by Supplier for sale to retailers at the same prices offered
by Supplier to Supplier's other mall-based customers of a similar size ("Similar
Customers"), and all shipments must be upon the industry's normal and customary
delivery schedules for the particular type of merchandise. Any and all Credit
Merchandise shall be delivered and accepted pursuant to written policies and
procedures substantially in the form of Exhibit "B" hereto. Supplier will accept
from Barry's returns of any and all Credit Merchandise on terms no less
favorable than Supplier extends to Similar Customers.
3. To the extent provided in the Term Sheet, Supplier will
receive a superpriority administrative claim pursuant to Bankruptcy Code ss.
364(c)(1) for all unpaid payables under this Agreement subordinate only to any
superpriority administrative claim of the Collateral Agent for a failure of
adequate protection by use of cash collateral.
4. Upon execution of this Agreement, Barry's will promptly
provide Supplier with an inventory of approximately fifty percent (50%) of the
Prepetition Merchandise to be returned to Supplier. Barry's shall return the
Prepetition Merchandise to Supplier according to the terms of the Term Sheet.
D. RECONCILIATION.
1. Barry's and Supplier agree to cooperate with each other in
conducting a joint review and reconciliation of Barry's prepetition accounts
payable to Supplier, with a view to determining and agreeing upon the exact
amount of Supplier's prepetition claim to be allowed against Barry's in the
chapter 11 case ("Prepetition Claim"); pending agreement on the amount of the
Prepetition Claim, for purposes of determining the maximum amount of Prepetition
Merchandise that may be returned initially and credited against the Supplier's
Prepetition Claim, Barry's records shall be determinative. If Barry's and
Supplier have not reconciled the vendor's Prepetition
3
<PAGE> 4
Claim before September 1, 1997, the participating vendor may ask the Court to
resolve the dispute. The Collateral Agent, the Bank Group and the Bondholders'
Committee shall be deemed parties-in-interest in this reconciliation proceeding
before the Court. If the Court determines that the Prepetition Claim is greater
than that asserted by Barry's, paragraph B.1 above shall be increased
accordingly (and Barry's will return additional Prepetition Merchandise to
Supplier subject to the limitation set forth in paragraph 2 of the Term Sheet)
provided that Supplier increases its Minimum Credit Commitment pursuant to
paragraph C.1 and otherwise complies with the terms of this Agreement and the
Term Sheet.
E. TERM OF AGREEMENT; ASSIGNABILITY.
1. This Agreement and the Minimum Credit Commitment shall remain
in full force and effect for a minimum term of one year from the date hereof
unless terminated earlier in accordance with this Agreement or the Term Sheet.
Notwithstanding any expiration or termination of this Agreement, except for the
Minimum Credit Commitment and Supplier's obligations to ship Credit Merchandise,
upon any such termination or expiration the remaining provisions of this
Agreement shall remain in full force and effect until all Credit Merchandise
delivered to Barry's has been paid for in full, unless this Agreement is
terminated in accordance with paragraph H hereof.
2. This Agreement is not assignable without the prior written
approval of Supplier and Barry's in their respective sole discretion.
3. This Agreement shall be binding upon Supplier and its
successors and assigns.
F. EVENTS OF DEFAULT BY BARRY'S UNDER THIS AGREEMENT.
1. The following shall constitute Events of Default under this
Agreement by Barry's:
a. Default in the payment or performance of any of Barry's
obligations or agreements hereunder which continues for more than ten
(10) business days after Barry's receipt of written notice thereof; or
b. Any representation or warranty made by Barry's herein
or in any certificate, statement or agreement, including but not limited
to any of such furnished in connection with this Agreement, should prove
to be false or misleading in any material respect.
2. Any material breach of this Agreement or Event of Default
under this Agreement which, in either case, remains uncured for ten (10)
business days after Barry's receipt of written notice of such breach or Event of
Default under this Agreement, shall entitle Supplier to retain all benefits
hereunder but be relieved of any and all further obligations to provide Barry's
with merchandise.
4
<PAGE> 5
G. EVENTS OF DEFAULT BY BARRY'S UNDER THE TERM SHEET.
1. The occurrence of any of the events set forth in sections a
through e of paragraph 8 of the Term Sheet, unless waived in writing by the
Creditors' Committee in its sole discretion, shall constitute an Event of
Default by Barry's under the Term Sheet.
2. Unless waived in writing by the Creditors' Committee in its
sole discretion, any material breach of the Term Sheet by Barry's or the
occurrence of an Event of Default by Barry's under the Term Sheet which, in
either case, remains uncured for ten (10) business days after Barry's receipt of
written notice of such breach of Event of Default by Barry's under the Term
Sheet, shall entitle Supplier to: (i) retain all benefits under this Agreement
but to be relieved of any and all further obligations to provide Barry's with
merchandise; and (ii) share, on a pro-rata basis (based on Supplier's claims
under this Agreement) in the proceeds from the Trade Trust and/or the Trade
Subordination (both as defined in the Term Sheet) as and to the extent set forth
in the Term Sheet.
H. EVENTS OF DEFAULT BY SUPPLIER.
1. As used herein, the term "Event of Default by Supplier" shall
mean the occurrence of any one or more of the following:
a. Default in performance of any of Supplier's obligations
or agreements hereunder which continues for more than ten (10) business
days after Supplier receives written notice thereof; or
b. Any representation or warranty made by Supplier herein
or in any certificate, statement or agreement furnished in connection
with this Agreement should prove to be false or misleading in any
material respect.
2. Any material breach of this Agreement by Supplier or any Event
of Default by Supplier which, in either case, remains uncured for ten (10)
business days after Supplier's receipt of written notice of such alleged
material breach, shall result in Supplier forfeiting all rights and protections
under this Agreement and the Term Sheet. Barry's shall also retain all rights
and remedies available under applicable law. Barry's agrees to promptly provide
written notice of any material breach by Supplier under this Agreement.
I. OTHER PROVISIONS.
1. Each party to this Agreement agrees that if it hereafter
commences, joins in, or seeks relief through any suit arising out of this
Agreement, then the prevailing party shall pay to the other party all attorneys'
fees and expenses reasonably incurred by said party in defending or otherwise
responding to said suit or claim. Subject to the foregoing, the parties shall
bear their own respective attorneys' fees and expenses in connection with the
negotiation and implementation of this Agreement.
5
<PAGE> 6
2. Except as expressly set forth herein, nothing herein shall be
deemed to waive any claims or causes of action, including any avoidance actions,
of Supplier, Barry's or Barry's estate.
3. Barry's will not use the provisions of Bankruptcy Code section
1129, or any other section of the Bankruptcy Code, to alter its obligations
under this Agreement, unless any such alteration is agreed to by Supplier in its
sole discretion. The effectiveness of a plan of reorganization shall constitute
a termination of this Agreement, and all outstanding payables hereunder shall be
paid as set forth in the Term Sheet, unless Supplier agrees otherwise. Supplier
understands that upon confirmation of such plan, any obligations of Barry's
under this Agreement arising thereafter shall not constitute administrative
priority claims, because Barry's ability to confer administrative priority
status in accordance with law shall cease on confirmation of any such plan.
4. This Agreement and the Term Sheet set forth the parties' final
and entire understanding with respect to its subject matter, cannot be changed,
wavered or terminated orally, and shall be governed by and construed under the
laws of the State of California (without reference to its rules as to conflicts
of law). If any provision shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and shall not
affect or render invalid or unenforceable any other provision of this Agreement
and this Agreement shall be construed as if such provision were drafted so as
not to be invalid or unenforceable.
5. This Agreement may be executed in counterparts, each of which
when so executed and delivered shall be deemed to be an original, but all of
which taken together shall constitute but one and the same instrument.
Signatures may be exchanged by telecopy, and each party agrees to be bound by
its own telecopied signature and to accept the telecopied signature of the other
party.
6. The Bankruptcy Court in Barry's chapter 11 case shall retain
exclusive jurisdiction regarding this Agreement.
7. Any notice given hereunder or in connection herewith shall be
in writing and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by telecopy), the day of delivery by commercial
courier to a responsible individual or the third day after mailing by certified
or registered mail, postage prepaid, as follows:
6
<PAGE> 7
a. If to Barry's:
Barry's Jewelers, Inc.
Attention: Chief Financial Officer
111 West Lemon Avenue
Monrovia, California 91016
Telephone: (818) 303-4741
Telecopy: (818) 305-9281
With a copy to:
Stutman, Treister & Glatt Professional Corporation
Attention: Michael L. Tuchin
3699 Wilshire Boulevard, Suite 900
Los Angeles, CA 90010
Telephone: (213) 251-5100
Telecopy: (213) 251-5288
b. If to Supplier:
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
With a copy to:
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
or to such other address as any party may have furnished in writing to the other
party in the manner provided above.
8. Supplier represents and warrants to Barry's that it has not
assigned or transferred any interest in its Prepetition Claim.
9. Each signatory hereto represents and warrants that he or she
has the power and authority to execute and deliver this Agreement on behalf of
the party for whom he or she is executing this Agreement.
10. Each of the parties hereto has agreed to the use of the
particular language of the provisions of this Agreement, and any question of
doubtful interpreta-
7
<PAGE> 8
tion shall not be resolved by any rule providing for interpretation against the
party who causes the uncertainty to exist or against the drafter of this
Agreement.
11. The parties to this Agreement shall execute or procure the
execution of such documents and take such steps as may reasonably be required to
give the parties the full benefit of this Agreement and the Term Sheet.
12. To the extent of any inconsistency between this Agreement and
the Term Sheet, the Term Sheet shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
BARRY'S JEWELERS, INC.: Randy McCullough
Date: __________________________ By_______________________________
Authorized Signatory
(Company) (FirstName) (LastName)
Date: __________________________ By_______________________________
Authorized Signatory
<PAGE> 1
EXHIBIT 10.15(c)
EXHIBIT B
Barry's Jewelers, Inc. has recently established a policy and procedures for all
of its approved vendors. We would greatly appreciate your carefully reviewing
the following policy and procedures. Thereafter, we ask that you please sign a
copy of this Exhibit B acknowledging your consent hereto, and return the copy to
us.
1. Purchases
Only a duly authorized purchasing agent may authorize purchases.
2. Purchase Orders/Consignment Orders
A) All merchandise ordered, whether oral or written, must be approved by
an authorized purchasing agent of Barry's Jewelers, Inc. All orders will
be written on an official purchase order/consignment order.
B) All merchandise will be shipped to the location designated on each
purchase order.
C) All purchase orders will have mutually agreed upon payment terms
written on the purchase order. The terms will be the latter of the terms
of the shipping invoice or the terms of the purchase order.
D) No substitutes will be accepted without the prior consent of the
authorized purchasing agent. At our option, merchandise substitutes
without advance approval may be returned to you.
E) Your company may not modify or vary any provision of the purchase
order without the prior written approval of an authorized purchasing
agent.
F) In the event that any or all of the merchandise delivered under the
purchase order is defective, or in the event merchandise has been
delivered pursuant to a sample and the merchandise is not in every
aspect as represented or warranted or identical to the sample in all
aspects, then Barry's Jewelers, Inc. at its sole and exclusive option,
may at any time return the whole or any part of such merchandise ordered
to you or may retain the same. In the event of rejection, Barry's
Jewelers, Inc. shall be reimbursed in full for all merchandise.
G) Transportation costs for goods on back order shall be paid by Barry's
Jewelers, Inc. at the rates which would have been applicable had the
complete order been shipped at one time. Any excess transportation costs
shall be borne by the supplier.
H) If the goods are FOB shipping point, only actual postage and
insurance will be paid by Barry's Jewelers, Inc. No service, packing or
handling charges will be paid by Barry's Jewelers, Inc.
3. Invoices
A) All of your invoices must reference the purchase order number.
B) Separate invoices must be issued for each purchase order. Do not mix
merchandise from multiple purchase orders on one invoice.
<PAGE> 2
C) All invoices must clearly and separately show the "shipped to" and
"billed to" location and address.
D) Original invoices must be mailed to the "bill to" address. A copy of
the invoice must accompany the merchandise to the place of shipment.
4. Code of Ethics
A) Under no circumstances are any members of your company to discuss any
knowledge of Barry's Jewelers, Inc.'s business or business practices
with other vendors, retailers, or investors without prior approval from
Barry's Jewelers, Inc. All information about Barry's Jewelers, Inc. and
the products it purchases are confidential. You may, however, respond to
normal credit inquiries about Barry's Jewelers, Inc.
B) Gifts to Barry's Jewelers, Inc. employees are strongly discouraged.
Any holiday or special occasion gifts must be of a consumable nature and
minimal (i.e. less than $25) in value.
5. Warranties and Representations
A) All merchandise must fully comply with the Federal Trade Commission's
Guide for the jewelry industry. All karat gold merchandise must be
plumb. Weights and total weights of all precious and semi-precious
stones must be accurate within the legal tolerance. Enhancements of any
precious or semi-precious stones must be disclosed if known. Also, where
required by law, you will disclose the county of origin of all
merchandise and so label the merchandise.
B) All merchandise shipped must fully comply with the National Gold and
Silver Marketing Act, as amended, and all other applicable federal or
state laws. Trademarks must accompany quality marks on all
precious-metal jewelry.
C) The supplier agrees to indemnify and hold Barry's Jewelers, Inc.
harmless from and against any injury, loss, damage, claim or liability,
whether direct or consequential, arising out of the use of, or inability
to use any of, the goods provided by the supplier. The supplier agrees
to carry products liability insurance on any goods covered by this
purchase order, and if requested, to name Barry's Jewelers, Inc. as an
insured under any such insurance policy. The supplier further agrees to
indemnify Barry's Jewelers, Inc. and hold it harmless in respect of any
and all expenses, damages, claims, costs, penalties and fees which it
may incur or be liable for, whether liquidated or otherwise, in
connection with the purchase, sale, resale, use, distribution or
handling of any such goods which are not as agreed, represented and
warranted above, and to defend any suits brought against Barry's
Jewelers, Inc. with respect thereto (provided that Barry's Jewelers,
Inc. may, in its sole discretion, elect to defend any such suits at the
expense of Barry's Jewelers, Inc.). The acceptance of the purchase order
constitutes a making of the above agreements, representations and
warranties, and it is expressly agreed and understood by the parties
hereto that the above agreements, representations and warranties are
made for the purpose of inducing the purchase by Barry's Jewelers, Inc.
of such goods, and that such purchase is made in reliance thereon.
<PAGE> 3
D) In the event of a breach of the terms of a purchase order by the
supplier, Barry's Jewelers, Inc. shall be entitled to recover its
attorney's fees and costs incurred in conjunction with such breach.
E) Venue with respect to any matters relating to or arising out of any
dispute regarding purchased goods shall lie in Los Angeles County,
California, and the laws of the State of California shall apply to any
such matters.
[SUPPLIER]
By
-----------------------------------
Date: Authorized Signatory
----------------------------
<PAGE> 1
EXHIBIT 10.15(d)
FORM OF
CONSIGNMENT AGREEMENT
This Agreement made as of the_________th day of___________, 1997, is by and
between SUPPLIER ("Consignor"), with its principal offices at and Barry's
Jewelers, Inc., a California corporation ("Consignee") with its principal
offices at 111 W. Lemon Ave., Monrovia, CA 91016.
WITNESSETH:
A. RECITALS.
WHEREAS, on May 11, 1997 ("Petition Date"), Consignee filed a petition for
relief before the United States Bankruptcy Court for the Central District of
California ("Bankruptcy Court") under title 11, chapter 11 of the Bankruptcy
Code, Case No. CA 97-27988-VZ ("Chapter 11 Case");
WHEREAS, Consignee utilizes (DESCRIBE MERCH) and other merchandise in its
operations;
WHEREAS, Consignee desires to obtain goods on consignment from Consignor
following the Petition Date in accordance with the terms of this Agreement;
WHEREAS, Consignor is willing to consign (DESCRIBE MERCH) and such other
merchandise as is delivered pursuant to this Agreement from time to time
following the Petition Date (the "Consigned Merchandise") to Consignee for sale
or return by Consignee constituting a true consignment, on the terms and
conditions in this Agreement; and
WHEREAS, the effectiveness of this Agreement is subject to entry of the
Consignment Order (as specified below).
NOW, THEREFORE, in consideration of the promises and of the mutual
promises hereinafter contained, the parties do hereby agree as follows:
B. CONSIGNMENT ARRANGEMENTS.
1. Consignor shall from time to time deliver to Consignee on consignment
such amounts of Consigned Merchandise as may be mutually agreed upon,
upon the terms and conditions set forth herein and, to the extent not
inconsistent, in the Memo accompanying Consigned Merchandise. The
delivery date shall be as reasonably specified by Consignee in its
orders for Consigned Merchandise. Such Consigned Merchandise provided by
Consignor shall bear the appropriate trademark designated by Consignor.
Schedule A hereto, prepared by Consignor, lists all such trademarks.
Consignor shall promptly update
<PAGE> 2
Schedule A to add new trademarks or delete trademarks, and provide such
updated Schedule to Consignee.
2. The Consigned Merchandise shall be maintained at all times at
Consignee's distribution center(s) or held for sale by Consignee to
Consignee's customers in the stores Consignee operates, which
distribution center(s) and stores are listed on Schedule B hereto.
Schedule B shall include any trade names and the name and state of
incorporation of any affiliated corporation operating the stores
referred to therein. Consignee shall promptly update Schedule B to add
new trade names and states of incorporation and new stores or
distribution center(s) or delete trade names and states of incorporation
and stores or distribution centers, and provide such updated Schedule to
Consignor.
3. Title to the Consigned Merchandise delivered to Consignee shall at all
times remain with Consignor until purchased by Consignee at the time of
its sale to its customer. Consignee may only sell the Consigned
Merchandise in the ordinary course of its business, and may not sell
Consigned Merchandise in bulk. Nothing in this Agreement prohibits
Consignee from selling merchandise other than Consigned Merchandise out
of the ordinary course of its business or in bulk.
4. Consignor commits to maintain a minimum amount of $000,000 of Consigned
Merchandise with Consignee (which minimum level of Consigned Merchandise
hereinafter is referred to as the "Minimum Commitment") for a period of
two years from the date of this Agreement; provided that such two-year
period shall be automatically extended thereafter in one-year increments
after the expiration of such initial two-year period unless Consignee or
Consignor in their respective sole discretion provides written notice of
termination on or before ninety (90) calendar days prior to the
expiration of such two-year period or ninety (90) calendar days prior to
the expiration of any one-year extension. The foregoing commitment and
any obligation of Consignor thereafter to ship Consigned Merchandise
shall terminate earlier as specified in Paragraph 13 hereof or upon a
Default by Consignee (as defined in Paragraph 15 hereof). Any consigned
goods delivered to Consignee prior to the Petition Date and on hand with
Consignee on the Petition Date (hereinafter "Prepetition Consigned
Merchandise") shall not be included in determining the Minimum
Commitment. For all purposes, as used in this Agreement, the term
Consigned Merchandise does not include Prepetition Consigned
Merchandise.
5. Consignee shall insure the Consigned Merchandise for its full value for
and against all risks of loss. Consignee accepts all risks of loss to
the Consigned Merchandise from the time accepted by it until returned to
Consignor. Consignee warrants that it shall promptly pursue on
Consignor's behalf all remedies and payments in the event of a loss and
will immediately notify Consignor of any loss.
2
<PAGE> 3
6. Consignor and Consignee may mutually agree that Consignee shall return
to Consignor slow moving or obsolete Consigned Merchandise, that
Consignor shall cease automatic replenishment of such slow moving or
obsolete Consigned Merchandise, and/or that Consignee shall select
replacement Consignment Merchandise. Consignor and Consignee shall
cooperate in good faith regarding all such matters.
7. Every ninety (90) calendar days, or such other time as mutually agreed
by Consignor and Consignee, Consignor shall submit to Consignee a
detailed statement ("Consignor Statement") specifying Consignor's
records with respect to shipments, returns, credits, invoices and
balances regarding Consigned Merchandised. Promptly following
Consignee's receipt of such Consignor Statement, Consignee shall prepare
and submit to Consignor a report reconciling the Consignor Statement to
Consignee's records ("Reconciliation Report"). Consignor and Consignee
shall cooperate in good faith regarding the Reconciliation Report and to
resolve any differences between the Reconciliation Report and the
Consignor Statement. Any shrinkage evidenced by the Reconciliation
Report (as modified to resolve any differences) shall be deemed to
reflect sales of such Consigned Merchandise as of the date of the
Reconciliation Report to be paid for by Consignee in accordance with
Paragraph 8 hereof. In addition to the forgoing, at least once each year
Consignee shall conduct a physical inventory or other agreed upon method
for taking inventory, and a Reconciliation Report based thereon shall be
prepared and any payment due as a result thereof shall be made in
accordance with the provisions of this Paragraph and Paragraph 8 hereof.
8. a. Consignor shall prepare a document, labeled "Memo," which will
accompany each shipment of Consigned Merchandise to Consignee.
The Memo shall generally describe and identify the items of
Consigned Merchandise contained in that shipment.
b. Consignee shall, no later than five (5) business days after the
end of each week, send to Consignor, by fax, a sales report
listing the piece(s) of Consigned Merchandise sold, transferred
to layaway or otherwise disposed of during that week (the
"Consignee Sales Report").
c. Upon receipt of the Consignee Sales Report, Consignor shall
promptly prepare an invoice, setting forth the payment due from
Consignee based upon the Consignee Sales Report. Consignee shall
remit payment to Consignor in the amount of such invoice within
thirty (30) calendar days of Consignee's date of such invoice.
d. The prices to be charged by Consignor and to be paid by
Consignee for the Consigned Merchandise shall be set forth on
the "Memo" accompanying the goods.
3
<PAGE> 4
e. Consignor may at its sole discretion from time to time announce
a price change for the Consigned Merchandise. Consignor shall
give Consignee sixty (60) calendar days' prior written or verbal
notice of any price changes for Consigned Merchandise (new
prices shall not be materially different than prices charged to
Consignor's other customers for similar goods sold under similar
terms and conditions); during this sixty (60) calendar day
period Consignee may buy Consigned Merchandise from Consignor at
the old price. New orders by the Consignee after the date of
notification of a price change shall be made at the new price.
If Consignee in its sole discretion does not agree to any such
price change Consignee may promptly return to Consignor all
unsold Consigned Merchandise subject to such price change, or
otherwise terminate this Agreement on ten (10) calendar days'
written notice to Consignor and, in such event, all sold
Consigned Merchandise shall be paid for and all unsold Consigned
Merchandise shall be promptly returned to Consignor.
f. The terms for reporting sales under Paragraph 8(b) and for
paying invoices under Paragraph 8(c) may be altered only by the
prior written consent of Consignor and Consignee.
g. Consignee shall be entitled to credit against any outstanding
amounts otherwise due or thereafter due under a Consignee Sales
Report, or if no amounts are thereafter due, receive payment
from Consignor, for any bona fide returns of Consigned
Merchandise actually returned to Consignee at the store on or
before thirty (30) calendar days from the date of sale.
Consignee shall not be entitled to any such credit or payment,
as the case may be, for any returns after such thirty (30)
calendar days.
C. SECURITY INTEREST IN CONSIGNED MERCHANDISE.
9. Consignor understands that Consignee commingles all proceeds from the
sale of inventory, including merchandise on consignment, and that no
identifiable cash or noncash proceeds now or hereinafter exist in
Consignee's business.
10. The parties hereto agree that this Agreement creates a true consignment
and that all transactions hereunder shall constitute true consignments
of the Consigned Merchandise and not the purchase and sale of
merchandise by Consignee. However, in the event that there is a final
determination by a court of competent jurisdiction that this Agreement
and the Memos for any reason do not create a true consignment, then in
such event, Consignee hereby grants to Consignor a continuing security
interest in the Consigned Merchandise, but not to the cash or noncash
proceeds thereof now or hereafter existing. Without expressly or
impliedly limiting the phrase "cash or noncash proceeds now or hereafter
existing," such phrase includes: (a) any accounts, chattel paper,
4
<PAGE> 5
general intangibles, or receivables of Consignee created upon the sale
of the Consigned Merchandise, or (b) any rights in and to any pooling,
securitization, structured or similar or other financing (including
without limitation the issuance of asset-backed securities) involving
any accounts, chattel paper, general intangibles, receivables, or other
property of Consignee or any of its affiliates, including any
special-purpose entity organized by or on behalf of Consignee. Consignee
shall sign and deliver to Consignor such financing statements (UCC-1's)
and other documents as Consignor may reasonably request to perfect its
interest as a consignor in accordance with the provisions of the Uniform
Commercial Code. Such UCC-1 financing statements will expressly exclude
proceeds (as broadly illustrated herein) from the description of
collateral and shall be in a form reasonably acceptable to Consignee.
11. Consignee warrants that except with respect to the security interests of
the parties identified on Schedule C, Consignor's security interest in
Consigned Merchandise created under Paragraph 10 hereof, and any other
security interest given in goods on consignment, Consignee will not
hereafter permit any other security interest or other lien or
encumbrance to attach to Consigned Merchandise (excluding proceeds, as
broadly defined herein) at any time.
D. TERM OF AGREEMENT; ASSIGNABILITY.
12. This Agreement and the Minimum Commitment thereunder shall remain in
full force and effect for a minimum term of two years from the date
hereof and shall be automatically extended thereafter in one-year
increments in accordance with the provisions of Paragraph 4 hereof
regarding the automatic extension of the Minimum Commitment unless
terminated earlier in accordance with this Agreement, including, without
limitation, a termination resulting from Default by Consignee.
Notwithstanding any expiration or termination of this Agreement for any
reason, except for the Minimum Commitment and Consignor's obligation
thereafter to ship Consigned Merchandise, upon any such termination or
expiration the remaining provisions of this Agreement shall remain in
full force and effect until all Consigned Merchandise delivered to
Consignee is purchased and paid for by Consignee or returned to
Consignor, and, in such event, upon written demand of Consignor the
following shall promptly occur: (a) Consignee shall return to Consignor
all remaining Consigned Merchandise, (b) Consignee shall issue a final
Consignee Sales Report, (c) payment thereon shall be made in accordance
with Paragraph 8 hereof, and (d) the parties shall undertake to
reconcile any differences in their respective records in accordance with
Paragraph 7 hereof.
13. Notwithstanding anything to the contrary in this Agreement, the Minimum
Commitment and any obligation of Consignor to continue to ship Consigned
Merchandise shall terminate unless either (a) or (b) timely occurs: (a)
on or before November 3, 1997, an order is entered in the Chapter 11
Case approving debtor in possession financing or otherwise authorizing
Consignee to use cash
5
<PAGE> 6
and proceeds constituting cash collateral within the meaning of the
Bankruptcy Code sufficient to pay all postpetition obligations of
Consignee when due and payable through no earlier than February 28,
1998; or (b)(i) on or before December 1, 1997, Consignor and Consignee
-- enter into a written agreement (which agreement is binding on
Consignor and its estate) mutually acceptable to the parties pursuant to
which Consignee shall place in a deposit account (for Consignor's sole
benefit) funds sufficient to satisfy Consignee's obligations hereunder
for Consigned Merchandise estimated to be sold in December 1997 and (ii)
Consignee actually places such funds in such account (for ---
Consignor's sole benefit) on or before December 8, 1997. If event (a)
above does not occur by November 3, 1997, then the Minimum Commitment
and any obligation of Consignor to continue to ship Consigned
Merchandise shall terminate on December 1, 1997 unless event (b)(i)
above timely occurs on that date. If event (b)(i) above timely occurs on
December 1, 1997, then the Minimum Commitment and any obligation of
Consignor to continue to ship Consigned Merchandise shall terminate on
December 8, 1997 if event (b)(ii) above does not timely occur on that
date. In the event of any termination of the Minimum Commitment and any
obligation thereunder to ship Consigned Merchandise, the remaining
provisions of this Agreement shall otherwise remain in full force and
effect until all Consigned Merchandise delivered to Consignee is
purchased and paid for by Consignee or returned to Consignor, and, in
such event, upon written demand of Consignor the following shall
promptly occur: (a) Consignee shall return to Consignor all remaining
Consigned Merchandise; (b) Consignee shall issue a final Consignee Sales
Report, (c) payment thereon shall be made in accordance with Paragraph 8
above, and (d) the parties shall undertake to reconcile any differences
in their respective records in accordance with Paragraph 7 hereof.
14. The Agreement is not assignable without the prior written approval of
Consignor and Consignee in their respective sole discretion.
E. DEFAULTS.
15. As used herein, the term "Default by Consignee" shall mean the
occurrence of any one or more of the following:
a. Default in the payment or performance of any of Consignee's
obligations or agreements hereunder which continues for more
than ten (10) business days after Consignor gives Consignee
written notice thereof; or
b. Any representation or warranty made by Consignee herein or in
any certificate, statement or agreement furnished in connection
with this Agreement should prove to be false or misleading in
any material respect; or
c. An order of the Bankruptcy Court is entered (i) prohibiting
Consignee's use of cash and cash proceeds constituting cash
collateral within the meaning of the Bankruptcy Code sufficient
to timely pay all postpetition
6
<PAGE> 7
obligations of Consignee when due and payable; (ii) appointing a
chapter 11 trustee in the Chapter 11 Case; (iii) converting the
Chapter 11 Case to a chapter 7; or (iv) dismissing the Chapter
11 Case; or
d. Consignee moves the Bankruptcy Court for an order, or any order
is otherwise entered in the Chapter 11 Case, granting a lien on
Consigned Merchandise, other than a lien junior in all respects
to the interest of Consignor therein; or
e. The occurrence of an adverse event that materially impairs
Consignee's performance under this Agreement; or
f. Any two of Samuel Merksamer, E. Peter Healey or Randy McCullough
are no longer employed by Consignee in capacities having at
least as much responsibility as each held as of the Petition
Date.
g. An order of the Bankruptcy Court is entered authorizing the sale
of Consignee or substantially all of the assets of the
Consignee.
In the event of Default by Consignee, subject to the Consignment Order
Consignor shall have all rights and remedies available under applicable
law. In addition to Consignee's liability hereunder for the payment for,
or return of, all Consigned Merchandise, Consignee shall indemnify and
hold Consignor harmless for any costs, damages or expenses, including
reasonable attorneys' fees and expenses, resulting from any Default by
Consignee constituting a fraudulent or malicious act by Consignee.
16. As used herein, the term "Default by Consignor" shall mean the
occurrence of any one or more of the following:
a. Default in performance of any of Consignor's obligations or
agreements hereunder which continues for more than ten (10)
business days after Consignee gives Consignor written notice
thereof; or
b. Any representation or warranty made by Consignor herein or in
any certificate, statement or agreement furnished in connection
with this Agreement should prove to be false or misleading in
any material respect; or
c. The occurrence of an adverse event that materially impairs
Consignor's performance under this Agreement.
In the event of Default by Consignor, subject to the Consignment Order Consignee
shall have all rights and remedies available under applicable law.
7
<PAGE> 8
F. CONSIGNMENT ORDER.
17. The effectiveness of this Agreement is conditioned upon entry of the
Consignment Order: (i) authorizing Consignee to enter into and perform
under an agreement substantially in the form of this Agreement (which
agreement, including this Agreement, is referred to as a "Postpetition
Consignment Agreement"); (ii) providing that such Postpetition
Consignment Agreement shall be binding and enforceable on Consignee and
the estate and shall be in full force and effect; (iii) specifying that
a Consignor may file UCC-1's and any other documents reasonably required
by such Consignor to perfect its interest in Consigned Merchandise
(other than proceeds) under such Postpetition Consignment Agreement;
(iv) providing that all amounts payable under such Postpetition
Consignment Agreement with respect to Consigned Merchandise shall at all
times, before or after any termination thereof, constitute an allowed
administrative expense claim under Bankruptcy Code sections 503(b)(1)(A)
and 507(a)(1) against Consignee and its estate and any superseding case
of Consignee; and (v) providing that pending the effectiveness of a plan
of reorganization the Bankruptcy Court shall have exclusive jurisdiction
over any dispute or matter arising under such Postpetition Consignment
Agreement, including the allowability of and payment on any claims
entitled to priority hereunder, and that, subject to the foregoing,
Consignor shall be entitled to exercise all rights and remedies under
the Uniform Commercial Code and otherwise with respect to Consigned
Merchandise, and provide all notices authorized under such Postpetition
Consignment Agreement, including exercising rights in and to Consigned
Merchandise, notwithstanding the Chapter 11 Case and the automatic stay
otherwise in effect in the Chapter 11 Case or any superseding case of
Consignee.
G. OTHER PROVISIONS.
18. This Agreement only governs the rights and obligations of the parties
regarding Consigned Merchandise and does not address the rights and
obligations of the parties in and to Prepetition Consigned Merchandise.
19. Any and all Consigned Merchandise shall be delivered and accepted
pursuant to written policies and procedures reasonably adopted by
Consignee and approved by Consignor in writing.
20. Each party to this Agreement agrees that if it hereafter commences,
joins in, or seeks relief through any suit arising out of this
Agreement, then the prevailing party shall pay to the other party all
attorneys' fees and expenses reasonably incurred by said party in
defending or otherwise responding to said suit or claim. Subject to the
foregoing, the parties shall bear their own respective attorneys' fees
and expenses in connection with the negotiation and implementation of
this Agreement.
8
<PAGE> 9
21. Consignee will not use the provisions of Bankruptcy Code section 1129 or
any other section of the Bankruptcy Code to alter its obligations under
this Agreement, unless any such alteration is agreed to by Consignor in
its sole discretion; provided that Consignor agrees that the
confirmation or effectiveness of a plan of reorganization shall not
cause or constitute an acceleration of the obligations under, or
termination of, this Agreement. Consignor understands that upon
confirmation of such plan, any obligations of Consignee under this
Agreement arising thereafter shall not constitute administrative
priority claims, because Consignee's ability to confer administrative
priority status in accordance with law shall cease on confirmation of
any such plan.
22. This Agreement sets forth the parties' final and entire understanding
with respect to its subject matter, cannot be changed, wavered or
terminated orally and shall be governed by and construed under the laws
of the State of California (without reference to its rules as to
conflicts of law). If any provision shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to
such provision and shall not effect or render invalid or unenforceable
any other provision of this Agreement and this Agreement shall be
construed as if such provision were drafted so as not to be invalid or
unenforceable.
23. This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be deemed to be an original, but all of
which taken together shall constitute but one and the same instrument.
Signatures may be exchanged by telecopy, and each party agrees to be
bound by its own telecopied signature and to accept the telecopied
signatures of the other parties.
24. All notices under this agreement will be in writing and will be
delivered by personal service or telegram, telecopy or certified mail to
such address as may be designated from time to time by the relevant
party, and which will initially be as set forth below:
If to Consignee: If to Consignor:
Barry's Jewelers, Inc. NAME
111 W. Lemon Avenue ADDRESS
Monrovia, CA 91016 CITY
Attn: Randy McCullough Attn:
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
BARRY'S JEWELERS, INC.: NAME
(Consignee) (CONSIGNOR)
Date: __________________________ DATE: ____________________________
________________________________ __________________________________
Authorized Signatory Authorized Signatory
10
<PAGE> 11
SCHEDULE A TO CONSIGNMENT
AGREEMENT BETWEEN BARRY'S JEWELERS, INC.,
AND CONSIGNOR
11
<PAGE> 12
SCHEDULE B TO CONSIGNMENT
AGREEMENT BETWEEN BARRY'S JEWELERS, INC.
AND CONSIGNOR
SEE STORE LISTING ATTACHED
12
<PAGE> 13
SCHEDULE C TO CONSIGNMENT AGREEMENT BETWEEN BARRY'S
JEWELERS, INC. AND CONSIGNOR
1. Bank Boston, N.A., individually and as agent ("Agent") for CIT Group/Business
Credit, Inc., Sanwa Business Credit Corporation, and Jackson National Life
Insurance Company, and each of their respective successors and assigns
(collectively, the "Lenders").
2. CIT Group/Business Credit, Inc., and its successors and assigns;
3. Sanwa Business Credit Corporation, and its successors and assigns;
4. Jackson National Life Insurance Company, and its successors and assig\ns;
5. First Trust National Association, as the trustee (the "Indenture Trustee")
for the holders of 11% Senior Secured Notes due December 22, 2000, and its
successors and assigns;
6. The holders of the 11% Senior Secured Notes due December 22, 2000, and their
successors and assigns;
7. BankBoston, N.A., as the collateral agent for itself (for the benefit of the
Lenders) and the Indenture Trustee, and its successors and assigns.
13
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in Registration Statement No.
33-67814 of Barry's Jewelers, Inc. in Form S-8 of our report dated October 1,
1997 appearing in this Annual Report on Form 10-K of Barry's Jewelers, Inc. for
the year ended May 31, 1997.
Our audit of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Barry's Jewelers, Inc. and
Subsidiary, listed in Item 14. The financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audit. 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.
/s/ Deloitte & Touche LLP
Los Angeles, California
October 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 7,322
<SECURITIES> 0
<RECEIVABLES> 64,852
<ALLOWANCES> (10,300)
<INVENTORY> 41,374
<CURRENT-ASSETS> 105,390
<PP&E> 24,836
<DEPRECIATION> (9,413)
<TOTAL-ASSETS> 123,483
<CURRENT-LIABILITIES> 5,908
<BONDS> 0
0
0
<COMMON> 33,247
<OTHER-SE> (45,943)
<TOTAL-LIABILITY-AND-EQUITY> 123,483
<SALES> 130,446
<TOTAL-REVENUES> 144,346
<CGS> 93,002
<TOTAL-COSTS> 93,002
<OTHER-EXPENSES> 64,641
<LOSS-PROVISION> 18,766
<INTEREST-EXPENSE> 12,745
<INCOME-PRETAX> (44,808)
<INCOME-TAX> 284
<INCOME-CONTINUING> (45,092)
<DISCONTINUED> 0
<EXTRAORDINARY> (876)
<CHANGES> 0
<NET-INCOME> (45,968)
<EPS-PRIMARY> (11.47)
<EPS-DILUTED> (11.47)
</TABLE>
