SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 16, 1998
SAMUELS JEWELERS, INC.
(formerly Barry's Jewelers, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 0-15017 95-3746316
(formerly California) (Commission File No.) (IRS Employer
(State or other jurisdiction Identification No.)
of incorporation)
2914 Montopolis Drive, Suite 200, Austin, Texas
78741
(Registrant's address and zip code)
(512) 369-1400
(Registrant's telephone number, including area code)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEMS 1 AND 3. CHANGES IN CONTROL OF THE REGISTRANT AND BANKRUPTCY OR
RECEIVERSHIP
The Original Disclosure Statement and Plan of Reorganization, Dated April
30, 1998, Proposed by Barry's Jewelers, Inc. under Chapter 11 of the United
States Bankruptcy Code, Case No. LA 97-27988 VZ, as modified, was confirmed (as
confirmed, the "Plan") by the United States Bankruptcy Court, Central District
of California (Los Angeles Division) by an order entered on September 16, 1998,
and became effective on October 2, 1998. A copy of the order which includes the
Plan as an attachment, is annexed hereto as Exhibit 2.1. Pursuant to the Plan,
(i) the former holders of common stock of Barry's Jewelers, Inc., a California
Corporation ("Barry's") received, in the aggregate, 263,158 warrants (the
"Warrants") on a pro rata basis, each such Warrant entitling its holder to
purchase one share of the common stock of the Registrant, par value $.001 per
share (the "Common Stock"), (ii) the former holders of 11% Senior Secured
Notes(the "Senior Notes") due December 22, 2000, issued by Barry's, received, in
the aggregate, and in exchange for their Senior Notes and $15 million in cash,
approximately 4.75 million shares of the Common Stock and (iii) Barry's was
reincorporated as a Delaware Corporation by means of merging (the "Merger") with
and into the Registrant. A copy of the Certificate of Ownership and merger
effecting the merger is annexed hereto as Exhibit 2.2. Additionally under the
Plan, 250,000 shares of restricted Common Stock were issued to certain of the
Registrant's executive officers. After the consummation of the transactions
contemplated by the Plan, there were approximately 5,000,000 shares of Common
Stock issued and outstanding. A copy of the Certificate of Incorporation and
Bylaws of the Registrant are annexed hereto as Exhibits 3.1 and 3.2,
respectively, and a copy of the warrant agreement governing the Warrants is
annexed hereto as Exhibit 4.1. A copy of the press release issued by the
Registrant upon effectiveness of the Plan is attached hereto as Exhibit 99.1 and
is incorporated herein by reference.
Immediately following the effectiveness of the Plan and the Merger, DDJ
Capital Management, LLC, through funds managed or controlled thereby
(collectively, "DDJ Capital"), owned approximately 1,792,439 shares of Common
Stock, or approximately 36% of the total shares of Common Stock issued and
outstanding, and Mitchell Hutchins Asset Management, Inc., through funds managed
or controlled thereby (collectively, "Mitchell Hutchins"), owned approximately
998,511 shares of the Common Stock, or approximately 20% of the total shares of
Common Stock issued and outstanding. Also, pursuant to the terms of the Plan,
each of DDJ Capital and Mitchell Hutchins nominated two of the seven current
directors of the Registrant. Under the terms of a Registration Rights Agreement
among the Registrant, DDJ Capital and Mitchell Hutchins dated October 2, 1998,
the Registrant granted certain registration rights to DDJ Capital and Mitchell
Hutchins. A copy of the Registration Rights Agreement is annexed hereto as
Exhibit 4.2.
The Registrant is automatically registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as a successor to Barry's by
operation of Rule 12g-3 under the Exchange Act.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit No. Exhibit
----------- -------
2.1 Order Confirming Original Disclosure Statement and Plan of
Reorganization, Dated April 30, 1998, Proposed by Barry's
Jewelers, Inc., as modified, dated September 16, 1998 (with
Plan attached).
2.2 Certificate of Ownership and Merger of Barry's Jewelers,
Inc. with and into Samuels Jewelers, Inc. dated October 2,
1998.
3.1 Certificate of Incorporation of Samuels Jewelers, Inc.
3.2 Bylaws of Samuels Jewelers, Inc.
4.1 Warrant Agreement dated as of October 2, 1998 between
Samuels Jewelers, Inc and Norwest Bank Minnesota, N.A., as
Warrant Agent.
4.2 Registration Rights Agreement dated as of October 2, 1998
among Samuels Jewelers, Inc., The Galileo Fund, L.P., B III
Capital Partners, L.P., DDJ Overseas Corporation, Paine
Webber High Income Fund, Managed High Yield Fund Inc.,
All-American Term Trust Inc. and
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Paine Webber Offshore Funds PLC, The High Income Fund.
10.1 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and Randy N. McCullough.
10.2 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and E. Peter Healey.
10.3 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and Chad C. Haggar.
10.4 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and Bill R. Edgel.
10.5 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and Paul Hart.
99.1 Press Release dated October 5, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
SAMUELS JEWELERS, INC.
By: /s/ E. Peter Healey
---------------------------------------
Name: E. Peter Healey
Title: Executive Vice President,
Chief Financial Officer and
Secretary
Date: October 6, 1998
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EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
2.1 Order Confirming Original Disclosure Statement and Plan of
Reorganization, Dated April 30, 1998, Proposed by Barry's
Jewelers, Inc., as modified, dated September 16, 1998 (with
Plan attached).
2.2 Certificate of Ownership and Merger of Barry's Jewelers,
Inc. with and into Samuels Jewelers, Inc. dated October 2,
1998.
3.1 Certificate of Incorporation of Samuels Jewelers, Inc.
3.2 Bylaws of Samuels Jewelers, Inc.
4.1 Warrant Agreement dated as of October 2, 1998 between
Samuels Jewelers, Inc and Norwest Bank Minnesota, N.A., as
Warrant Agent.
4.2 Registration Rights Agreement dated as of October 2, 1998
among Samuels Jewelers, Inc., The Galileo Fund, L.P., B III
Capital Partners, L.P., DDJ Overseas Corporation, Paine
Webber High Income Fund, Managed High Yield Fund Inc.,
All-American Term Trust Inc. and
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Paine Webber Offshore Funds PLC, The High Income Fund.
10.1 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and Randy N. McCullough.
10.2 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and E. Peter Healey.
10.3 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and Chad C. Haggar.
10.4 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and Bill R. Edgel.
10.5 Employment Agreement, dated as of October 2, 1998 between
Samuels Jewelers, Inc. and Paul Hart.
99.1 Press Release dated October 5, 1998.
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EXHIBIT 2.1
LEE R. BOGDANOFF (State Bar No. 119542),
MICHAEL L. TUCHIN (State Bar No. 150375), and
JAMES O. JOHNSTON (State Bar No. 167330), Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
3699 Wilshire Boulevard, Suite 900
Los Angeles, California 90010
Telephone: (213) 251-5100
Facsimile: (213) 251-5288
Reorganization Counsel for Debtor
Debtor's Mailing Address:
2914 Montopolis Drive, Suite 200
Austin, Texas 78741
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
<TABLE>
<S> <C>
In re )
) Case No. LA 97-27988 VZ
BARRY'S JEWELERS, INC., a California corporation; d/b/a )
The Ringmaker; Samuels Jewelers; Wallace Jewelers; A. ) Chapter 11
Hirsh & Son Jewelers; Gold Art Creations; Milen )
Jewelers; Keiden's Jewelers; Mission Jewelers; Schubach )
Jewelers; Barons Jewelers; and Hatfield Jewelers; ) ORDER CONFIRMING ORIGINAL DISCLOSURE STATEMENT AND
f/d/b/a Leroy's Jewelers; Alberts Jewelers; Raskins ) PLAN OF REORGANIZATION, DATED APRIL 30, 1998,
Jewelers; and Treasures f/a/k/a Jewelers Holding ) PROPOSED BY BARRY'S JEWELERS, INC.,
Corporation; Western States Jewelers Holding Corp.; BBF ) AS MODIFIED
Jewelers Management, Inc., FBB Jewelers Management, )
Inc., #2; BJI Holding Company, Inc.; Western States )
Jewelers' Corp.; Milens of California; A. Hirsh & Son, ) Confirmation Hearing
--------------------
Inc.; Treasures, Inc.; Barry's Jewelers Texas Corp.; )
Gold Art Creations, Inc.; and Jeweler's Management Corp, ) Date: September 16, 1998
) Time: 2:30 p.m.
TAX ID #95-3746316 ) Place: Courtroom 1368
) Roybal Federal Bldg.
Debtor. ) 255 East Temple St.
) Los Angeles, CA 90012
)
)
)
- ---------------------------------------------------------
</TABLE>
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On September 16, 1998, a hearing was held before the Honorable
Vincent P. Zurzolo, United States Bankruptcy Judge, in the above-captioned case
of Barry's Jewelers, Inc. ("Barry's"), regarding confirmation of the "Original
Disclosure Statement And Plan Of Reorganization, Dated April 30, 1998, Proposed
By Barry's Jewelers, Inc." (as modified, the "Plan"). Appearances were made as
reflected in the transcript of the hearing.
Upon review and consideration of (a) the Plan; (b) the
Declarations of Service of the Plan and related materials, as submitted by
Barry's in a Submission filed on August 5, 1998; (c) the Modification of the
Plan (the "Modification") and the Notice of the Modification, filed by Barry's
on August 21, 1998; (d) the Submission of Remaining Exhibits to the Plan, filed
by Barry's on September 4, 1998 (the "Exhibit Submission"); (e) the Submission
of Revisions to Exhibits G and H to the Plan and the accompanying revisions,
filed by Barry's on September 16, 1998 (the "Contract Schedules Revision"); (f)
the Notice Of Motion And Motion For Confirmation Of The Plan and the
accompanying Declarations of E. Peter Healey, Frank A. Savage, and Charlotte N.
Benford in support thereof; (g) the Objections to confirmation of the Plan filed
by (x) various ad valorem taxing authorities from the State of Texas (the "Texas
Ad Valorem Taxing Authority Objection"), (y) the Texas Comptroller of Public
Accounts (the "Texas Comptroller Objection"), and (z) certain other taxing
authorities from the State of Texas (the "Texas Taxing Authority Objection");
(h) Barry's Reply to those Objections; (i) Barry's Submission of the Stipulation
resolving those Objections and the accompanying Stipulation (the "Objection
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Stipulation"); (j) such other pleadings and evidence as were submitted before or
at the hearing on the Motion; (k) the record in this case, of which the Court
has taken judicial notice pursuant to Rule 201 of the Federal Rules of Evidence;
and (l) the argument and representations of counsel at the hearing, the Court
hereby makes the following findings of fact and conclusions of law:1
A. This matter is a core proceeding, over which the Court has
jurisdiction pursuant to 28 U.S.C. ss.ss. 157(b) and 1334(a). Venue of this
proceeding is proper under 28 U.S.C. ss.ss. 1408 and 1409.
B. Barry's provided notice of the hearing on confirmation of
the Plan and of the time fixed for filing objections to confirmation of the Plan
to all entities entitled to receive such notice, including all known creditors
and shareholders. The notice provided by Barry's of such matters fully and
adequately described the requested relief and was reasonable, appropriate, and
complied in all regards with due process and applicable provisions of the
Bankruptcy Code, the Bankruptcy Rules (including Bankruptcy Rules 2002, 3017,
3018, and 3019), and the Local Rules and orders of the Court, including this
Court's "Order Authorizing And Approving (A) Adequacy Of Disclosure With Respect
- --------
1 This Order constitutes the Court's findings of fact and conclusions of law
pursuant to Bankruptcy Rules 7052 and 9014. All such findings of fact shall
constitute findings even if stated as conclusions of law, and all such
conclusions of law shall constitute conclusions even if stated as findings
of fact. Capitalized terms not otherwise defined in this Order have the
meanings ascribed to them in the Plan.
2
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To The Original Disclosure Statement And Plan Of Reorganization, Dated April 30,
1998, Proposed By Barry's Jewelers, Inc.; (B) Form, Scope, And Nature Of
Solicitation, Balloting, Tabulation, And Notices With Respect Thereto; And (C)
Related Confirmation Procedures, Deadlines, And Notices" (the "Solicitation
Procedures Order"), entered on July 16, 1998.
C. Barry's conducted its solicitation of acceptances or
rejections of the Plan, and its related distribution and tabulation of ballots
with respect thereto, in good faith and in compliance with the Solicitation
Procedures Order, all applicable provisions of the Bankruptcy Rules (including
Bankruptcy Rules 3017 and 3018), all applicable provisions of the Bankruptcy
Code (including sections 1125 and 1126), and all other applicable laws, rules,
and regulations. Among other things, Barry's transmitted the Plan to all known
holders of Claims and Interests that are impaired under, and therefore entitled
to vote on, the Plan.
D. The Plan satisfies all of the requirements of section
1129(a) of the Bankruptcy Code as follows:
1. 11 U.S.C. ss. 1129(a)(1): The Plan complies will
all of the applicable provisions of the Bankruptcy Code, including
sections 1122 and 1123.
2. 11 U.S.C. ss. 1129(a)(2): Barry's, as the
proponent of the Plan, has complied with all of the applicable
provisions of the Bankruptcy Code.
3. 11 U.S.C. ss. 1129(a)(3): Barry's has proposed the
Plan in good faith and not by any means forbidden by law.
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4. 11 U.S.C. ss. 1129(a)(4): Section X.B. of the
Plan provides for the Court to approve as reasonable all payments for
services or for costs and expenses in or in connection with the
Reorganization Case, or in connection with the Plan and incident to the
Reorganization Case.
5. 11 U.S.C. ss. 1129(a)(5): Section XIII.A. and
Exhibit M of the Plan disclose the identity, qualifications, method of
election, and/or compensation of the proposed officers and directors of
the Reorganized Company. The appointment and/or continuance of such
officers and directors is consistent with the interests of creditors
and shareholders and with public policy.
6. 11 U.S.C. ss. 1129(a)(7): Each holder of a Claim
or Interest in a Class that is impaired under the Plan will receive or
retain under the Plan property of a value, as of the Effective Date,
that is not less than such holder would so receive or retain if Barry's
were liquidated under chapter 7 of the Bankruptcy Code on such date.
7. 11 U.S.C. ss. 1129(a)(8), (10): Claims classified
into Class 3 (Secured Tax Claims), Class 4 (Other Secured Claims),
Class 7 (Consignment Claims), and Class 8 (Priority Claims) are not
impaired under the Plan and therefore are deemed to have accepted the
Plan pursuant to section 1126(f) of the Bankruptcy Code. Claims
classified into Class 1 (Secured Claims of the Bank Group), Classes 2
and 5 (Secured and Unsecured Claims of Bondholders), and Class 6
(general Unsecured Claims) are impaired under the Plan and, with
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respect to each of such impaired Classes, the Plan was accepted by at
least two-thirds in amount and more than one half in number of the
Allowed Claims in such Classes that are held by non-insider creditors
who timely submitted ballots on the Plan. Interests classified into
Class 9 (Interests) also are impaired under the Plan, and the Plan was
accepted by at least two-thirds in amount of the Allowed Interests
classified in Class 9 that are held by shareholders who timely
submitted ballots on the Plan.
8. 11 U.S.C. ss. 1129(a)(9): The treatment of
Administrative Claims, Priority Claims, and Priority Tax Claims under
the Plan satisfies the requirements of section 1129(a)(9) of the
Bankruptcy Code.
9. 11 U.S.C. ss. 1129(a)(11): Confirmation of the
Plan is not likely to be followed by the liquidation, or further
financial reorganization, of the Reorganized Company or any successor
to the Reorganized Company.
10. 11 U.S.C. ss. 1129(a)(12): The treatment of
Administrative Claims (which include fees payable under 28 U.S.C. ss.
1930) under the Plan satisfies the requirements of section 1129(a)(12)
of the Bankruptcy Code.
11. 11 U.S.C. ss.ss.1129(a)(6), (13): The
requirements of sections 1129(a)(6) and (13) of the Bankruptcy Code are
not applicable to the Plan.
E. All settlements, compromises, and releases provided for in
the Plan, including the Agreement Parties Release, were negotiated at arm's
length and in good faith, and are fair, equitable, reasonable, and in the best
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interests of Barry's, the Estate, all creditors and shareholders, and the
Reorganized Company.
F. By the Modification, Barry's amended the Plan, among other
things, to change and/or clarify the treatment accorded to holders of
Administrative Tax Claims, Priority Tax Claims, Class 3 Claims, and Class 2 and
5 Claims. Such Modification was reasonable, appropriate, and did not adversely
change the treatment under the Plan of any Claim or Interest. Accordingly, the
Modification complied in all respects with section 1127(a) and all other
applicable provisions of the Bankruptcy Code and, pursuant to Bankruptcy Rule
3019, the Modification is deemed accepted by all creditors and shareholders who
previously voted to accept the Plan.
G. Pursuant to Section X.H.1. of the Plan, Barry's has elected
to assume (through the Reorganized Company) each of the contracts and leases
identified on the Schedule Of Assumed Agreements filed as Exhibit G to the Plan,
as revised pursuant to the Contract Schedules Revision (collectively, the
"Assumed Agreements"). No objections were filed or raised with respect to
Barry's determination to assume any of such Assumed Agreements or to the
proposed cure amounts that are set forth on the Schedule of Assumed Agreements,
as revised (collectively, the "Cure Amounts"). Barry's has established adequate
assurance of future performance, within the meaning of section 365(b)(1)(C) of
the Bankruptcy Code, of the Assumed Agreements. Furthermore, subject to the
provisions of Paragraph 5 of this Order regarding the assertion of objections to
the Cure Amounts for certain agreements identified in the Contract Schedules
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Revision, the identified Cure Amounts, if any, for each of the Assumed
Agreements are the only amounts necessary to cure any existing defaults under
the Assumed Agreements in accordance with sections 365(b)(1)(A) and (B) of the
Bankruptcy Code.
H. Pursuant to Section X.H.4. of the Plan, Barry's has elected
to reject each of its remaining executory contracts and unexpired leases that
are not assumed pursuant to Section X.H.1 of the Plan (collectively, the
"Rejected Agreements"), including all Existing Warrants and Options and those
agreements identified on the Schedule of Rejected Contracts filed as Exhibit H
to the Plan, as revised pursuant to the Contract Schedules Revision. No
objections were filed or raised with respect to Barry's determination to reject
any of such Rejected Agreements.
I. Pursuant to and for the reasons stated in Barry's no-action
request letter dated May 8, 1998, and in the response letter of the Office Of
Chief Counsel, Division Of Corporate Finance, Securities and Exchange
Commission, dated July 20, 1998 (collectively, the "No-Action Letter"), copies
of which are attached as Exhibit 1 to the Exhibit Submission, (1) the issuance
of New Common Stock (and any related purchase rights to the extent that such
purchase rights constitute a separate security under the Securities Act) under
the Plan, including without limitation all New Common Stock issued to DDJ
Capital and Mitchell Hutchins, is exempt from registration under the Securities
Act and any otherwise applicable state or local law; and (2) the issuance of all
Reorganized Company Warrants under the Plan, and the issuance of New Common
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Stock upon exercise thereof, is exempt from registration under the Securities
Act and any otherwise applicable state or local law. Resales of (x) all New
Common Stock issued under the Plan to Bondholders other than DDJ Capital and
Mitchell Hutchins, and (y) all Reorganized Company Warrants under the Plan and
all New Common Stock issuable upon exercise of such Reorganized Company
Warrants, are exempt from registration under the Securities Act and any
otherwise applicable state or local law so long as the selling security holders
are not "underwriters" within the meaning of section 1145(b)(1) of the
Bankruptcy Code or "affiliates" of the Reorganized Company within the meaning of
the Securities Act. Furthermore, security holders that are "affiliates" of the
Reorganized Company may effect resales of such securities pursuant to Rule 144
under the Securities Act (except for the holding period requirement), pursuant
to registration under the Securities Act, or pursuant to any other applicable
exemption therefrom.
J. The Texas Comptroller Objection has been withdrawn. By the
Objection Stipulation, the Texas Ad Valorem Taxing Authority Objection and the
Texas Taxing Authority Objection also have been resolved and withdrawn. The
Court received no other objections to confirmation of the Plan. /// /// /// ///
///
///
///
///
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NOW, THEREFORE, IT HEREBY IS ORDERED THAT:
1. The Plan, in the form attached without Exhibits as Exhibit
A hereto (with the modifications included therewith), is CONFIRMED. The
previously-filed Exhibits to the Plan shall be deemed a part of the Plan and
incorporated by this reference.
2. The provisions of the Plan and this Order shall bind
Barry's, the Reorganized Company, and all creditors and shareholders of Barry's,
whether or not the Claims or Interests of such entities are impaired under the
Plan, whether or not such entities have voted to accept or reject the Plan, and
whether or not such entities have filed or are deemed to have filed proofs of
Claim or Interest in the Reorganization Case.
3. The Reorganized Company has been organized pursuant to and
in accordance with the terms and conditions of the Plan, and the Reorganized
Company constitutes the "successor" of Barry's within the meaning of section
1145(a)(1) of the Bankruptcy Code. Barry's and the Reorganized Company shall
execute and deliver any and all documents or instruments and take any and all
actions necessary or desirable to implement the Plan, this Order, the Plan
Financing and the Definitive Financing Agreement, the issuance of New Common
Stock and Reorganized Company Warrants, the Reincorporation Merger (as defined
in the No-Action Letter), and the other transactions contemplated therein or
thereby. The officers of Barry's and the Reorganized Company are authorized to
execute, deliver, file, or record such contracts, instruments, notes, releases,
mortgages, deeds, assignments, or other agreements or documents, and to take
such other actions, as any such officer may determine to be necessary or
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desirable to effectuate the Plan and such transactions, all without further
notice or application to or order of this Court, and regardless of whether such
actions or documents are specifically referred to in the Plan, this Order, or
the exhibits and annexes to any of the foregoing. To the extent that, under
applicable nonbankruptcy law, any of the foregoing actions otherwise would
require the consent or approval of the shareholders of Barry's or the
Reorganized Company or of the directors or officers of Barry's or the
Reorganized Company, this Order shall constitute such consent and approval.
4. The Definitive Financing Agreement and other documents
related to the Plan Financing, the Agreement Parties Release, the Warrant
Agreement, the Registration Rights Agreement, the Certificate of Incorporation
attached as Exhibit N to the Exhibit Submission, the Bylaws attached as Exhibit
O to the Exhibit Submission, and the employment agreements attached as the
Summary of Management Compensation (collective, the "Plan Documents") are
approved as fair, equitable, reasonable and in the best interests of Barry's,
the Estate, and the Reorganized Company. Prior to the Effective Date,
non-material modifications or amendments to any of the Plan Documents may be
made with the consent of all parties thereto, respectively, without further
notice to or approval of the Court. On the Effective Date, the liens granted
under the Plan Financing shall be valid, enforceable, and perfected pursuant to
the terms of the Definitive Financing Agreement and the other documents related
to the Plan Financing.
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5. As of the Effective Date and upon the payment of the Cure
Amounts (if applicable), pursuant to Section X.H.1. of the Plan, each of the
Assumed Agreements shall be deemed assumed by the Reorganized Company and shall
be in full force and effect, except to the extent that they have been modified
consensually with the agreement of the parties thereto. Notwithstanding Section
X.H.3. of the Plan, any objection to a Cure Amount that has been reduced or
eliminated pursuant to the Contract Schedules Revision must be filed with the
Court and served upon the Reorganized Company and the Reorganized Company's
Counsel within fourteen days of the date that the Contract Schedules Revision
and notice of the entry of this Order are served upon the parties to the
applicable Assumed Agreements. The failure to file and serve such an objection
shall be deemed a waiver of any objection to such revised Cure Amounts; in the
event that such an objection is timely filed, the Reorganized Company shall make
the cure payment required to be made pursuant to section 365(b)(1) of the
Bankruptcy Code within thirty days after the order of the Court resolving such
objection has become a Final Order.
6. As of the Effective Date, the Reorganized Company also
shall be deemed to have assumed the obligations of Barry's to indemnify its
directors and officers as of the Petition Date pursuant to all applicable
certificates of incorporation, bylaws, written agreements, and statutes with
respect to all present and future actions, suits, and proceedings against any of
such directors and officers based upon any act or omission related to service
with, for, or on behalf of Barry's. Such obligations shall not be discharged or
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impaired by confirmation or consummation of the Plan or this Order and shall
survive confirmation unaffected by the contemplated reorganization.
7. Unless previously assumed or rejected by Order of this
Court, as of the Effective Date, pursuant to Section X.H.4. of the Plan, each of
the Rejected Agreements shall be deemed rejected by Barry's, the Existing
Warrants and Options shall be deemed rejected, cancelled, and terminated, and
the Reorganized Company shall have no liabilities or obligations with respect to
the Rejected Agreements and/or the Existing Warrants and Options. The deadlines,
procedures, and sanctions set forth in Section X.H.5. of the Plan regarding the
assertion of Claims for damages arising from such rejection are approved and
established.
8. Except as otherwise provided in the Plan, this Order, or
the documents effectuating the Plan Financing, on the Effective Date and upon
(a) effectiveness of the Reincorporation Merger, (b) payment of Allowed Class 1
Claims pursuant to Section X.C.1. of the Plan, and (c) provision for Allowed
Class 2 Claims pursuant to Section X.C.2. of the Plan, all property of the
Estate shall revest in the Reorganized Company, free and clear of all Claims,
liens, encumbrances, and Interests; provided, however, that such property shall
be subject to valid security interests that secure the payment of Administrative
Tax Claims and Secured Tax Claims in such priority as they otherwise hold under
applicable nonbankruptcy law; and provided further that, upon satisfaction of
such Administrative Tax Claims and Secured Tax Claims, any such surviving
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security interests automatically will be released and discharged without further
order of the Court. From and after the Effective Date, the Reorganized Company
may operate its business and use, acquire, and dispose of property and settle
and compromise Claims or Interests without supervision by the Court and free of
any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and this Order.
9. Pursuant to section 1123(b) of the Bankruptcy Code, as of
the Effective Date and upon effectiveness of the Reincorporation Merger, the
Reorganized Company shall be revested with and shall retain and may enforce any
claims, rights, and causes of action that Barry's or the Estate may hold or have
against any entity and that are not expressly released in or pursuant to the
Plan, including, without limitation, (a) any claims, rights, or causes of action
under sections 544 through 550 of the Bankruptcy Code or any similar provisions
of state law, or any other statute or legal theory, (b) any rights of equitable
subordination or disallowance, (c) any derivative causes of action that may be
brought by or on behalf of Barry's or the Estate, and (d) any and all other
claims, rights, or causes of action of any kind or nature of Barry's or the
Estate that may exist under applicable bankruptcy or nonbankruptcy law. Any such
recoveries from such causes of action shall be retained by the Reorganized
Company free and clear of all Claims, liens, encumbrances, and Interests.
10. Pursuant to section 1125(e) of the Bankruptcy Code,
Barry's, the Creditors' Committee, the Bondholder Committee, the Equity
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Committee, the Bank Group, the Collateral Agent, their respective members,
officers, directors, agents, and professional advisors, and all other Persons
who have solicited acceptances or rejections of the Plan or who have
participated in the Plan Agreement or the offer, issuance, sale, or purchase of
any security offered or sold under the Plan in good faith and in compliance with
the applicable provisions of the Bankruptcy Code shall not be liable on account
of such solicitation or participation for any violation of any applicable law,
rule, or regulation governing solicitation of acceptance or rejection of a plan
or the offer, issuance, sale, or purchase of securities.
11. This Court's "Order Re Motion Of Debtor For Order
Authorizing: (A) Debtor's Entry Into Postpetition Consignment Agreement; (B)
Granting Of Security Interest In And To Consigned Merchandise Pursuant To
Uniform Commercial Code Section 9114 And Applicable Law; And (C) Obtaining Of
Credit Pursuant To Consignment Agreement On An Administrative Priority Basis,"
entered on June 13, 1997, and "Order Authorizing On A Final Basis: (A) Debtor's
Entry Into Postpetition Consignment Agreement; (B) Granting Of Security Interest
In And To Consigned Merchandise Pursuant To Uniform Commercial Code Section 9114
And Applicable Law; And (C) Obtaining Of Credit Pursuant To Consignment
Agreement On An Administrative Priority Basis," entered on July 22, 1998, shall
not apply and shall be ineffective with respect to any and all agreements
regarding consigned merchandise executed by Barry's and/or the Reorganized
Company and dated as of or after the Effective Date.
14
<PAGE>
12. Pursuant to Section XI.N. of the Plan, on the Effective
Date the "Trade Financing Agreement Term Sheet," dated as of July 22, 1997,
among Barry's, the Creditors' Committee, the Bondholder Committee, and the Bank
Group (the "TFA Agreement"), shall be deemed modified to provide that Barry's
need not offer to execute trade financing agreements with trade vendors who
assert Claims against Barry's in amounts of $1,000 or less. The "trade trust"
established pursuant to the TFA Agreement shall be preserved and will remain in
full force and effect until such time as Barry's accounts payable to trade
vendors with respect to the period between the Petition Date and the Effective
Date have been paid in accordance with their terms. After such payment, the
"trade trust" shall be dissolved and the remaining funds held in such "trust"
shall be returned to the Reorganized Company free and clear of any claims of
trade vendors, the Bank Group, or the Bondholders.
13. The deadlines, procedures, and sanctions set forth in
Section X.B.1. of the Plan regarding the assertion of Administrative Claims are
approved and established; provided, however, that, notwithstanding Section
X.B.1.c. of the Plan, the following shall apply with respect to Administrative
Tax Claims:
An Administrative Tax Claim shall be allowed only if (i) within the
later of (x) one hundred and twenty days after the Effective Date or
(y) one hundred and twenty days after the filing of the tax return for
such taxes with the applicable governmental unit, the holder of such
Claim files with the Court and serves on the Reorganized Company and
the Reorganized Company's Counsel a proof of such Administrative Claim
or a motion requesting payment of such Administrative Claim; and (ii)
such Claim is allowed by the Court pursuant to a Final Order. The
Reorganized Company may file an objection to any such proof of
Administrative Claim or motion by the Claims/Interests
15
<PAGE>
Deadline established in Section XI.E. of the Plan; if no such objection
is filed, the applicable Administrative Claim shall be deemed allowed.
Holders of Administrative Tax Claims that do not file and serve a
timely proof of Administrative Claim or motion for payment shall be
forever barred from asserting such Claims against Barry's, the Estate,
the Reorganized Company, or their respective property, regardless of
whether such Claims are deemed to arise prior to, on, or subsequent to
the Effective Date.
14. The discharge and injunction provisions set forth in
Section XIV.A. of the Plan are approved and established.
15. This Court shall retain jurisdiction as provided in
Section XI.U. of the Plan.
16. Pursuant to section 1146(c) of the Bankruptcy Code, the
issuance, transfer, or exchange of a security under the Plan, and the making or
delivery of an instrument or transfer under the Plan, shall not be subject to
any stamp tax or similar tax.
17. All modifications made to the Plan since April 30, 1998,
either (a) have been accepted by the parties who are materially affected
thereby, or (b) do not adversely change the treatment under the Plan of the
Claim of any creditor or the Interest of any shareholder. Such modifications
therefore are deemed accepted by all creditors and shareholders who previously
voted to accept the Plan and are deemed a part of the Plan pursuant to section
1127(a) of the Bankruptcy Code, Bankruptcy Rule 3019, and all other applicable
laws.
18. Pursuant to Section XI.M. of the Plan, neither Barry's nor
the Reorganized Company is required to comply with Rule 3020-1(2) (formerly Rule
142(3)) of the Local Bankruptcy Rules of the United States Bankruptcy Court for
16
<PAGE>
the Central District of California, which generally requires the filing of
certain status reports after the Confirmation Date.
19. The Reorganized Company shall mail a notice of the entry
of this Order and of the Effective Date, in substantially the form of the Notice
attached hereto as Exhibit B, which form hereby is approved, to all creditors of
record as of the date of entry of this Order (excluding any Bondholders who were
not record holders of Senior Notes as of the Record Date) and to all
shareholders of record as of the Record Date.
DATED: /s/ Vincent P. Zurzolo
-----------------------------------
THE HONORABLE VINCENT P. ZURZOLO
UNITED STATES BANKRUPTCY JUDGE
Presented By:
/s/ James O. Johnston
- -----------------------------------
JAMES O. JOHNSTON, a Member of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
Reorganization Counsel for
Barry's Jewelers, Inc.
17
<PAGE>
LEE R. BOGDANOFF (State Bar No. 119542),
MICHAEL L. TUCHIN (State Bar No. 150375),
JAMES O. JOHNSTON (State Bar. No. 167330), and
JOSHUA R. ELLINGWOOD (State Bar No. 187117), Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
3699 Wilshire Boulevard, Suite 900
Los Angeles, California 90010
Telephone: (213) 251-5248
Facsimile: (213) 251-5288
Reorganization Counsel for Debtor and Debtor in Possession
Debtor's Mailing Address:
2914 Montopolis Drive, Suite 200
Austin, Texas 78741
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
<TABLE>
<S> <C>
In re )
)
BARRY'S JEWELERS, INC., a California corporation; d/b/a )
The Ringmaker; Samuels Jewelers; Wallace Jewelers; A. ) Case No. LA 97-27988 VZ
Hirsh & Son Jewelers; Gold Art Creations; Milen )
Jewelers; Keiden's Jewelers; Mission Jewelers; Schubach )
Jewelers; Barons Jewelers; and Hatfield Jewelers; ) Chapter 11
f/d/b/a Leroy's Jewelers; Alberts Jewelers; Raskins )
Jewelers; and Treasures f/a/k/a Jewelers Holding )
Corporation; Western States Jewelers Holding Corp.; BBF )
Jewelers Management, Inc., FBB Jewelers Management, )
Inc., #2; BJI Holding Company, Inc.; Western States ) ORIGINAL DISCLOSURE STATEMENT AND PLAN OF
Jewelers' Corp.; Milens of California; A. Hirsh & Son, ) REORGANIZATION, DATED APRIL 30, 1998, PROPOSED BY
Inc.; Treasures, Inc.; Barry's Jewelers Texas Corp.; ) BARRY'S JEWELERS, INC.
Gold Art Creations, Inc.; and Jeweler's Management )
Corporation, )
)
TAX ID #95-3746316 )
) Confirmation Hearing
Debtor. )
) Date: September 16, 1998
) Time: 2:30 p.m.
) Place: Courtroom 1368
) Roybal Federal Bldg.
) 255 East Temple Street
) Los Angeles, CA 90012
)
- ---------------------------------------------------------
</TABLE>
181916v2.doc
<PAGE>
SUMMARY INFORMATION
-------------------
(The capitalized terms used in this Summary have the
meanings ascribed to them in Section IX of this document)
Debtor: Barry's Jewelers, Inc.
Vote Required: Acceptance of the Plan generally requires the affirmative
vote of two-thirds in amount and a majority in number of the
Allowed Claims, and two-thirds in amount of the Allowed
Interests, actually voted in each Class of impaired Claims
or Interests. Only holders of Claims and Interests within
Classes 1, 2, 3, 5, 6, and 9 are entitled to vote. In the
event that any of such Classes rejects the Plan, however,
the Court nevertheless may confirm the Plan if the
requirements of section 1129(b) of the Code are satisfied.
Recommendation: Barry's, the Creditors' Committee, the Bondholder Committee,
and the Equity Committee recommend acceptance of the Plan
and urge all creditors and shareholders to vote in favor of
the Plan.
Balloting And
Other Information: Ballots have been provided with this document to the holders
of Claims or Interests in the impaired Classes and must be
completed, executed, and returned as follows:
For all creditors (other than Bondholders), completed
ballots must be returned to and received by the Ballot
Tabulator by no later than 5:00 p.m., Pacific Daylight Time,
on August 10, 1998.
For all Bondholders and shareholders, completed ballots must
be returned to and received by the person identified on the
ballot no later than 5:00 p.m., Pacific Daylight Time, on
August 10, 1998.
The hearing on Confirmation will be held on September 16,
1998, at 2:30 p.m. The hearing may be continued from time to
time without further notice.
Plan Summary 1
<PAGE>
Treatment Of The If the Court confirms the Plan:
Claims Of
Creditors And
Shareholders: General Unsecured Creditors (including most suppliers of
goods and services, and parties to executory contracts and
leases which have been rejected or are rejected pursuant to
the Plan) generally will receive the following treatment on
account of their Unsecured Claims (which are classified into
Class 6): (a) if the amount of all Allowed Class 6 Claims is
equal to or less than $17,000,000, then each holder of an
Allowed Class 6 Claim shall receive a cash payment in an
amount equal to fifteen percent (15%) of the amount of such
holder's Allowed Class 6 Claim, plus simple interest on such
amount at the rate of five percent (5%) per annum from the
Effective Date until the date of the distribution to such
holder; and (b) if the amount of all Allowed Class 6 Claims
exceeds $17,000,000, then each holder of an Allowed Class 6
Claim shall receive a Pro Rata share of $2,550,000 in cash,
plus simple interest on such Pro Rata share at the rate of
five percent (5%) per annum from the Effective Date until
the date of the distribution to such holder.
Bondholders generally will receive on account of their
Secured and Unsecured Claims (which are classified into
Classes 2 and 5, respectively) (a) a Pro Rata share of the
Bondholder New Common Stock (which represents fifty percent
of the New Common Stock to be issued by the Reorganized
Company), and (b) the right to purchase a ratable share of
Additional New Common Stock (which represents forty-five
percent of the New Common Stock to be issued by the
Reorganized Company).
Shareholders generally will receive on account of their
Interests (which are classified into Class 9) a Pro Rata
share of the Reorganized Company Warrants (which represent,
in the aggregate, the right to purchase up to five percent
of the New Common Stock on a fully-diluted basis at
specified Strike Prices).
All existing shares, stock options, and warrants of Barry's
will be canceled. Other creditors will receive treatment set
forth in the Plan and described in this document.
Effective Date
And Plan
Distributions: The Effective Date of the Plan will occur on the first
Business Day (a) that is at least ten days after the
Confirmation Date, (b) on which no stay of the Confirmation
Order is in effect, and (c) after which the applicable
conditions to the occurrence of the Effective Date have been
satisfied or waived. Distributions on account of general
Unsecured Claims classified into Class 6, however, will not
occur until the earlier of (x) the date on which the total
amount of asserted Class 6 Claims becomes equal to or less
than $17,000,000, and (y) the date on which the Claims
Committee, if formed, informs the Reorganized Company that
no further objections to Class 6 Claims are warranted.
Plan Summary 2
<PAGE>
Questions: All inquiries regarding the Plan or this Disclosure
Statement should be in writing and directed to James O.
Johnston, Stutman, Treister & Glatt Professional
Corporation, 3699 Wilshire Blvd., Suite 900, Los Angeles,
California 90010 (facsimile: 213-251-5288).
IMPORTANT
NOTICE: The Plan, Disclosure Statement, and ballots contain
important information that is not included in this Summary,
which information may affect your rights materially. You
therefore should read the Plan, Disclosure Statement, and
ballot in their entirety and consult with your legal and
financial advisors prior to casting your ballot on the Plan.
Plan Summary 3
<PAGE>
I.
INTRODUCTION
On May 11, 1997 (the "Petition Date"), Barry's Jewelers, Inc.
("Barry's") filed a voluntary petition under chapter 11 of the Bankruptcy Code
(the "Code"), and since that time Barry's has operated its business and managed
its affairs as a debtor in possession pursuant to sections 1107 and 1108 of the
Code.
The document you are reading is both the Plan of
Reorganization (the "Plan") (set forth in the non-italicized text of Sections IX
through XIV) and the Disclosure Statement with respect to the Plan (the
"Disclosure Statement") (set forth in Sections I through VIII, Sections XV
through XXI, and in the italicized text of Sections IX through XIV).1 Barry's
has proposed the Plan to treat the Claims of its creditors and the Interests of
its shareholders and to reorganize its business affairs. The Disclosure
Statement generally describes the assumptions that underlie the Plan and how the
Plan will be executed.
The United States Bankruptcy Court for the Central District of
California (the "Court") has approved the form of this document as an adequate
disclosure statement, containing enough information to enable parties affected
by the Plan to make an informed judgment with respect to voting for or against
the Plan. Such approval, however, does not constitute a determination by the
Court of the fairness or merits of the Plan or of the accuracy or completeness
of the information contained herein. Moreover, because the Court has not yet
confirmed the Plan, its terms are not now binding on anyone.
For the reasons set forth below, Barry's, the Creditors'
Committee, the Bondholder Committee, and the Equity Committee believe that the
Plan provides the greatest and earliest possible recoveries to Barry's creditors
and shareholders, that acceptance of the Plan is in the best interests of all
parties, and that any alternative would result in further delay, uncertainty,
and expense. Barry's, the Creditors' Committee, the Bondholder Committee, and
the Equity Committee therefore recommend that all eligible creditors and
shareholders entitled to vote cast their ballots to accept the Plan.
II.
GENERAL INFORMATION AND DISCLAIMERS
Please read this document and the attached Exhibits carefully.
Together, such documents explain who may object to confirmation of the Plan, who
is entitled to vote to accept or reject the Plan, and the treatment that
creditors and shareholders can expect to receive if the Plan is accepted by the
requisite number of creditors and shareholders or otherwise confirmed by the
Court. (As explained in Section XVII, the Court may confirm the Plan even if not
all of the Classes of Claims and Interests have voted for acceptance of the Plan
if the Plan satisfies certain other statutory requirements).
- --------
1 The capitalized terms not otherwise defined in the Disclosure Statement
portion of this document are defined in Section IX.A, below.
1
<PAGE>
The Disclosure Statement and the Plan, however, do not
constitute financial or legal advice. Creditors and shareholders should consult
their own advisors if they have questions about the impact of the Plan on their
Claims or Interests.
The sources of financial data relied upon in formulating this
document are set forth in the declaration in Section XXI. The financial
information used in preparing the Disclosure Statement and the Plan was prepared
by and is the sole responsibility of Barry's, and Barry's professional advisors
have not independently verified such information.
No representations concerning Barry's that are inconsistent
with anything contained herein are authorized except to the extent, if at all,
that the Court orders otherwise. The statements and information concerning
Barry's that are set forth in this document constitute the only such statements
and information that have been approved by the Court for the purpose of
soliciting acceptances or rejections of the plan.
The Disclosure Statement and Plan may not be relied upon for
any purpose other than to determine whether to vote in favor of or against the
Plan. Nothing contained herein will constitute an admission of any fact or
liability by any party, or be deemed evidence of the tax or other legal effects
of the reorganization of Barry's on holders of Claims or Interests in the
Reorganization Case.
Unless another time expressly is specified herein, the
statements contained in this document are made as of the date identified on the
cover page. Under no circumstances will the delivery of this document or the
exchange of any rights made in connection with the Plan create an implication or
representation that there has been no change in the information set forth in
this document since the date of its compilation. Barry's assumes no duty and
presently does not intend to update or supplement any of the disclosures
contained herein.
CAUTIONARY STATEMENT: CERTAIN INFORMATION INCLUDED IN THIS
DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUCH FORWARD-LOOKING
STATEMENTS ARE BASED UPON INFORMATION AVAILABLE WHEN THE STATEMENTS WERE MADE
AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE STATEMENTS. NEITHER THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC") NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED THIS DOCUMENT.
III.
WHO MAY OBJECT TO CONFIRMATION OF THE PLAN
Barry's has reserved September 16, 1998, at 2:30 p.m., in
Courtroom 1368 of the Roybal Federal Building, 255 East Temple Street, Los
Angeles, California, for a hearing to determine whether the Court will confirm
the Plan. If, after receiving the ballots on the Plan, it appears that Barry's
has a sufficient number and amount of affirmative votes, Barry's will file a
motion for an order confirming the Plan. Any parties in interest in the
Reorganization Case, including creditors and shareholders who vote to reject the
Plan, will have the opportunity to file an objection to confirmation. Failure to
2
<PAGE>
oppose Barry's motion in support of confirmation may be deemed to be consent to
the Plan's confirmation.
IV.
WHO MAY VOTE TO ACCEPT OR REJECT THE PLAN
In order to vote to accept or reject the Plan, a creditor's
Claim or a shareholder's Interest generally must be both (a) impaired and (b) an
Allowed Claim or an Allowed Interest. A Claim generally includes all rights to
payment from Barry's, and an Interest generally represents an ownership stake in
Barry's. See Section IX.A for the operative definition of Claims and Interests
under the Plan.
Allowance: A Claim is an Allowed Claim only if (a) a proof of
the Claim was timely filed, or the Claim is deemed timely filed pursuant to
Bankruptcy Rule 3003(b)(1) or by reason of an order of the Court; and (b)
Barry's, the Reorganized Company, or the Claims Committee (if formed) does not
file an objection to the Claim by the Claims/Interests Objection Deadline and
the Claim is not otherwise a Disputed Claim, or the Claim is allowed by a Final
Order, or the Claim otherwise is allowed under the Plan. An Interest is an
Allowed Interest only if (x) either a proof of the Interest was timely filed,
the Interest is deemed timely filed pursuant to Bankruptcy Rule 3003(b)(2) or by
reason of an order of the Court, or, in the case of Interests consisting of
Existing Common Stock, the Interest is identified by Barry's stock transfer
agent as existing as of the Record Date; and (y) either Barry's or the
Reorganized Company does not file an objection to the Interest by the
Claims/Interests Objection Deadline and the Interest is not otherwise a Disputed
Interest, or the Interest is allowed by a Final Order, or the Interest otherwise
is allowed under the Plan. See Section IX.A for more information.
Notwithstanding the foregoing, pursuant to an order of the
Court, a claimant who holds a Claim that is not an Allowed Claim or an Interest
that is not an Allowed Interest is entitled to vote on the Plan and to have its
ballot counted as an acceptance or rejection if (a) the claimant has filed a
timely proof of Claim or Interest that is not the subject of an objection filed
prior to the Confirmation Hearing or an order entered prior to the Confirmation
Hearing disallowing such proof of Claim or Interest; or (b) the claimant has not
filed a timely proof of Claim or Interest but a Claim or Interest is identified
on behalf of the claimant in Barry's "Schedules of Assets and Liabilities" (as
amended, the "Schedules") in a liquidated, noncontingent, undisputed amount (or,
in the case of Interests, an Interest is identified by Barry's stock transfer
agent as existing as of the Record Date). An entity whose Claim or Interest
currently is subject to an objection is not eligible to vote on the Plan unless
and until that objection is resolved in the entity's favor or, after notice and
a hearing pursuant to Bankruptcy Rule 3018(a), the court temporarily allows the
entity's Claim or Interest for the purpose of voting to accept or reject the
Plan. Any entity who seeks temporary allowance of its Claim or Interest for the
purpose of voting on the Plan promptly must take the steps necessary to arrange
an appropriate hearing with the Court.
Impairment: Impaired Claims include those for which a
creditor's legal, equitable, and/or contractual rights are altered by the Plan,
even if such alteration is beneficial to the creditor. A contract provision that
entitles a creditor to accelerated payment upon default, however, generally does
not render a Claim impaired, even if Barry's has defaulted and the Plan does not
provide the creditor with accelerated payment, if the Plan cures the default,
reinstates the maturity of the Claim as it existed before such default, and
compensates the creditor for damages, if any, incurred as a result of reasonable
3
<PAGE>
reliance upon the acceleration provision. Impaired Interests include those for
which a shareholder's legal, equitable, and/or contractual rights are altered by
the Plan, even if such alteration is beneficial to the Interest-holder. Section
X.A identifies the Classes of Claims and Interests that Barry's believes to be
impaired under the Plan.
To summarize, there are two general prerequisites to voting on
the Plan: a Claim or Interest must be both impaired and an Allowed Claim or an
Allowed Interest. Impaired Claims and impaired Interests are placed in Classes
pursuant to the Plan, which Classes generally must vote to accept the Plan in
order for it to be confirmed. Even if all Classes do not vote in favor of the
Plan, however, the Court nevertheless may confirm the Plan if the dissenting
Class or Classes are treated in a manner prescribed by the Code. See Sections
XVII and XVIII for a further explanation of the confirmation requirements
applicable to the Plan.
V.
VOTES NECESSARY TO CONFIRM THE PLAN
The Court may confirm the Plan only if, at a minimum, at least
one Class of impaired Claims has voted to accept the Plan (without counting the
votes of any insiders whose Claims are classified within that Class) and if
certain statutory requirements are met as to both nonconsenting members within a
consenting Class and dissenting Classes. A Class of Claims has accepted the Plan
only when at least one-half in number and at least two-thirds in amount of the
Allowed Claims actually voting in that Class vote in favor of the Plan. A Class
of Interests has accepted the Plan when at least two-thirds in amount of the
Allowed Interests actually voting in that Class vote in favor of the Plan.
Even if Barry's receives the requisite number of votes by
entities holding impaired Claims or Interests, the Plan will not become binding
unless and until, among other things, the Court makes an independent
determination that confirmation is appropriate, which determination will be the
subject of an upcoming Confirmation Hearing, and the Effective Date then occurs.
See Section XI.V for a discussion of the various other conditions to
confirmation and effectiveness of the Plan.
VI.
INFORMATION REGARDING VOTING IN THIS CASE
Barry's believes that Classes 1, 2, 3, 5, 6, and 9 are
impaired and therefore entitled to vote on the Plan. Barry's believes that
Classes 4, 7, and 8 are unimpaired and therefore not entitled to vote on the
Plan. Pursuant to applicable sections of the Code, holders of Administrative
Claims and Priority Tax Claims are not classified and not entitled to vote on
the Plan. See Section X.A.9. Any party that disputes Barry's characterization of
its Claim or Interest as unimpaired may request a finding of impairment from the
Court in order to obtain the right to vote.
In voting for or against the Plan, please use only the ballot
sent to you with this document, and please carefully read the voting
instructions on the ballot for an explanation of applicable voting procedures
and deadlines. If, after reviewing this document, you believe that you hold an
impaired Claim or Interest and are entitled to vote on the Plan but you did not
receive a ballot, or if your ballot is damaged or lost, please make a written
4
<PAGE>
request for a replacement ballot to Charlotte N. Benford (the "Ballot
Tabulator"), Stutman, Treister & Glatt Professional Corporation, 3699 Wilshire
Blvd., Suite 900, Los Angeles, California 90010 (facsimile: 213-251-5288).
If your Claim against or Interest in Barry's is not based upon
Existing Common Stock or Senior Notes, you must mail or otherwise deliver your
completed ballot, in the pre-addressed enclosed envelope, to the Ballot
Tabulator. IN ORDER TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED BY THE BALLOT
TABULATOR BY NOT LATER THAN 5:00 P.M., PACIFIC DAYLIGHT TIME, ON AUGUST 10,
1998. DO NOT SUBMIT YOUR BALLOT VIA FACSIMILE. DO NOT RETURN YOUR BALLOT TO THE
COURT.
If your Claim against or Interest in Barry's is based upon
Existing Common Stock or Senior Notes, special procedures have been established
for the purpose of balloting on the Plan. Please refer to the ballot that you
received with this document or contact the Ballot Tabulator for more
information.
Any interested party desiring further information with respect
to the Plan, or seeking additional copies of this document, should contact the
Ballot Tabulator in writing. The cost of any additional copies must be paid by
the person ordering them. All pleadings and other papers filed in this case,
however, may be inspected free of charge during regular court hours at the
Office of the Clerk, United States Bankruptcy Court, 300 North Los Angeles
Street, Los Angeles, California.
VII.
BACKGROUND INFORMATION
(DESCRIPTION OF BARRY'S PAST AND FUTURE BUSINESS, EVENTS PRECIPITATING
BARRY'S BANKRUPTCY PETITION, AND
SIGNIFICANT EVENTS IN THE REORGANIZATION CASE)
Barry's is a corporation formed under the laws of the State of
California with principal executive offices currently located in Monrovia,
California. Barry's, however, is in the process of relocating its headquarters
to Austin, Texas, see Section VII.E.13, and the Plan provides for Barry's, on
the Effective Date, to be merged into Samuels Jewelers, Inc., a corporation to
be formed under the laws of the State of Delaware, and to conduct its business
after the Effective Date under the name of "Samuels Jewelers," see Section XIII.
A. Business Background.
Barry's is a large specialty retailer of fine jewelry. Prior
to the Petition Date, Barry's operated approximately 163 retail jewelry stores
in 18 states (principally in California, Texas, Arizona, North Carolina, Utah,
Indiana, Ohio, Colorado, Idaho, and Montana) under the trade names of A. Hirsch
& Son Jewelers, Barons Jewelers, Barry's Jewelers, Hatfield Jewelers, Mission
Jewelers, The Ringmaker, Samuels Jewelers, and Schubach Jewelers. On the
Petition Date, Barry's employed approximately 1,200 employees. Since that time,
however, Barry's has closed certain of its stores, reduced its workforce, and
eliminated many of its trade names in an effort to restructure and improve its
business.
Barry's stores are located in regional malls and offer fine
jewelry items, with a principal emphasis on diamond and gemstone jewelry, in a
wide range of styles and prices. All of Barry's stores are located on leased
premises, with most of the store leases providing for the payment of fixed rent
plus real estate taxes, insurance, common area maintenance fees, mall
5
<PAGE>
association dues, and contingent amounts based upon a store's gross sales.
Barry's store leases generally have an initial term of five to fifteen years and
expire at various dates through 2007. Some of the store leases, however, have
expired and Barry's currently occupies such stores on a month-to-month basis.
To enhance sales, Barry's makes credit financing available to
qualified customers through its own private-label credit card and through
various secondary credit sources. Barry's has 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 for the replenishment of merchandise in stores.
B. Barry's Current Creditor And Shareholder Constituents.
As set forth in the Schedules, there existed as of the
Petition Date a total of approximately $133 million in Secured and Unsecured
Claims against Barry's, exclusive of any obligations of Barry's to lessors of
real or personal property.
1. The Bank Group, The Bondholders, And The Intercreditor Agreement.
Two major groups of potentially secured creditors of Barry's
exist. The first such group (collectively, the "Bank Group"), is comprised of
BankBoston, N.A. ("BankBoston"), The CIT Group/Business Credit, Inc., Jackson
National Life Insurance Company, and The Long Horizon Fund, L.P. (which, during
the Reorganization Case, received an assignment of all of the Claims of Sanwa
Business Credit Corporation) as lenders under the "Second Amended And Restated
Revolving Credit Agreement," dated August 30, 1996 (as amended, the "Revolving
Credit Agreement"). The Bank Group asserts Secured Claims against Barry's
totaling approximately $57.880 million as of the Petition Date. Pursuant to the
Revolving Credit Agreement, BankBoston serves as the agent for the Bank Group.
The second such group consists of holders (collectively, the
"Bondholders") of Barry's 11% Senior Secured Notes due December 22, 2000 (the
"Senior Notes"). First Trust National Association (the "Indenture Trustee")
serves as indenture trustee under an Indenture for the benefit of the
Bondholders, who number in excess of 100 and assert partially Secured Claims
totaling approximately $53.073 million.
Under a "Collateral Agency And Intercreditor Agreement," dated
December 22, 1993 (as amended, the "Intercreditor Agreement"), to which Barry's
is a party, BankBoston serves as the Collateral Agent for the Bank Group and for
the Indenture Trustee. Pursuant to the Intercreditor Agreement, Barry's
purportedly granted security interests in favor of BankBoston, as Collateral
Agent, in substantially all of its assets (the "Collateral"), including, among
other things, Barry's inventory, accounts receivable, personal property
(including furniture, fixtures, and equipment) and the proceeds of such
Collateral.
BankBoston, as Collateral Agent, therefore asserts a single
lien against Barry's for the benefit of both the Bank Group and the Bondholders.
The Intercreditor Agreement, however, purports to subordinate the interests of
the Bondholders in the Collateral to the interests of the Bank Group in the
Collateral in accordance with the terms of the agreement.
Barry's has commenced litigation to avoid and/or limit certain
of the purported security interests held by BankBoston as Collateral Agent for
the benefit of the Bank Group and the Bondholders pursuant to the Intercreditor
6
<PAGE>
Agreement. See Section VII.E.17.a. Pursuant to the Plan Agreement (as referenced
in Section VII.E.18), that litigation currently is stayed, and the Plan provides
for the dismissal of the litigation, with prejudice, as of the Effective Date.
See Section X.C.1.
2. Unsecured Creditors.
In its Schedules, Barry's also scheduled approximately $17.9
million in Unsecured Claims (excluding the unsecured deficiency Claims of the
Bondholders), which consist of trade, accounts payable, and other acknowledged
accrued liabilities. Barry's, however, has received proofs of Claim
significantly in excess of that scheduled amount. See Section VII.E.14. Barry's
currently estimates that there will be Allowed Unsecured Claims in the
Reorganization Case (excluding the Claims asserted by the Bondholders) of
approximately $15 million to $17 million.
3. Interest Holders.
Finally, Barry's has 4,029,372 shares of common stock issued
and outstanding (the "Existing Common Stock"). As a result of the commencement
of the Reorganization Case, the Existing Common Stock was delisted from the
NASDAQ National Market System effective as of July 11, 1997.
As indicated in Barry's 10-K Report for the fiscal year ended
May 31, 1997, Barry's also has approximately 1,050,000 warrants and 218,000
options for the purchase of Existing Common Stock issued and outstanding.
C. The Prior Chapter 11 Case.
Barry's previously filed a voluntary petition for relief under
chapter 11 of the Code on February 26, 1992, for the purpose of implementing a
pre-negotiated plan of reorganization (the "Old Plan"). The Old Plan was
confirmed by the Court by order entered on June 19, 1992, and became effective
and was substantially consummated on June 30, 1992. Pursuant to the Old Plan,
all allowed general unsecured claims were paid in full in cash, the holders of
Barry's 125/8% Subordinated Notes due May 1, 2001 received ninety percent of the
primary shares of the Existing Common Stock, and Wells Fargo Bank, N.A. and The
Bank of California, N.A. entered into an amended credit facility.
Barry's previous chapter 11 case was fully administered and a
final decree closing the case was entered on or about June 14, 1994. To the best
of Barry's knowledge, no creditor whose indebtedness was restructured under the
Old Plan is currently a creditor of Barry's with respect to that debt. As
discussed in Section VII.D, Barry's now is operated by a new management team
that was not involved in any aspect of its prior chapter 11 case.
D. The New Management Team And Events Leading To The Reorganization Case.
After Barry's achieved positive net income of $1,539,000 for
the fiscal year ended May 1994 and of $1,906,000 for the fiscal year ended May
1995, Barry's previous management embarked on an aggressive expansion program
that involved opening over twenty new stores throughout the country. The capital
expenditures necessitated by that expansion program, however, drained Barry's
working capital and availability under the Revolving Credit Agreement. Moreover,
7
<PAGE>
the sales of merchandise at Barry's new stores ultimately failed to meet
expectations, thereby exacerbating Barry's capital problems, and Barry's
suffered a net loss of $2,783,000 for the fiscal year ended May 1996 and of
$19,220,000 for the nine months ending in February 1997.
A number of other factors contributed to Barry's financial
difficulties, including (a) Barry's inability to obtain a bridge loan from the
Bank Group or elsewhere during its working capital crisis; (b) limitations on
Barry's ability to acquire new inventory on consignment and to establish other
vendor-related programs; (c) deterioration in the quality of Barry's
accounts-receivable base as a result of its aggressive granting of credit to
risky customers; (d) above industry-average selling, administrative, and
overhead expenses; and (e) increasingly past-due accounts payable, which
resulted in sharply decreasing shipments on account.
As a result of those and other problems, Barry's Board of
Directors hired a new management team for Barry's in mid-February 1997 to
analyze the reasons for the company's poor performance and to lead a financial
and operational reorganization. The new management team was led by Samuel
Merksamer as Chief Executive Officer and President, E. Peter Healey as Executive
Vice President and Chief Financial Officer, and Randy N. McCullough as Senior
Vice President. See Section VII.E.8 for a description of the compensation
arrangements for that management team, and see Section XIII.A.2 for a discussion
of the management team that is anticipated to oversee the Reorganized Company's
post-confirmation operations.
Shortly after its appointment, the new management team
identified additional problems with Barry's financial and operational situation,
including the facts that: (a) Barry's was significantly over-leveraged; (b)
Barry's had a substantial number of stores that consistently operated at a net
loss and that needed to be closed; (c) Barry's had no continuity in management
(it had, for example, four Chief Executive Officers in the two years prior to
the appointment of the new management team); (d) Barry's had higher than normal
inventory shrinkage due to poor management and inventory controls; (e) Barry's
operated with a below industry-average percentage of its inventory on
consignment, thereby limiting the depth and breadth of selection in its stores
and increasing Barry's financing costs; (f) Barry's had poor accounts-receivable
management policies, had poor credit-granting standards, and had failed to
incentivize collections until accounts were at least ninety days past due; (g)
Barry's headquarters space was too large for its needs and the lease for such
space was significantly above market; and (h) Barry's cost of collection of its
accounts receivable was far in excess of acceptable levels.
The new management team therefore embarked on the development
and implementation of a business plan designed to restore Barry's to
profitability. The business plan included (a) closing under-performing stores;
(b) bringing in new consignment inventory and establishing other
vendor-partnering programs to enhance merchandise assortment and thereby attract
a less credit-dependent customer base; (c) returning aged merchandise to vendors
in exchange for new inventory; (d) raising credit-granting standards to industry
norms; (e) incentivizing accounts-receivable collection efforts; (f) investing
in modern, industry-standard operational technology; (g) changing Barry's
commission structure to properly motivate salespeople; (h) acquiring a modern
point-of-sale system; (i) reducing vault inventory by sending more merchandise
to the stores; (j) establishing an updated store format and consistent name; (k)
pursuing alternatives to Barry's in-house credit and collection process; (l)
reducing corporate overhead; and (m) pursuing the relocation of the corporate
offices to less expensive space.
8
<PAGE>
Although Barry's hoped to implement its new business plan
without having to commence bankruptcy proceedings, it was unable to do so.
Because of its inability to obtain bridge financing, its diminished financial
capacity, and certain defaults under the Revolving Credit Agreement, Barry's was
unable to make an approximate $3 million interest payment due on the Senior
Notes on April 30, 1997. Moreover, as a result of public announcements relating
to those defaults and other problems, substantially all of Barry's vendors
ultimately refused to ship to Barry's on credit, and at least one unsecured
creditor had commenced ex parte writ of attachment proceedings.
Barry's therefore determined that it would need to commence
chapter 11 reorganization proceedings in order to provide it with the time,
flexibility, and stability needed to formulate and fully implement the new
business plan and otherwise to reorganize its financial and operational affairs.
In order to achieve the most efficient possible transition to
chapter 11 operations, Barry's thereafter engaged in extensive negotiations with
representatives of the Bank Group regarding the provision of debtor in
possession financing. The Bank Group and Barry's, however, were unable to agree
on the terms of such financing. As a result, Barry's and the Bank Group
ultimately negotiated and executed a "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 And Lenders" (the "Original
Cash Collateral Stipulation"), the effect of which is described in Section
VII.E.2.
E. The Chapter 11 Case.
Barry's commenced the Reorganization Case by filing a
voluntary petition for relief under chapter 11 of the Code on Sunday, May 11,
1997, after its stores had closed on that day. The Sunday filing enabled Barry's
to operate through Mother's Day, which is a peak selling period, and thereafter
promptly to commence the process of closing thirty-three store locations, most
of which were underperforming stores, while staying any and all further
collection actions (including actions under the Revolving Credit Agreement and
actions by account vendors).
1. Overview Of Chapter 11 And The Plan Process.
Chapter 11 is the principal business reorganization chapter of
the Code. Under chapter 11, a debtor in possession attempts to reorganize its
business for the benefit of itself, its creditors, and other parties in
interest.
The commencement of a chapter 11 case creates an estate
consisting of all of the legal and equitable interests of the debtor in property
as of the date that the petition was filed. Sections 1101, 1107, and 1108 of the
Code provide that a debtor may continue to operate its business and remain in
possession of its property as a "debtor in possession" unless the bankruptcy
court orders the appointment of a trustee. Since the Petition Date, therefore,
Barry's has remained in possession of its property and continues to operate its
business as a debtor in possession.
The filing of a voluntary petition under chapter 11 also
operates as an automatic stay of, among other things, all attempts to collect on
prepetition claims from the debtor or otherwise interfere with the debtor's
property or business. In chapter 11 cases, unless otherwise ordered by the
bankruptcy court, the automatic stay remains in full force and effect until the
effective date of a confirmed plan of reorganization.
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<PAGE>
The formulation of a plan of reorganization is the principal
purpose of a chapter 11 case. A plan sets forth the means for satisfying the
claims against and interests in the debtor. The Plan proposed by Barry's
provides for a reorganization of its capital structure to enable it to continue
as a viable business enterprise, to maximize the recoveries for creditors and
shareholders, to preserve the jobs of hundreds of employees, and to avoid the
potentially adverse impact of a liquidation on Barry's numerous trade vendors
and other suppliers.
2. The Cash Collateral Stipulation.
Prior to the Petition Date, after lengthy negotiations, and
against the backdrop of litigation regarding the non-consensual use of "cash
collateral" in which the Collateral Agent, the Bank Group, and the Bondholders
asserted an interest (i.e., cash allegedly encumbered pursuant to the Revolving
Credit Agreement and the Intercreditor Agreement), Barry's, the Collateral
Agent, and the Bank Group executed the Original Cash Collateral Stipulation, by
which the Collateral Agent and the Bank Group consented to the use of cash
collateral on certain terms and conditions. On the day following the Petition
Date, Barry's filed an emergency motion to approve the Original Cash Collateral
Stipulation, which motion was granted by the Court on an interim basis on May
20, 1997. An unofficial committee representing the interests of Bondholders did
not oppose the Original Cash Collateral Stipulation.
The Creditors' Committee thereafter filed an objection to the
Original Cash Collateral Stipulation. Litigation regarding final approval of the
agreement was postponed several times through stipulations continuing the final
hearing date, during which period Barry's had extensive negotiations with the
Bank Group, the official Bondholder Committee (which by then had been
appointed), and the Creditors' Committee regarding modifications to the
agreement. Such negotiations spanned several weeks and, at times, were highly
contentious.
Ultimately, Barry's asked the Court not to approve the
Original Cash Collateral Stipulation on a final basis and, concurrently, filed a
comprehensive motion requesting authority to use the alleged cash collateral on
a nonconsensual basis. Just prior to the final hearing, after intense
multi-party negotiations, Barry's, the Collateral Agent, the Bank Group, the
Bondholder Committee, and the Creditors' Committee entered into the "Amended
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 "Amended Cash Collateral Stipulation"),
which authorized Barry's to use the cash collateral, on specified terms and
conditions, through February 28, 1998. Barry's presented the Amended Cash
Collateral Stipulation at a final hearing on July 22, 1997, and the agreement
was approved by the Court on a final basis.
The Court subsequently authorized Barry's to continue to use
cash collateral on substantially the same terms and conditions as set forth in
the Amended Cash Collateral Stipulation through May 31, 1998. By the Plan
Agreement, the Collateral Agent, the Bank Group, the Creditors' Committee, and
the Bondholder Committee agreed to continue the use of cash collateral on
substantially the same terms as the Amended Cash Collateral Stipulation, as
amended, through at least August 31, 1998, subject to the approval of an
acceptable budget.
3. Lease Rejections.
Following the Petition Date, Barry's also filed a motion for
authority to reject the leases pertaining to its thirty-three closed store
locations and to reject an additional lease involving a store location that was
never opened.
10
<PAGE>
Although no parties in interest disputed Barry's business
judgment in determining that such leases should be rejected, some of the
affected lessors responded to Barry's motion by contending that the effective
date of the lease rejections should be the date of entry of the Court's order
granting the motion and that, as a result, the lessors were entitled to an
administrative expense claim for any and all rent that accrued from the Petition
Date through that date. Barry's filed a brief in which it disagreed with the
lessors' contentions and argued that the effective date of rejection should be
the date on which Barry's vacated the leased premises.
The Court authorized rejection of the applicable leases but
declined to rule upon the issues regarding the lessors' asserted Rejected Lease
Administrative Claims for rent that accrued following the date on which Barry's
vacated the premises but prior to the date of entry of the order authorizing
rejection of the various leases, and instead indicated that it would address
such issues in the context of objections to Rejected Lease Administrative Claims
filed in the Reorganization Case.
4. Other First-Day Motions.
Immediately following the Petition Date, Barry's also filed
several other motions designed to minimize the impact of the chapter 11 filing
on Barry's operations and to facilitate Barry's compliance with the requirements
of chapter 11. Among other things, Barry's filed motions requesting authority to
maintain its existing bank account structure and cash receipts and disbursement
procedures, subject to certain modifications, and for authority to honor certain
customer and related service claims and employee benefits. The Court ultimately
granted such relief, and Barry's successfully transitioned to operating as a
debtor in possession.
5. Barry's Retention Of Professionals And The Appointment Of Official
Committees.
Shortly after the Petition Date, the Court approved Barry's
engagement of the following professionals at the expense of the Estate: (a)
Stutman, Treister & Glatt Professional Corporation as reorganization counsel;
(b) Weil, Gotshal & Manges LLP as special corporate, tax, and real estate
counsel; (c) Littler, Mendelsohn, Fastiff, Tichy & Mathiason as special labor
counsel; (d) Deloitte & Touche LLP as accountants and auditors; (e) Budetti,
Harrison, Nerland & Associates LLC as financial and management consultants; and
(f) Alschuler, Grossman & Pines LLP as special secured transactions, real
estate, and litigation counsel. Barry's subsequently retained SBC Warburg Dillon
Read Inc., as financial advisors, discontinued the services of the Alschuler,
Grossman firm, and, with the approval of the Court, retained Tuttle & Taylor, A
Law Corporation in its stead.
Also shortly after the Petition Date, the United States
Trustee appointed the following official committees pursuant to section 1102 of
the Code:
a. The Official Committee of Unsecured Creditors (the
"Creditors' Committee"), which currently consists of the following
creditors:
Europa Diamond Syndicate, Inc.
I. Kurgan & Co., Inc.
M. Fabrikant & Sons, Inc.
MGM Jewelry Manufacturing Company
Original Design/Famor, Inc.
Simon DeBartolo Group, L.P.
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<PAGE>
The Creditors' Committee has retained, at the expense of the Estate,
Andrews & Kurth LLP as counsel, Whitman Breed Abbott & Morgan LLP as
local counsel, and Triumph Corporate Finance Group, Inc. as financial
advisors; and
b. The Official Committee of Bondholders (the
"Bondholder Committee"), which currently consists of the following
holders of the Senior Notes:
DDJ Capital Management, LLC
Mitchell Hutchins Asset Management, Inc.
The Bondholder Committee has retained, at the expense of the Estate,
Pachulski, Stang, Ziehl, & Young P.C. as counsel and BDO Seidman, LLP
as financial advisors.
An unofficial committee of Interest holders (the "Equity
Committee"), consisting of Gary Gelman, David Johnson, and Jack Woolf also has
been formed to represent Interest holders in this case, and the Equity Committee
has retained counsel.
The Bank Group is represented in this case by Stroock &
Stroock & Lavan LLP and has retained Price Waterhouse LLP as its financial
advisors.
6. The Interim Fee Procedures.
On motion by Barry's, the Court thereafter entered an "Order
Establishing Procedures For Interim Payment Of Fees And Reimbursement Of
Expenses," which established procedures by which Barry's was authorized to pay,
on an interim and monthly basis, eighty percent of the fees for services
rendered and one-hundred percent of the expenses incurred by professionals
employed at the expense of the Estate, within certain established aggregate
parameters.
Pursuant to those procedures and various quarterly fee
applications filed pursuant to section 331 of the Code, Barry's had made the
following interim payments of professional fees and expenses in the
Reorganization Case through March 31, 1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- -----------------------------
INTERIM AMOUNT PAID THROUGH
PROFESSIONAL/CLAIMANT 3/31/98
-------------------------------------------------------------------------------- -----------------------------
<S> <C>
Stutman, Treister & Glatt Professional Corporation $603,859
(reorganization counsel to Barry's)
-------------------------------------------------------------------------------- -----------------------------
Weil, Gotshal & Manges LLP $0
(special corporate, tax, and real estate counsel to Barry's)
-------------------------------------------------------------------------------- -----------------------------
Littler, Mendelsohn, Fastiff, Tichy & Mathiason $0
(special labor counsel to Barry's)
-------------------------------------------------------------------------------- -----------------------------
Deloitte & Touche LLP (accountants and auditors to Barry's) $319,352
-------------------------------------------------------------------------------- -----------------------------
Budetti, Harrison, Nerland & Associates LLC $454,790
(financial and management consultants to Barry's)
-------------------------------------------------------------------------------- -----------------------------
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<PAGE>
Alschuler, Grossman & Pines LLP (former special secured transactions, real
estate, and litigation counsel to Barry's) $90,643
-------------------------------------------------------------------------------- -----------------------------
Tuttle & Taylor, A Law Corporation (special secured transactions, real estate, $0
and litigation counsel to Barry's)
-------------------------------------------------------------------------------- -----------------------------
SBC Warburg Dillon Read Inc. (financial advisors to Barry's) $0
-------------------------------------------------------------------------------- -----------------------------
Andrews & Kurth LLP (counsel to Creditors' Committee) $363,856
-------------------------------------------------------------------------------- -----------------------------
Whitman Breed Abbott & Morgan LLP $22,717
(local counsel to Creditors' Committee)
-------------------------------------------------------------------------------- -----------------------------
Triumph Corporate Finance Group, Inc. $81,334
(financial advisors to Creditors' Committee)
-------------------------------------------------------------------------------- -----------------------------
Pachulski, Stang, Ziehl, & Young P.C. $227,770
(counsel to Bondholder Committee)
-------------------------------------------------------------------------------- -----------------------------
BDO Seidman, LLP (financial advisors to Bondholder Committee) $52,182
-------------------------------------------------------------------------------- -----------------------------
TOTAL $2,216,503
-------------------------------------------------------------------------------- -----------------------------
</TABLE>
On Motion by the Creditors' Committee, the Court also entered
an "Order Authorizing And Establishing Procedure For Monthly Reimbursement Of
Certain Expenses Incurred By Members Of Creditors' Committee," which authorized
Barry's to reimburse members of the Creditors' Committee, on an interim basis,
for expenses incurred in the performance of the duties of the Creditors'
Committee.
All of the above-noted payments of professional fees and
reimbursement of expenses are subject to final approval of the Court. See
Section X.B.1.
7. Payment Of Postpetition Interest And The Bank Group's Professional
Fees And Expenses.
The Revolving Credit Agreement provides for Barry's to pay
certain fees and expenses incurred by the Bank Group in connection with the
enforcement of its rights under the agreement. Barry's agreed pursuant to the
Original and Amended Cash Collateral Stipulations (the "Cash Collateral
Stipulations") to pay to BankBoston, as agent for the Bank Group, the reasonable
postpetition professional fees and expenses incurred during the course of the
Reorganization Case by BankBoston and the other members of the Bank Group,
subject to certain limitations set forth in the Cash Collateral Stipulations.
Through March 31, 1998, Barry's had paid approximately $740,994 to the Bank
Group on account of such fees and expenses. Pursuant to the Cash Collateral
Stipulations, Barry's reserved all rights to recover such payments under any
applicable legal theory.
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<PAGE>
During the course of the Reorganization Case, Barry's also has
paid postpetition interest, at the non-default rate, on the Claims of the Bank
Group under the Revolving Credit Agreement. As with its payment of the Bank
Group's fees and expenses, Barry's reserved in the Cash Collateral Stipulations
all rights to recover such payments under any applicable legal theory.
The Bank Group has asserted Secured Claims for default
interest allegedly arising under the Revolving Credit Agreement, after the
Petition Date, and for the unpaid professional fees and expenses that it
allegedly has incurred during the course of the Reorganization Case. Pursuant to
the Plan Agreement, the Bank Group has agreed to waive, upon the Effective Date,
any and all Claims against Barry's for default interest, unused commitment fees,
late charges, or any other penalties of any kind, whether under the Revolving
Credit Agreement or otherwise, and Barry's has agreed to pay, among other
things, the Bank Group's unpaid professional fees and expenses as part of its
Allowed Secured Claim.
8. The Executive Management Contracts.
As noted above, in late 1996 Barry's Board of Directors
initiated a nationwide search for a new chief executive officer and chief
financial officer. In mid-February 1997, based upon recommendations received
from industry and non-industry sources and following interviews, the Board
determined to hire Samuel Merksamer as Chief Executive Officer and President and
E. Peter Healey as Executive Vice President and Chief Financial Officer.
Following the selection of Mr. Merksamer and Mr. Healey, the Board also hired
Randy N. McCullough as Senior Vice President Merchandising, Chad C. Haggar as
Vice President Operations, Bill R. Edgel as Vice President Marketing, and Paul
W. Hart as Vice President - Management Information Systems (collectively, the
"Senior Executives").
Following negotiations with a Compensation Committee of the
Board of Directors, each of the Senior Executives and Barry's entered into an
employment agreement dated as of May 1, 1997 (collectively, the "Executive
Management Contracts"), which agreements provided for specified base salaries,
annual and incentive bonuses, and termination benefits. After the Petition Date,
Barry's filed a motion for an order authorizing the assumption and performance
of the Executive Management Contracts. Following the filing and service of that
motion, however, discussions transpired among certain of Barry's major
constituents regarding the terms of the Executive Management Contracts and, as a
result of those discussions, the Senior Executives proposed modifications to the
Executive Management Contracts, by which they agreed to reduce the total
compensation payable thereunder. Subsequently, Barry's filed a notice of
amendment to its motion to authorize assumption of the Executive Management
Contracts, in which it explained the modifications proposed by the Senior
Executives.
Thereafter, after long and intense negotiations, the Senior
Executives and the Bank Group agreed to further modifications to the Executive
Management Contracts. On or about September 15, 1997, the Bank Group filed a
"Response of Bank Group to Debtor's Motion for Assumption of Executive
Management Contracts and Approving Post-Petition Employment Agreements," which
set forth the terms of the compromise regarding the terms of the Executive
Management Contracts.
Despite the modifications to the Executive Management
Contracts, the Bondholder Committee and the Creditors' Committee filed
oppositions to Barry's motion to assume the agreements. Based upon the evidence
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<PAGE>
presented, the Court determined that the compensation payable under the
agreements was within the range of industry norms and reasonableness and that
Barry's had exercised reasonable business judgment in executing the agreements.
The Court therefore granted the motion and authorized Barry's to enter into, and
assume, the Executive Management Contracts, thereby enabling Barry's to retain
intact its new management team and to incentivize key personnel during the
course of the Reorganization Case.
The Bondholder Committee filed an appeal from the Court's
order approving the Executive Management Contracts. Barry's and the Bondholder
Committee twice stipulated to delay briefing of that appeal and, pursuant to the
Plan Agreement, the Bondholder Committee subsequently dismissed its appeal of
the order with prejudice and such dismissal was approved by the United States
District Court for the Central District of California.
On March 27, 1998, Samuel Merksamer's employment as President
and Chief Executive Officer of Barry's terminated and, pursuant to his Executive
Management Contract and with the consent of the Bank Group, the Creditors'
Committee, and the Bondholder Committee, Barry's thereafter paid Mr. Merksamer
$401,000 plus accrued but unpaid vacation, salary, and expense reimbursements.
Randy N. McCullough, who recently had been promoted to Executive Vice President
and Chief Operating Officer, succeeded Mr. Merksamer as Chief Executive Officer.
See Section XIII.A.2 for a description of the proposed
management team that will guide the Reorganized Company's post-confirmation
operations.
9. The Postpetition Consignment, Trade Financing, And Vendor Return Programs.
Barry's ability to operate successfully depends in large part
upon its ability to provide a wide variety of high-quality jewelry for display
and sale to retail customers. Prior to the Petition Date, however, Barry's
inventory had become "stale" (with more than fifty percent of the inventory on
hand for more than one year), and much of the inventory had become obsolete.
Moreover, as Barry's financial condition deteriorated, Barry's had difficulty in
replacing the merchandise most popular with customers and, from April through
mid-June 1997, Barry's received virtually no new shipments of inventory. Indeed,
as of May 31, 1997, Barry's averaged only $260,000 in inventory (at cost) per
store, as compared to the $400,000-$600,000 per-store inventory (at cost)
typically averaged by Barry's competitors.
One of Barry's most urgent priorities following the Petition
Date therefore was to increase per-store inventory levels prior to the start of
the crucial 1997 Christmas-Hanukkah season, during which Barry's would generate
a substantial majority of its sales for the year. Barry's addressed the
inventory problem in three ways.
First, as noted above, Barry's negotiated, executed, and
obtained Court approval of the Amended Cash Collateral Stipulation, which eased
considerably the borrowing-base restrictions under the Revolving Credit
Agreement and enabled Barry's to acquire additional inventory with the cash
collateral in which the Collateral Agent and the Bank Group asserted an
interest.
Second, Barry's obtained Court approval of a postpetition
consignment program pursuant to which certain key vendors committed to maintain
a specified minimum amount of consigned merchandise with Barry's. Barry's also
15
<PAGE>
obtained authorization to pay for any prepetition consigned goods that it sold
after the Petition Date with the consent of the applicable consignors, and
Barry's now has disposed of approximately half of its prepetition consigned
inventory in that manner.
Third, Barry's negotiated, executed, and obtained Court
approval of a vendor return program, which provided for (a) Barry's to return to
participating vendors certain merchandise sold by vendors to Barry's prior to
the Petition Date, in amounts of up to 75% of the applicable vendors'
prepetition Claims (as valued based upon the purchase price set forth in the
prepetition invoices for the returned goods) and up to an aggregate of
approximately $8 million, with such returns being credited to reduce the
vendors' Claims against Barry's on a dollar-for-dollar basis; (b) the
participating vendors to agree to provide revolving credit to Barry's until the
earlier of the confirmation of a plan of reorganization or one year, on
ninety-day terms in an amount of at least 250% of the value of the merchandise
so returned; (c) Barry's to fund a $2 million "trade trust," with the consent of
the Bank Group and the Bondholder Committee, with which to secure its
postpetition credit obligations to participating vendors; (d) members of the
Bondholder Committee to subordinate $4 million of their Secured Claims against
Barry's to Barry's postpetition trade payables to participating vendors; and (e)
in the event that such trade trust was eliminated or reduced, members of the
Bondholder Committee to agree to subordinate up to an additional $2 million of
their Secured Claims against Barry's to Barry's postpetition trade payables to
participating vendors.
The vendor return program further provided that any plan of
reorganization of Barry's must provide for the maintenance of the trade trust
until Barry's postpetition/pre-Effective Date trade payables have been paid in
accordance with their terms. The Plan therefore provides for the preservation of
the trade trust until such time, and thereafter for the trade trust to be
returned to the Reorganized Company free and clear of any claims of trade
vendors, the Bank Group, or the Bondholders. See Sections X.B.2 and XI.N.
Barry's offered participation in the vendor return program to
its trade vendors with Claims of more than $1,000, and through February 28,
1998, Barry's had returned approximately $5.6 million of merchandise pursuant to
the program (and thereby had reduced Unsecured Claims in the Reorganization Case
by that amount). Barry's, however, determined that it would not be cost
effective or efficient to offer the vendor return program to vendors with Claims
of $1,000 or less, and Barry's therefore did not make such an offer to vendors
with those smaller Claims. The Plan accordingly provides for such Claims to be
classified and treated as general Unsecured Claims in Class 6, and for the
vendor return program to be deemed modified to reflect the fact that Barry's did
not offer participation in the vendor return program to vendors with Claims of
$1,000 or less. See Section XI.N.
Ultimately, the Amended Cash Collateral Stipulation,
postpetition consignment program, and vendor return program enabled Barry's to
return outdated and unsalable inventory to vendors, to receive trade credit on
very favorable ninety-day terms while avoiding typically high financing fees and
charges, to acquire needed inventory on consignment, and, most importantly, to
build its inventory to satisfactory levels for the 1997 Christmas/Hanukkah
season.
10. The 1997 Christmas/Hanukkah Season.
Following approval and implementation of the Amended Cash
Collateral Stipulation, postpetition consignment program, and vendor return
program, Barry's focused much of its efforts and resources on obtaining
inventory for the upcoming 1997 Christmas/Hanukkah season. Among other things,
key management personnel spent large parts of October and November 1997 in New
16
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York, meeting with suppliers and trying to ensure that Barry's inventory orders
would be filled on a timely basis. As a result of those and other efforts,
Barry's obtained during November and December 1997 approximately $32 million in
new inventory, consisting of nearly $27 million in consigned inventory and
approximately $5 million in purchased goods. In comparison, for the five months
prior to November 1997, Barry's had received a total of only $21 million in
inventory shipments, consisting of approximately $12 million in consigned
inventory and $9 million in purchased goods. By December 1997, Barry's per store
inventory levels had risen to approximately $438,000 (as opposed to $348,000
during December 1996).
As a result of such increased inventory levels and other
efforts, Barry's enjoyed a successful and promising 1997 holiday season, selling
$28 million in inventory in December 1997 alone. In fact, Barry's December 1997
sales exceeded by 6.4% the sales projections contained in the Amended Cash
Collateral Stipulation, and sales for the seven months ending December 1997
exceeded such projections by approximately 3.5%. Moreover, during December 1997,
same store or comparable store sales were up 15.4% from the prior year.
Barry's net cash position as of December 31, 1997 was $25.3
million, approximately $13.8 million ahead of projections. Moreover, during the
seven month period ending in December 1997, sales from Barry's in-house credit
program accounted for approximately 55% of its total sales, as opposed to
approximately 62% of such sales for the same period in the prior year.
11. January-March 1998 Results.
Barry's improved performance continued in the first several
months of 1998. For example, Barry's sales for the three months ending on
February 28, 1998, were 9.7% ahead of projections.
12. Other Business Restructuring Efforts.
Following the Petition Date, Barry's proceeded to implement
its business reorganization plan along an array of other fronts.
Perhaps most importantly, Barry's evaluated and restructured
many of its store leases. As of the Petition Date, Barry's chain-wide, per-store
occupancy costs were approximately 10.3% of sales, and the occupancy costs at
certain stores were almost double that amount. Such amounts were well above
industry averages. Following the Petition Date, therefore, Barry's began to
negotiate interim reductions in base rent under various leases and evaluated the
specific terms of other leases in order to determine whether any required only
"non-economic" modifications. Thereafter, Barry's submitted non-economic lease
modification proposals to the lessors of over fifty store locations. Pursuant to
those proposals, Barry's has assumed approximately twenty-seven leases, as
modified. Since the Petition Date, Barry's also has closed twelve stores (in
addition to the stores that it closed on or immediately after the Petition Date)
and has moved to reject the leases with respect to those closed stores. Finally,
as indicated in Section X.H, Barry's proposes through the Plan to assume some of
its remaining non-residential leases and to reject the remainder.
Barry's also devised and obtained Court approval of a
comprehensive program to obtain and implement a new integrated management
information system, including a systems processor and operating system,
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applications software, point-of-sale hardware, additional microcomputers, and a
new home office telephone system, all of which will enable more efficient
operation and reduced overhead expenses on a going-forward basis.
The new system will replace the computer system that existed
on the Petition Date, which was a hodgepodge of undependable and ineffective
early-1980's technology that was incapable of meeting the ever-growing demands
that Barry's operations placed upon it. For example, under the previous system,
management did not have easy access to information regarding merchandise levels,
and therefore could not manage inventory with any degree of efficiency.
Moreover, many merchandise management and financial reporting functions required
significant manual effort under the previous system, which thereby resulted in
unnecessary labor costs, increased potential for human error, and diminished
controls. The previous system also was not "year 2000 compliant," meaning that
it may not have remained operational after 1999. See Section XV.C.1.
Compounding those problems was the fact that Barry's
information systems were not fully integrated and, as a result, precluded the
free flow of information among departments. Thus, under the old system, it was
extremely difficult for Barry's to (a) track and replenish inventory in a timely
and informed manner, (b) manage consignment inventory efficiently, (c) create
comprehensive databases concerning past customers and their purchase histories,
(d) provide timely and accurate financial reporting, and (e) communicate
reliably with individual stores, vendors, customers and management. Barry's
anticipates that the new management information system will alleviate such
problems.
Finally, Barry's is pursuing a number of other options to help
restore long-term profitability, including reductions in corporate overhead,
changes in personnel, bringing in new consignment inventory and establishing
other vendor-partnering programs to enhance merchandise assortment and thereby
attract a less credit-dependent customer base, raising credit-granting standards
to industry norms, incentivizing accounts-receivable collection efforts,
changing commission structure to properly motivate salespeople, reducing vault
inventory by sending more merchandise to the stores, and pursuing alternatives
to the existing in-house credit and collection process.
Finally, in order to establish an updated store format and
consistent name, on the Effective Date of the Plan Barry's will be merged into
Samuels Jewelers, Inc., a corporation to be formed under the laws of the State
of Delaware, and thereafter will conduct its business under the name of "Samuels
Jewelers." See Section XIII.
13. Relocation Of Corporate Headquarters And Rejection Of Headquarters Lease.
Barry's leases approximately 38,000 square feet at its
headquarters location in Monrovia, California under a lease that expires in
2005.
Because Barry's obligations under its headquarters lease are
significantly greater than market lease rates, Barry's has determined to reject
the lease. As a result, Barry's either will file a separate motion for rejection
of the lease prior to confirmation of the Plan or will reject the lease pursuant
to the Plan, as set forth in Section X.H.4.
In connection with Barry's determination to reject its
existing headquarters lease, Barry's has determined to relocate its corporate
headquarters to Austin, Texas, where it can lease space for substantially lower
rent and can enjoy lower costs of conducting its business. Barry's therefore has
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entered into a new lease for its headquarters with the following substantive
terms: (a) approximately 24,000 square feet, with rent of $0.47 per square foot
per month on a triple net basis; and (b) a term of five years, with an option to
renew for one additional five year term at the average monthly net rental rate
charged for comparable premises. Barry's also intends to sublease space in
Irwindale, California, for its existing credit center. Together, the new leases
should enable Barry's to save over $400,000 per year, approximately forty-four
percent, in total headquarters occupancy costs.
Barry's believes that it has complied with the advance notice
requirements of the Worker Adjustment and Retraining Notification Act (the "WARN
Act") with regard to the relocation of its headquarters. Nonetheless, no
assurance can be given that employees ultimately will not assert claims against
Barry's pursuant to the WARN Act, which claims likely would be payable as
administrative expenses in the Reorganization Case.
14. The Bar Date, Claims Objections, And Estimated Aggregated Claims Amounts.
Pursuant to a motion by Barry's, the Court established October
31, 1997, as the bar date for filing proofs of Claim and Interest against
Barry's. Subsequently, claimants filed over 890 proofs of Claim and Interest, in
which they asserted Claims in excess of $138 million.
Barry's thereafter analyzed the proofs of Claim and, to date,
successfully has objected to the allowance of more than 274 non tax-related
proofs of Claim. Barry's successful objections in this regard have resulted in
the disallowance of approximately $5.2 million in asserted Claims and in the
reclassification of a number of asserted Administrative Claims and Secured
Claims to Unsecured Claims. Barry's also successfully has objected to allowance
of approximately seventy proofs of Claim filed by state and local taxing
authorities, which objections resulted in the disallowance of approximately
$274,000 in asserted Claims and the reclassification of approximately $470,000
of purported Priority, Administrative, or Secured Claims into general Unsecured
Claims.
A number of other objections to Claims and Interests were
pending as of the date of this document. Moreover, Barry's intends to object to
at least the following types of Claims prior to the Claims/Interests Objection
Deadline:
a. Claims By Employees Pursuant To The Executive
Bonus Plan: Many current and former employees of Barry's have filed
proofs of Claim with respect to amounts allegedly due and owing under
the Executive Bonus Plan. See Section VII.E.17.b. Such Claims include
the proofs of Claim identified on Exhibit A as "Executive Bonus Plan
Claims." Barry's intends to object to such Claims to the extent that
any particular claimant asserts a Claim (i) in excess of the amounts
for which Barry's is obligated under the plan to such claimant, or (ii)
for amounts that will be paid out of assets, if any, that are
determined to be part of a valid trust and therefore not part of the
Estate. See Section VII.E.17.b for a description of pending litigation
that may affect the validity and amount of the Claims with respect to
the Executive Bonus Plan.
b. Claims By Lessors: Lessors under the various
leases that Barry's has rejected, or will reject pursuant to the Plan,
have filed or may file proofs of Claim for damages as a result of such
rejection. Barry's has filed objections to many of such Claims, which
objections remain pending as of the date of this document, on the
grounds that the lessors did not give credit for mitigation of their
damages, did not account properly for the limitation of their claims
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arising through the operation of section 502(b)(6) of the Code, or
otherwise erroneously calculated the amount of their Claims. Barry's
anticipates that many of such lessors also will file Rejected Lease
Administrative Claims to which Barry's ultimately will object. See
Section VII.E.3.
c. Tort And Related Claims. Other claimants have
filed Claims that assert liability for discrimination, personal injury,
or other torts and/civil rights violations. Such Claims include the
proofs of Claim identified on Exhibit A as "Tort/Civil Rights Claims."
Barry's intends to object to those Claims and related tort and civil
rights Claims because it does not believe that any of the Claims have
merit or that it otherwise has any liability to such claimants.
As described in Section XI.E, the Plan enables Barry's or a
Claims Committee formed after the Effective Date to file additional objections
to Claims and Interests through six months after the Effective Date, and Barry's
therefore reserves all rights with respect to the allowance or disallowance of
any and all Claims and Interests, including Claims and Interests not referenced
above. The Bankruptcy Court has ordered that, in voting on the Plan, creditors
and shareholders may not rely on the absence of an objection to their proofs of
Claim or Interest as any indication that Barry's ultimately will not object to
the amount, priority, security, or allowability of their Claims or Interests.
Based upon the successful, pending, and anticipated objections
to Claims, Barry's estimates that the aggregate amount of Allowed Unsecured
Claims in this case, excluding the Claims asserted by Bondholders, will be
approximately $15,000,000 to $17,000,000. The foregoing, however, is only an
estimate based upon information currently available to Barry's. The actual
amount of Allowed Unsecured Claims may differ materially from such estimate and
ultimately will be ascertained only after the resolution of all Disputed Claims.
15. Extension Of The Time Within Which To Assume Or Reject Leases Of
Nonresidential Real Property.
On motions by Barry's, the Court has extended through May 29,
1998, the time within which Barry's needs to assume, assume and assign, or
reject its remaining leases of nonresidential real property, including its
retail store leases and the lease of its headquarters facilities in Monrovia,
California. Barry's intends to seek a further extension of the assumption/
rejection deadline, which arises pursuant to section 365(d)(4) of the Code,
through August 31, 1998.
16. Plan Exclusivity.
On motion by Barry's, the Court also has extended the time
periods within which Barry's maintains the exclusive right, pursuant to sections
1121(b) and (c) of the Code, to file a plan of reorganization and to solicit
acceptances to any such plan, through April 30, 1998, and June 30, 1998,
respectively. By the Plan Agreement, the Creditors' Committee, the Bondholder
Committee, the Equity Committee, and the Bank Group all have agreed that Barry's
shall have the exclusive right to solicit acceptances on the Plan through August
31, 1998.
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17. Litigation.
a. Lien Avoidance Litigation.
On October 21, 1997, in response to a Court-approved deadline,
Barry's filed with the Court a "Complaint To Avoid Purported Security Interests,
To Limit Purported Security Interests, And For Declaratory Relief" (the "Lien
Avoidance Complaint") in order to avoid and/or limit certain of the purported
security interests held by BankBoston as Collateral Agent for the benefit of the
Bank Group and the Bondholders pursuant to the Intercreditor Agreement. By the
Lien Avoidance Complaint, which names as defendants the Collateral Agent, the
Indenture Trustee, and the individual members of the Bank Group, Barry's sought,
among other things, (i) to avoid the purported security interest in inventory
located in California having a unit retail value of $500 or less (the
"California Inventory Claim"); (ii) a declaratory judgment determining that
certain statutory landlord liens preserved for the benefit of the estate are
senior to any purported security interest in and to the same assets; and (iii) a
declaratory judgment determining that no security interest exists in Barry's
retail store leases and proceeds thereof.
The Indenture Trustee thereafter filed an answer. The Bank
Group, later joined by the Collateral Agent, moved to dismiss the California
Inventory Claim on the ground that Massachusetts law, rather than California
law, governed the dispute. The Indenture Trustee, adopting the argument made by
the Bank Group, then filed a motion for summary judgment on the California
Inventory Claim. The Court denied both motions without prejudice and the Bank
Group and Collateral Agent filed answers, in which they, among other things,
disputed the claims alleged in the Lien Avoidance Complaint. On March 27, 1998,
Barry's filed a motion for leave to file a first amended complaint. That motion
was pending when the parties entered into the Plan Agreement, pursuant to which
Barry's has agreed to dismiss the Lien Avoidance Complaint with prejudice as of
the Effective Date.
At the request of the parties, the Court thereafter stayed
further prosecution of the Lien Avoidance Complaint and continued all hearings
with regard to the complaint until October 8, 1998.
b. Executive Bonus Plan Interpleader Litigation.
Prior to the Petition Date, Barry's implemented both a
Deferred Compensation Plan and an Executive Bonus Plan (collectively, the
"Plans") in order to provide specified benefits to management and certain key
employees. The Deferred Compensation Plan allows eligible employees to defer
receipt of a portion of their current income on a pre-tax basis and to receive
tax-deferred interest on the deferrals. The Executive Bonus Plan provides a
payment of certain benefits to eligible employees upon the occurrence of certain
specified "changes in control" of Barry's. Any benefits paid to an eligible
employee under the Executive Bonus Plan are offset against the benefits payable
to such employee under the Deferred Compensation Plan.
In connection with the Plans, Barry's established what has
been described as a "trust" (the "EBP Trust") to fund and secure the benefits
for the Executive Bonus Plan participants, and the EBP Trust currently holds
liquidated proceeds from life insurance policies on the lives of some or all of
such participants. The trustee of the EBP Trust is Imperial Trust Company
("Imperial").
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During the Reorganization Case, certain of the participants in
the Executive Bonus Plan have made demand on Imperial for the payment of
benefits that they allege are due and owing as a result of Barry's having filed
its chapter 11 petition. Imperial, however, has refused to make payments to the
participants absent an order of the Court. Accordingly, on December 9, 1997,
Imperial filed a "Complaint In Interpleader" (as amended, the "Interpleader
Complaint"), naming Barry's, the Creditors' Committee, and numerous individual
plan participants as defendants, in order to determine the respective rights and
obligations of the parties in and to the EBP Trust assets.
Barry's subsequently moved to dismiss the Interpleader
Complaint because Imperial failed to join as defendants all interested parties,
which motion was granted by the Court. Imperial subsequently filed and served a
first amended complaint in which all potentially interested parties were named
as defendants. The Creditors' Committee has moved to dismiss the amended
complaint, asserting that it fails to state a claim upon which relief could be
granted, and Barry's has joined in that motion, which remains pending as of the
date of this document. Some of the other defendants in the litigation have filed
a motion for summary judgment, by which they seek a determination that the EBP
Trust is valid, which motion also remains pending as of the date of this
document.
Notwithstanding the filing of the Interpleader Complaint, in
order to protect current employees who are necessary to Barry's reorganization,
Barry's, the Creditors' Committee, the Bondholder Committee, the Bank Group, and
the Equity Committee have stipulated to authorize Barry's to continue to pay
from alleged cash collateral all Claims made by current employees under the
Plans (up to an aggregate maximum of $260,000), provided that Barry's is
subrogated to the rights of those employees whose Claims are honored and that
such payments not prejudice any of the parties' rights in the litigation.
Barry's now has satisfied, or soon will satisfy, the valid Claims of all of its
current employees.
Pursuant to the Plan Agreement, the Creditors' Committee has
agreed that Barry's shall determine how to proceed with respect to the
Interpleader Complaint and that Barry's has the authority to resolve such
litigation. If the EBP Trust ultimately is determined to be valid in the
litigation, Barry's believes that the Claims of participants in the Executive
Bonus Plan should be disallowed to the extent of such participants' ratable
share of assets in the EBP Trust (which assets would not be property of the
Estate) and will be Unsecured Claims to the extent that the assets of the EBP
Trust are insufficient to satisfy the full amount of the participants' claims.
If, however, the EBP Trust ultimately is determined to be invalid or otherwise
unenforceable, Barry's believes that the assets in the EBP Trust will be
property of the Estate free and clear of any and all Claims of participants in
the Executive Bonus Plan and that the Claims of such participants will be
Unsecured Claims against the Estate.
Barry's estimates of the allowed amount of the Claims of
former employees with respect to the Executive Bonus Plan are set forth in the
schedule attached as Exhibit B, which schedule provides estimates of the
anticipated allowed amounts of such Claims if the EBP Trust is determined to be
valid and enforceable and if the EBP Trust is determined not to be valid and
enforceable.
Under the Plan, the Unsecured Claims of former employees with
respect to the Executive Bonus Plan will be classified and treated as general
Unsecured Claims in Class 6. To the extent that the EBP Trust is determined to
be valid and enforceable, the Claims of such former employees to the assets of
the EBP Trust will be paid from such assets in accordance with the terms of the
Executive Bonus Plan, and any such Claims therefore are not impaired under the
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Plan. However, to the extent that any resolution (by settlement or litigation)
by Barry's of the Interpleader Complaint ultimately increases the amount of the
Allowed Unsecured Claims of former employees to an amount over $187,537.61
(which amount represents Barry's current estimate of the unsecured deficiency
portion of such Claims if the EBP Trust is determined to be valid and
enforceable), Barry's shall increase the amount of money available to satisfy
Allowed Class 6 Claims by fifteen percent of the amount by which such Allowed
Claims exceeds $187,537.61 (provided, however, that in no event shall any
Allowed Class 6 Claim receive a distribution of more than fifteen percent of the
allowed amount of such Claim plus interest at the rate provided for such Claim
by the Plan). See Section X.D.
c. Stayed Litigation
The litigation identified on the schedule attached as Exhibit
A was pending in other fora on the Petition Date and remains stayed pursuant to
section 362(a) of the Code. Barry's expects that the Claims arising from such
litigation have been or will be resolved through the Claims allowance process in
the Reorganization Case and that, as a result such litigation ultimately will be
dismissed without further prosecution.
18. The Plan Agreement.
After months of arduous negotiations regarding the terms of a
consensual plan of reorganization, on or about April 14, 1998, Barry's, the
Creditors' Committee, the Bondholder Committee, the Equity Committee, the Bank
Group, DDJ Capital, and Mitchell Hutchins executed the "Agreement Regarding
Consensual Plan Of Reorganization" (the "Plan Agreement"). By the Plan
Agreement, those entities agreed to support a plan of reorganization that
contained substantially the terms and conditions of the Plan, and further agreed
to refrain from supporting any other plan that was inconsistent with the terms
and conditions set forth in the Plan Agreement.
The Plan Agreement becomes null and void in the event that the
Court does not confirm the Plan by August 31, 1998.
VIII.
SUMMARY OF CRITICAL PLAN PROVISIONS
The following summary of the Plan is qualified in its entirety
by the actual terms of the Plan (as set forth in the non-italicized text of
Sections IX through XIV). In the event of any conflict, the terms of the Plan
will control over any summary set forth in this Section or in other parts of the
Disclosure Statement.
A . Summary Of Distributions.
The Plan is intended to provide for the maximum feasible
recoveries for creditors and shareholders by enabling Barry's to recapitalize
and continue to operate as a viable business enterprise.
Generally, the Plan provides for (a) the payment in full of
Allowed Administrative Claims, Priority Claims, and Priority Tax Claims; (b) the
payment in full of the approximately $57.880 million in Allowed Secured Claims
of members of the Bank Group, including the payment of pre- and post-petition
interest at the non-default rate provided in the Revolving Credit Agreement and
the payment of the professional fees and expenses incurred by the Bank Group
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during the Reorganization Case; (c) the payment or other satisfaction of other
Allowed Secured Claims; (d) the distribution of 2.5 million shares of New Common
Stock to Bondholders in satisfaction of their Secured and Unsecured Claims for
payment of the Senior Notes; (e) the offer and sale of an additional 2.25
million shares of New Common Stock, for an aggregate price of $15 million, to
Bondholders who elect to purchase such shares; (f) either (i) if the amount of
all other Allowed Unsecured Claims is equal to or exceeds $17 million, the
payment of $2.55 million to holders of such other Allowed Unsecured Claims, to
be distributed on a Pro Rata basis among such holders, plus simple interest at
the rate of five percent per annum from the Effective Date until the date of the
distribution to such holders; or (ii) if the amount of all other Allowed
Unsecured Claims is less than $17 million, the payment of fifteen percent of the
amount of such Allowed Unsecured Claims, plus simple interest at the rate of
five percent per annum from the Effective Date until the date of the
distribution to such holders; and (g) in satisfaction of Allowed Interests, the
provision of 263,158 Reorganized Company Warrants, distributed on a Pro Rata
basis to holders of Existing Common Stock, which warrants will provide such
holders with the right to purchase up to an aggregate of five percent of the New
Common Stock, on a fully diluted basis, under specified terms and conditions.
B. Summary Of Source Of Funds.
The sources of money earmarked to pay creditors and
shareholders under the Plan include (a) cash on hand; (b) the $50 million Plan
Financing; and (c) the $15 million in proceeds from the sale of New Common Stock
to Participating Bondholders. Moreover, as noted above, in lieu of cash payments
or other distributions of property to Bondholders and holders of Existing Common
Stock, the Reorganized Company will issue New Common Stock and Reorganized
Company Warrants, respectively, to such claimants.
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THE PLAN OF REORGANIZATION
The Plan, which is the only legally operative and binding
portion of this Plan and Disclosure Statement, is set forth in its entirety in
Sections IX through XIV. Any text in those Sections that appears in italics,
however, is not part of the Plan and is provided only for informational
purposes.
IX.
DEFINITIONS AND RULES OF CONSTRUCTION
A. Definitions.
Capitalized terms used in the Plan have the following
meanings:
"Additional New Common Stock" means 2,250,000 shares of New
Common Stock to be offered for sale to holders of Allowed Class 2 and 5 Claims
pursuant to Sections X.C.2 and XII.A.2.
"Administrative Claim" means a Claim for costs and expenses of
administration under section 503(b) of the Code, including: (a) the actual and
necessary costs and expenses, incurred after the Petition Date, of preserving
the Estate and of operating the business of Barry's (such as wages, salaries,
and commissions for services and payments for inventory and expenses of sale);
(b) Professional Fee Claims; and (c) all fees and charges assessed against the
Estate pursuant to 28 U.S.C. ss. 1930.
"Administrative Tax Claim" means an Administrative Claim or
other Claim by a governmental unit for taxes (and for interest and/or penalties
related to such taxes) for any tax year or period, all or any portion of which
occurs or falls within the period from and including the Petition Date through
and including the Effective Date, which is not an Allowed Secured Claim.
"Agreement Parties" means Barry's, the Estate, the Creditors'
Committee, the Bondholder Committee, the Equity Committee, the Collateral Agent,
and the Bank Group.
"Agreement Parties Release" means the release, in
substantially the form of the release to be attached as Exhibit I and filed by
the Exhibit Filing Date, to be executed by the Agreement Parties pursuant to
Section XI.I.
"Allowed Administrative Claim" means an Administrative Claim
that is allowed as set forth in Section X.B.1.
"Allowed Claim" means a Claim against Barry's to the extent
that:
(a) either (i) a proof of the Claim was timely filed,
or (ii) the Claim is deemed timely filed pursuant to
Bankruptcy Rule 3003(b)(1) or by reason of an order of the
Court; and
(b) either (i) Barry's, the Reorganized Company, or
the Claims Committee (if formed) does not file an objection to
the Claim by the Claims/Interests Objection Deadline and the
Claim is not otherwise a Disputed Claim, (ii) the Claim is
allowed by a Final Order, or (iii) the Claim is allowed under
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the Plan; provided, however, that, unless otherwise specified
in the Plan, an Allowed Claim shall not include interest on
such Claim accruing after the Petition Date.
"Allowed [Class Designation] Claim or Interest" means an
Allowed Claim or Interest in the specified Class.
"Allowed Interest" means an Interest in Barry's to the extent
that:
(a) either (i) a proof of the Interest was timely
filed, (ii) the Interest is deemed timely filed pursuant to
Bankruptcy Rule 3003(b)(2) or by reason of an order of the
Court, or (iii) in the case of Interests consisting of
Existing Common Stock, the Interest is identified by Barry's
stock transfer agent as existing as of the Record Date; and
(b) either (i) Barry's or the Reorganized Company
does not file an objection to the Interest by the
Claims/Interests Objection Deadline and the Interest is not
otherwise a Disputed Interest, (ii) the Interest is allowed by
a Final Order, or (iii) the Interest is allowed under the
Plan.
"Allowed Secured Claim" means a Secured Claim that is an
Allowed Claim.
"Allowed Unsecured Claim" means an Unsecured Claim that is an
Allowed Claim.
"BankBoston" means BankBoston, N.A.
"Bank Group" means BankBoston, The CIT Group/Business Credit,
Inc., Jackson National Life Insurance Company, and The Long Horizon Fund, L.P.,
as lenders under the Revolving Credit Agreement.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy
Procedure, as applicable to the Reorganization Case.
"Barry's" means Barry's Jewelers, Inc., debtor and debtor in
possession in the Reorganization Case.
"Bondholders" means holders of the Senior Notes.
"Bondholder Committee" means the Official Committee of
Bondholders appointed by the United States Trustee in the Reorganization Case.
"Bondholder New Common Stock" means 2,500,000 shares of New
Common Stock, to be distributed to holders of Allowed Class 2 and 5 Claims
pursuant to Section X.C.2.
"Business Day" means any day except a Saturday, Sunday, or
"legal holiday," as such term is defined in Bankruptcy Rule 9006(a).
"Claim" means a claim, as such term is defined in section
101(5) of the Code, against Barry's or the Estate.
"Claims Committee" means the committee consisting of Mike
Shaffet, Tom Libassi, and Ron Tucker, to be formed under the circumstances
specified in Section XI.E.
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"Claims/Interests Objection Deadline" means the bar date for
objecting to the allowance of Claims and Interests, as established by Section
XI.E.
"Class" means a group of Claims or Interests as classified
pursuant to Section X.A.
"Code" means Title 11 of the United States Code (also known as
the Bankruptcy Code), as applicable to the Reorganization Case.
"Collateral Agent" means BankBoston, in its capacity as
Collateral Agent under the Intercreditor Agreement.
"Confirmation Date" means the date on which the Confirmation
Order is entered on the docket of the Court.
"Confirmation Hearing Date" means the first date on which the
Court holds a hearing with respect to confirmation of the Plan.
"Confirmation Order" means the order of the Court confirming
the Plan pursuant to section 1129 of the Code.
"Consignment Claim" means a Claim, asserted by an entity that
provided merchandise to Barry's prior to the Petition Date on a consignment
basis, for return of or payment for Residual Consigned Inventory.
"Court" means the United States Bankruptcy Court for the
Central District of California and any other court that exercises jurisdiction
over the Reorganization Case.
"Creditors' Committee" means the Official Committee of
Unsecured Creditors appointed by the United States Trustee in the Reorganization
Case.
"DDJ Capital" means DDJ Capital Management, LLC and/or funds
managed or controlled by it.
"Definitive Financing Documents" means a definitive financing
agreement with respect to the Plan Financing, to be attached as Exhibit J and
filed by the Exhibit Filing Date, and any and all other documents related
thereto.
"Disbursing Agent" means the Reorganized Company or the Third
Party Disbursing Agent.
"Disclosure Statement" means Sections I through VIII, Sections
XV through XXI, and the italicized portions of Sections IX through XIV of this
document, filed pursuant to section 1125 of the Code, which Sections describe
and explain the Plan and certain information related to the Plan but which are
not a binding and enforceable part of the Plan.
"Disputed Claim" means a Claim as to which a proof of Claim
was filed or is deemed filed pursuant to Bankruptcy Rule 3003(b)(1), as to which
an objection has been timely filed and which objection, if timely filed, has not
been overruled or denied by a Final Order or withdrawn. Prior to the
Claims/Interests Objection Deadline, and except to the extent a Claim may have
been allowed by a Final Order, for the purposes of this Plan a Claim shall be
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considered a Disputed Claim (a) in its entirety if (i) any corresponding Claim
scheduled by Barry's in the Schedules has been scheduled with a different level
of priority or different status as secured or unsecured; (ii) any corresponding
Claim scheduled by Barry's in its Schedules has been scheduled as disputed,
contingent, or unliquidated, irrespective of the amount scheduled; or (iii) no
corresponding Claim has been scheduled by Barry's in the Schedules; and (b) to
the extent that the amount of the Claim specified in the proof of Claim exceeds
the amount of any corresponding Claim scheduled by Barry's in the Schedules.
"Disputed Interest" means any Interest as to which a proof of
Interest was filed or a proof of the Interest is deemed filed pursuant to
Bankruptcy Rule 3003(b)(2), or which has been identified by Barry's stock
transfer agent as existing as of the Record Date, as to which an objection has
been timely filed and which objection, if timely filed, has not been overruled
or denied by a Final Order or withdrawn.
"Effective Date" means the first day, as determined by Barry's
in its reasonable discretion, that is a Business Day (a) that is at least ten
days after the Confirmation Date; (b) on which no stay of the Confirmation Order
is in effect; and (c) on which all of the conditions set forth in Section XI.V.2
have been satisfied or waived pursuant to Section XI.V.3.
"Eligible Holders" means those Persons who have received
distributions under the Plan of at least ten percent (10%) of the aggregate
amount of New Common Stock issued pursuant to the Plan.
"Equity Committee" means the unofficial committee of Interest
holders formed with respect to the Reorganization Case.
"Estate" means the estate created in the Reorganization Case
pursuant to section 541 of the Code.
"Exchange Agent" means the agent to distribute Reorganized
Company Warrants to holders of Allowed Class 9 Interests pursuant to Section
X.G.
"Executive Bonus Plan" means the Executive Bonus Plan
established by Barry's prior to the Petition Date that is the subject of the
Interpleader Complaint.
"Exhibit Filing Date" means the date that is the last Business
Day that is at least ten days prior to the Confirmation Hearing Date.
"Existing Common Stock" means the 4,029,372 issued and
outstanding shares of Barry's common stock as of the Petition Date.
"Existing Warrants and Options" means any and all outstanding
warrants, options, conversion rights, or similar rights, regardless of whether
they are contingent or unmatured, to acquire Existing Common Stock.
"Final Order" means an order or judgment of the Court, or
another court of competent jurisdiction, entered on the docket of such court,
that has not been reversed, rescinded, stayed, modified, or amended, that is in
full force and effect, and with respect to which: (a) the time to appeal, seek
review or rehearing, or petition for certiorari has expired and as to which no
timely filed appeal or petition for review, rehearing, remand or certiorari is
pending; or (b) any appeal taken or petition for certiorari filed has been
28
<PAGE>
dismissed or resolved by the highest court to which the order or judgment was
appealed or from which review, rehearing or certiorari was sought.
"Financing Agent" means Foothill in its capacity as agent for
the Lenders under the Plan Financing.
"Financing Commitment Letter" means a binding commitment
letter for the Plan Financing.
"Foothill" means Foothill Capital Corporation.
"Indenture Trustee" means First Trust National Association, as
indenture trustee under the Indenture governing the Senior Notes.
"Intercreditor Agreement" means the "Collateral Agency And
Intercreditor Agreement," dated December 22, 1993, among Barry's, the Bank
Group, the Collateral Agent, and the Indenture Trustee, as amended.
"Interest" means the interest, whether or not asserted, of any
holder of an equity security of Barry's as defined in section 101(17) of the
Code, including the Existing Common Stock.
"Interpleader Complaint" means the complaint entitled
"Complaint In Interpleader" filed by Imperial Trust Company with the Court on
December 9, 1997, as amended.
"Lenders" means, collectively with Foothill, the lenders under
the Plan Financing.
"Lien Avoidance Complaint" means the complaint entitled
"Complaint To Avoid Purported Security Interests, To Limit Purported Security
Interests, And For Declaratory Relief" filed by Barry's with the Court on
October 21, 1997.
"Mitchell Hutchins" means Mitchell Hutchins Asset Management,
Inc., and/or funds managed or controlled by it.
"New Common Stock" means the shares of common stock in the
Reorganized Company with the attributes set forth in Section XII.B.1, to be
issued and distributed to holders of Allowed Class 2 and 5 Claims and to
Participating Bondholders in accordance with Section X.C.2, and to be reserved
for distribution for grants to the executive officers of the Reorganized Company
and, if applicable, to Persons that exercise Reorganized Company Warrants.
"No-Action Letter" means a letter by which the SEC determines
that it will take no action with respect to the issuance of Plan Securities
without registration pursuant to the exemption set forth in section 1145(a) of
the Code.
"Non-Ordinary Course Administrative Claim" means an
Administrative Claim that is not an Ordinary Course Administrative Claim, an
Administrative Tax Claim, or a Professional Fee Claim, and includes all Rejected
Lease Administrative Claims.
29
<PAGE>
"Ordinary Course Administrative Claims" means Administrative
Claims, other than Administrative Tax Claims and Rejected Lease Administrative
Claims, based upon liabilities incurred in the ordinary course of Barry's
business.
"Other Secured Claims" means all Secured Claims other than
Secured Tax Claims, Claims asserted by Bondholders or by members of the Bank
Group, and Consignment Claims.
"Participating Bondholders" means those Bondholders who elect
to purchase Additional New Common Stock pursuant to Section X.C.2.
"Person" means any individual, corporation, general
partnership, limited partnership, association, joint stock company, joint
venture, estate, trust, government or any political subdivision, governmental
unit (as defined in the Code), official committee appointed by the United States
Trustee, unofficial committee of creditors or equity holders, or other entity.
"Petition Date" means May 11, 1997, which is the date on which
Barry's filed its voluntary petition under chapter 11 of the Code with the
Court.
"Plan" means the non-italicized portions of Sections IX
through XIV of this document, which Sections constitute the operative provisions
of the chapter 11 plan of reorganization proposed by Barry's.
"Plan Agreement" means the "Agreement Regarding Consensual
Plan Of Reorganization," dated as of April 7, 1998, among Barry's, the
Creditors' Committee, the Bondholder Committee, the Equity Committee, and the
Bank Group.
"Plan Financing" means the $50,000,000 financing to be
procured by Barry's on or before the Effective Date, as described in Section
XII.A.1.
"Plan Securities" means the New Common Stock and Reorganized
Company Warrants.
"Priority Claim" means a Claim entitled to priority pursuant
to sections 507(a)(3), 507(a)(4), 507(a)(5), or 507(a)(6) of the Code.
"Priority Tax Claim" means an Allowed Claim entitled to
priority pursuant to section 507(a)(8) of the Code.
"Professional Fee Claim" means (a) a Claim under sections 327,
328, 330, 331, 503, or 1103 of the Code for compensation for professional
services rendered and expenses incurred, and (b) a Claim under sections
503(b)(3)(D) and 503(b)(4) of the Code for compensation for professional
services rendered and expenses incurred in making a "substantial contribution"
to the Reorganization Case; provided, however, that "Professional Fee Claim"
shall not include the Administrative Claim in the amount of $125,000 to be
allowed in favor of the Equity Committee, for having made a "substantial
contribution" to the Reorganization Case within the meaning of section
503(b)(3)(D) of the Code, pursuant to Section X.B.2.
"Pro Rata" means proportionately so that the ratio of (a) the
amount of consideration distributed on account of a particular Allowed Claim or
Allowed Interest to (b) the allowed amount of the Allowed Claim or Allowed
30
<PAGE>
Interest, is the same as the ratio of (x) the amount of consideration available
for distribution on account of all Allowed Claims or Allowed Interests of the
Class in which the particular Allowed Claim or Allowed Interest is included to
(y) the amount of all Allowed Claims or Allowed Interests of that Class.
"Record Date" means July 16, 1998, at 5:00 p.m. Pacific
Daylight Time.
"Registration Rights Agreement" means the agreement to be
attached as Exhibit L and filed by the Exhibit Filing Date, as referenced in
Section XII.C.
"Rejected Lease Administrative Claim" means an Administrative
Claim for rent or any other obligations arising under any unexpired lease of
real property that is rejected by Barry's pursuant to section 365 of the Code.
"Reorganization Case" means Case No. LA 97-27988 VZ pending in
the Court, which case is Barry's pending chapter 11 case.
"Reorganized Company" means the successor to Barry's on and
after the Effective Date, as described in Section XIII.
"Reorganized Company's Counsel" means Stutman, Treister and
Glatt Professional Corporation, 3699 Wilshire Boulevard, Suite 900, Los Angeles,
California 90010, attention James O.
Johnston.
"Reorganized Company Warrants" means the 263,158 warrants for
the purchase of New Common Stock, with the attributes set forth in Section
XII.B.2, to be issued and distributed to holders of Allowed Class 9 Interests in
accordance with Section X.G.
"Residual Consignment Inventory" means that merchandise held
by Barry's on a consignment basis on the Petition Date that remains unsold and
in Barry's actual possession on the Effective Date.
"Revolving Credit Agreement" means the "Second Amended And
Restated Revolving Credit Agreement," dated August 30, 1996, among Barry's and
the members of the Bank Group (or their predecessors in interest), as amended,
together with the other agreements related thereto.
"Samuels" means Samuels Jewelers, Inc., a corporation to be
incorporated under the laws of the State of Delaware.
"Schedule of Assumed Agreements" means the schedule of
executory contracts and unexpired leases to be assumed by the Reorganized
Company pursuant to Section X.H.1, to be attached as Exhibit G and filed and
served on the parties to the agreements identified therein by the Exhibit Filing
Date.
"Schedule of Rejected Agreements" means the schedule of
executory contracts and unexpired leases to be rejected by Barry's as of the
Effective Date of the Plan pursuant to Section X.H.4, to be attached as Exhibit
H and filed and served on the parties to the agreements identified therein by
the Exhibit Filing Date.
31
<PAGE>
"Schedules" means the Schedules of Assets and Liabilities
filed by Barry's pursuant to section 521(1) of the Code, as amended.
"SEC" means the Securities and Exchange Commission.
"Secured Claim" means a Claim that is secured by a valid and
unavoidable lien on property in which the Estate has an interest or that is
subject to setoff under section 553 of the Code, to the extent of the value of
the claimholder's interest in the Estate's interest in such property or to the
extent of the amount subject to setoff, as applicable, as determined by section
506(a) of the Code.
"Secured Tax Claim" means a Secured Claim of a governmental
unit for the payment of taxes.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the 11% Senior Secured Notes due December
22, 2000, issued by Barry's.
"Strike Price" means the price at which the Reorganized
Company Warrants may be exercised, as specified in Section XII.B.2.
"Summary of Management Compensation" means a summary of the
terms of the compensation agreements between the Reorganized Company and its
senior management, to be attached as Exhibit M and filed by the Exhibit Filing
Date.
"Third Party Disbursing Agent" means an entity or entities
employed by the Reorganized Company in its sole discretion to act as Disbursing
Agent.
"Unsecured Claim" means any Claim that is not an
Administrative Claim, a Priority Tax Claim, or a Secured Claim.
"Warrant Agreement" means the warrant agreement with respect
to the Reorganized Company Warrants, to be attached as Exhibit K and filed by
the Exhibit Filing Date.
B. Rules Of Interpretation.
For purposes of the Plan:
1. Whenever from the context it is appropriate, each term,
whether stated in the singular or the plural, shall include both the singular
and the plural;
2. Any reference to a contract, instrument, release, or other
agreement or document being in a particular form or on particular terms and
conditions means that such document shall be substantially in such form or
substantially on such terms and conditions; provided, however, that any change
to such form, terms, or conditions which is material to a party to such document
shall not be made following the Confirmation Date without such party's consent;
32
<PAGE>
3. Any reference to an existing document, schedule, or Exhibit
filed or to be filed means such document, schedule, or Exhibit, as it may have
been or may be amended, modified, or supplemented;
4. Unless otherwise specified in a particular reference, all
references to Sections and Exhibits are references to the Sections and Exhibits
of or to this Plan and Disclosure Statement;
5. The words "herein," "hereof," "hereto," "hereunder," and
others of similar import refer to this Plan and Disclosure Statement in its
entirety rather than to only a particular portion hereof;
6. Captions and headings to Sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the interpretations of this Plan and Disclosure Statement;
7. The rules of construction set forth in section 102 of the
Code shall apply;
8. Reference to a pleading, request, or document being "filed"
means duly and properly filed with the Court and reflected on the official
docket of the Court;
9. Any Claim or portion thereof satisfied in full or released
during the Reorganization Case shall not constitute an Allowed Claim entitled to
treatment under the Plan;
10. All Exhibits hereto are incorporated into the Plan, and
shall be deemed to be included in the Plan, regardless of when they are filed;
11. A term used in the Plan and/or Disclosure Statement that
is not defined herein shall have the meaning ascribed to that term, if any, in
or by the Code and/or the Bankruptcy Rules; and
12. Except as otherwise provided in the Plan, in computing any
period of time prescribed or allowed by the Plan, the provisions of Bankruptcy
Rule 9006(a) shall apply.
X.
DESIGNATION OF CLASSES AND
TREATMENT OF CLAIMS, INTERESTS,
EXECUTORY CONTRACTS, AND UNEXPIRED LEASES
A. Classification Of Claims And Interests.
The categories of Claims and Interests listed and described
below classify Claims (except for Administrative Claims and Priority Tax Claims,
which are not classified under the Plan) and Interests for all purposes,
including voting, confirmation and distribution pursuant to the Plan. A Claim or
Interest is classified in a particular Class only to the extent that the Claim
or Interest qualifies within the description of that Class and is classified in
a different Class to the extent that any remainder of the Claim or Interest
qualifies within the description of such different Class.
33
<PAGE>
Moreover, a Claim or Interest is in a particular Class only to
the extent that the Claim or Interest is an Allowed Claim or Allowed Interest in
that Class and has not been paid, released or otherwise satisfied and,
notwithstanding anything to the contrary in this Plan and Disclosure Statement,
no distributions shall be made, and no rights of any kind shall be retained, on
account of any Claim or Interest that is not an Allowed Claim or an Allowed
Interest.
The following table summarizes the classification of Claims
and Interests under the Plan.
<TABLE>
<CAPTION>
----------- --------------------------------------------------------------- ------------------------------------
CLASS SUMMARY DESCRIPTION STATUS
----------- --------------------------------------------------------------- ------------------------------------
<S> <C> <C>
None Administrative Claims and Priority Tax Claims Unimpaired - not entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 1 Secured Claims of the Bank Group Impaired - entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 2 Secured Claims of the Bondholders Impaired - entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 3 Secured Tax Claims Impaired - entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 4 Other Secured Claims Unimpaired - not entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 5 Unsecured Claims of the Bondholders Impaired - entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 6 General Unsecured Claims Impaired - entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 7 Consignment Claims Unimpaired - not entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 8
Priority Claims Unimpaired - not entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
Class 9 Interests Impaired - entitled to vote
----------- --------------------------------------------------------------- ------------------------------------
</TABLE>
The above-noted Classes consist of the following:
1. Class 1 (Secured Claims Of The Bank Group).
Class 1 consists of all of the Secured Claims asserted by
members of the Bank Group for obligations due under the Revolving Credit
Agreement, including any unpaid prepetition and postpetition interest at the
nondefault rate and any unpaid professionals' fees and expenses incurred by the
Bank Group with respect to the Revolving Credit Agreement or the Reorganization
Case. Class 1 excludes any Claims for default interest, unused commitment fees,
late charges, or any other penalties of any kind asserted by members of the Bank
Group or by the Collateral Agent on behalf of the Bank Group.
Barry's and the Bank Group have agreed that the aggregate
amount of Allowed Class 1 Claims as of the Petition Date is $57,880,214.01.
34
<PAGE>
2. Class 2 (Secured Claims Of The Bondholders).
Class 2 consists of all of the Secured Claims for repayment of
the Senior Notes as of the Record Date.
Barry's estimates that the aggregate amount of Allowed Claims
in Class 2 and Class 5, which consists of the unsecured deficiency claims for
repayment of the Senior Notes, is approximately $53,073,000 as of March 31,
1998. Barry's also is informed that, through April 30, 1998, the fees and
expenses of the Indenture Trustee incurred in connection with the Reorganization
Case, which fees and expenses will be paid pursuant to Section X.C.2, are
$56,668.50.
3. Class 3 (Secured Tax Claims).
Class 3 consists of all Secured Tax Claims. Each Secured Tax
Claim shall be deemed to be in its own separate sub-class of Class 3.
Barry's estimates that the aggregate amount of Allowed Class 3
Claims is approximately $256,000 as of March 31, 1998. The actual amount of such
Allowed Claims, however, is impossible to predict with certainty and may depend
upon the outcome of negotiations and objections to Claims that have not yet been
commenced.
4. Class 4 (Other Secured Claims).
Class 4 consists of all Other Secured Claims. Each Other
Secured Claim shall be deemed to be in its own separate subclass of Class 4.
Barry's estimates that the aggregate amount of Allowed Class 4
Claims is approximately $26,000 as of March 31, 1998. The actual amount of such
Allowed Claims, however, is impossible to predict with certainty and may depend
upon the outcome of negotiations and objections to Claims that have not yet been
commenced.
5. Class 5 (Unsecured Claims Of The Bondholders).
Class 5 consists of all of the Unsecured Claims for repayment
of the Senior Notes as of the Record Date.
Barry's estimates that the aggregate amount of Allowed Claims
in Class 5 and Class 2, which consists of the Secured Claims for repayment of
the Senior Notes, is approximately $53,073,000 as of March 31, 1998. Barry's
also is informed that, through April 30, 1998, the fees and expenses of the
Indenture Trustee incurred in connection with the Reorganization Case, which
fees and expenses will be paid pursuant to Section X.C.2, are $56,668.50.
6. Class 6 (General Unsecured Claims).
Class 6 consists of all Unsecured Claims other than Unsecured
Claims for repayment of the Senior Notes.
Barry's estimates that the aggregate amount of Allowed Class 6
Claims as of the Effective Date will be approximately $15,000,000 to
$17,000,000. The actual amount of such Allowed Claims, however, is impossible to
predict with certainty and may depend upon the outcome of negotiations and
35
<PAGE>
objections to Claims that have not yet been commenced. Moreover, the foregoing
estimate assumes that the Court ultimately will determine the EBP Trust to be
valid and enforceable. If the Court determines that the EBP Trust is not valid
and enforceable, Barry's estimates that the amount of Allowed Class 6 Claims
will increase by approximately $506,000.
7. Class 7 (Consignment Claims).
Class 7 consists of all Consignment Claims, regardless of
whether such Claims are Secured Claims or Unsecured Claims.
The schedule attached as Exhibit C identifies the Consignment
Claims that Barry's believes are currently in existence. That schedule, however,
is only an estimate, and Barry's reserves the right to object to any Consignment
Claim asserted by a Person identified on such schedule.
8. Class 8 (Priority Claims).
Class 8 consists of all Priority Claims.
Barry's estimates that up to $100,000 in Allowed Priority
Claims will exist as of the Effective Date. The actual amount of such Allowed
Claims, however, is impossible to predict with certainty and may depend upon the
outcome of negotiations and objections to Claims that have not yet been
commenced.
9. Class 9 (Interests).
Class 9 consists of all Interests existing as of the Record
Date.
10. Unclassified: Administrative Claims And Priority Tax Claims.
As provided in section 1123(a)(1) of the Code, the Plan does
not classify Administrative Claims and Priority Tax Claims for the purposes of
voting or receiving distributions under the Plan. Rather, all such Claims are
treated separately as unclassified Claims on the terms set forth in Section X.B.
Barry's estimates regarding the amount of unclassified
Administrative Claims and Priority Tax Claims are set forth in Section X.B.
B. Allowance And Treatment Of Unclassified Administrative Claims And
Priority Tax Claims.
1. Allowance Of Administrative Claims.
Administrative Claims shall be determined and allowed as
follows:
a. Ordinary-Course Administrative Claims: Unless
objected to by Barry's or the Reorganized Company, Ordinary Course
Administrative Claims shall be allowed in accordance with the terms and
conditions of the particular transaction giving rise to such Claims,
and holders of Ordinary Course Administrative Claims shall not be
required to file any request for payment of such Claims.
36
<PAGE>
b. Non-Ordinary Course Administrative Claims: A
Non-Ordinary Course Administrative Claim shall be allowed only if (i)
within sixty days after the Effective Date, the holder of such Claim
files with the Court and serves on the Reorganized Company and the
Reorganized Company's Counsel a motion requesting payment of such
Administrative Claim; and (ii) such Claim is allowed by the Court
pursuant to a Final Order. The Reorganized Company may file an
objection to any such motion within the time provided by the Bankruptcy
Rules or otherwise by the Court. Holders of Non-Ordinary Course
Administrative Claims that do not file and serve a timely request for
payment shall be forever barred from asserting such Claims against
Barry's, the Estate, the Reorganized Company, or their respective
property.
Barry's anticipates that lessors to the various
leases that have been rejected during the course of the Reorganization
Case will file significant Rejected Lease Administrative Claims. It is
the position of Barry's that Rejected Lease Administrative Claims
should be limited to, at most, the unpaid postpetition rent accruing
through the date that Barry's vacated the leased premises. Certain
lessors to rejected leases, however, have taken the position that their
Rejected Lease Administrative Claims include all unpaid postpetition
rent accruing through the date on which the Court authorized the
rejection of the applicable lease.
As explained in Section VII.E.3, the Court has not
yet ruled upon this issue. If Barry's prevails, Barry's estimates that
Rejected Lease Administrative Claims will be approximately $20,000. If
the lessors prevail, however, Barry's estimates that Rejected Lease
Administrative Claims could exceed $150,000.
c. Administrative Tax Claims: An Administrative Tax
Claim shall be allowed only if (i) within the later of (x) sixty days
after the Effective Date and (y) one hundred and twenty days after the
filing of the tax return for such taxes with the applicable
governmental unit, the holder of such Claim files with the Court and
serves on the Reorganized Company and the Reorganized Company's Counsel
a proof of such Administrative Claim or a motion requesting payment of
such Administrative Claim; and (ii) such Claim is allowed by the Court
pursuant to a Final Order. The Reorganized Company may file an
objection to any such motion within the time provided by the Bankruptcy
Rules or otherwise by the Court. Holders of Administrative Tax Claims
that do not file and serve a timely motion for payment shall be forever
barred from asserting such Claims against Barry's, the Estate, the
Reorganized Company, or their respective property, regardless of
whether such Claims are deemed to arise prior to, on, or subsequent to
the Effective Date.
Barry's is unable to accurately estimate at this time
the aggregate amount of Allowed Administrative Tax Claims that will
exist as of the Effective Date. Barry's can give no assurances that the
actual amount of such Allowed Claims will not be substantial and
material.
d. Professional Fee Claims. A Professional Fee Claim
shall be allowed only if (i) within sixty days after the Effective
Date, the holder of such Claim files with the Court and serves on the
Reorganized Company and the Reorganized Company's Counsel a motion
requesting payment of such Administrative Claim; and (ii) such Claim is
allowed by the Court pursuant to a Final Order. The Reorganized Company
37
<PAGE>
or any other party in interest may file an objection to any such motion
within the time provided by the Bankruptcy Rules or otherwise by the
Court. Holders of Professional Fee Claims that do not file and serve a
timely motion for payment shall be forever barred from asserting such
Claims against Barry's, the Estate, the Reorganized Company, or their
respective property.
The Reorganized Company may pay the fees and expenses
of any and all professionals employed by it without further notice or
an order of the Court.
Barry's estimates that the following Professional Fee
Claims ultimately will be sought in the Reorganization Case, and that
some of the claimants who file such Claims also may request the payment
of a bonus or enhancement for their services with respect to the
Reorganization Case. Parties in interest may object to some or all of
such Claims. The following estimates do not reflect any bonuses or
enhancement that might be requested by the applicable professionals:
<TABLE>
<CAPTION>
------------------------------------------------------------------- ------------------------ ---------------------
ESTIMATED PROFESSIONAL INTERIM AMOUNT PAID
CLAIMANT FEE CLAIM (As Of 3/31/98)
------------------------------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
Stutman, Treister & Glatt Professional Corporation $1,500,000 $603,859
(reorganization counsel to Barry's)
------------------------------------------------------------------- ------------------------ ---------------------
Weil, Gotshal & Manges LLP $150,000 $0
(special corporate, tax, and real estate counsel to Barry's)
------------------------------------------------------------------- ------------------------ ---------------------
Littler, Mendelsohn, Fastiff, Tichy & Mathiason $90,000 $0
(special labor counsel to Barry's)
------------------------------------------------------------------- ------------------------ ---------------------
Deloitte & Touche LLP (accountants and auditors to Barry's) $1,100,000 $319,352
------------------------------------------------------------------- ------------------------ ---------------------
Budetti, Harrison, Nerland & Associates LLC $590,000 $454,790
(financial and management consultants to Barry's)
------------------------------------------------------------------- ------------------------ ---------------------
Alschuler, Grossman & Pines LLP (former special secured $170,000 $90,643
transactions, real estate, and litigation counsel to Barry's)
------------------------------------------------------------------- ------------------------ ---------------------
Tuttle & Taylor, A Law Corporation (special secured transactions, $320,000 $0
real estate, and litigation counsel to Barry's)
------------------------------------------------------------------- ------------------------ ---------------------
SBC Warburg Dillon Read Inc. (financial advisors to Barry's) $675,000 $0
------------------------------------------------------------------- ------------------------ ---------------------
Andrews & Kurth LLP (counsel to Creditors' Committee) $610,000 $363,856
------------------------------------------------------------------- ------------------------ ---------------------
38
<PAGE>
Whitman Breed Abbott & Morgan LLP $60,000 $22,717
(local counsel to Creditors' Committee)
------------------------------------------------------------------- ------------------------ ---------------------
Triumph Corporate Finance Group, Inc. $200,000 $81,334
(financial advisors to Creditors' Committee)
------------------------------------------------------------------- ------------------------ ---------------------
Pachulski, Stang, Ziehl, & Young P.C. (counsel to Bondholder $500,000 $227,770
Committee) (includes an anticipated request of $51,348.82,
pursuant to sections 503(b)(3)(D) and 503(b)(4) of the Code, for
services rendered prior to the date of appointment of the
Bondholder Committee)
------------------------------------------------------------------- ------------------------ ---------------------
BDO Seidman, LLP (financial advisor to Bondholder Committee) $180,000 $52,182
------------------------------------------------------------------- ------------------------ ---------------------
TOTAL $6,145,000 $2,216,503
------------------------------------------------------------------- ------------------------ ---------------------
</TABLE>
Barry's is informed that the firm of Scotia Capital intends to
seek allowance of a claim, in an amount of approximately $150,000, for a
"substantial contribution" to the Reorganization Case within the meaning of
sections 503(b)(3)(D) and 503(b)(4) of the Code for its services to the
unofficial committee representing the interests of Bondholders and, after it was
formed, to the Bondholder Committee.
2. Treatment Of Allowed Administrative Claims (Unclassified).
Unless the holder of an Allowed Administrative Claim agrees to
other treatment, the Disbursing Agent shall pay to each holder of an Allowed
Administrative Claim cash equal to the full amount of the Allowed Administrative
Claim, without interest, on or before the later of (a) the Effective Date or as
soon as reasonably practicable thereafter, (b) thirty days after the date on
which such Claim becomes an Allowed Administrative Claim, and (c) the date on
which such Allowed Administrative Claim becomes due and payable. An
Administrative Claim in the amount of $125,000 in favor of the Equity Committee,
for having made a "substantial contribution" to the Reorganization Case within
the meaning of section 503(b)(3)(D) of the Code, will be allowed pursuant to the
Plan and will be paid by the Disbursing Agent on the Effective Date or as soon
as reasonably practicable thereafter.
3. Treatment Of Priority Tax Claims (Unclassified).
Unless the holder and Barry's agree to other treatment, the
Reorganized Company shall pay to each holder of a Priority Tax Claim, over a
period not exceeding six years from the Effective Date, deferred cash payments
in an aggregate amount equal to the allowed amount of such Claim, plus simple
interest from the Effective Date on the unpaid portion of such Claim at the rate
prescribed below. The payment of the amount of each such Claim shall be made in
equal semiannual installments with the first installment due on the later of (a)
thirty days after the Effective Date and (b) thirty days after the date on which
39
<PAGE>
the order allowing such Claim becomes a Final Order. Each installment shall
include simple interest, in arrears, on the unpaid portion of such Claim,
without penalty of any kind, at the rate of eight percent (8%) per annum;
provided, however, that the Reorganized Company shall have the right to pay any
Priority Tax Claim, or any remaining balance of such Claim, in full, at any time
on or after the Effective Date, without premium or penalty of any kind.
Pursuant to the "Agreed Order Resolving Debtor's Objection To
Claims Filed By The Texas Comptroller Of Public Accounts," entered by the
Bankruptcy Court in the Reorganization Case on March 3, 1998 (the "Texas
Comptroller Order"), Barry's and the Texas Comptroller of Public Accounts (the
"Texas Comptroller") have agreed to an alternative treatment of the Texas
Comptroller's Priority Tax Claims. Accordingly, to the extent that it provides
for different treatment, the Texas Comptroller Order shall govern the treatment
of the Texas Comptroller's Priority Tax Claims.
Barry's estimates that there exist approximately $117,000 in
Allowed Priority Tax Claims as of March 31, 1998. The actual amount of such
Allowed Claims, however, is impossible to predict with certainty and may depend
upon the outcome of negotiations and objections to Claims that have not yet been
commenced.
C. Treatment Of Secured Claims (Classes 1, 2, 3, And 4) And Related
Unsecured Deficiency Claims (Class 5).
1. Class 1 (Secured Claims Of The Bank Group).
Class 1 is impaired under the Plan. The Bank Group, as holders
of Class 1 Claims, shall have an aggregate Allowed Secured Claim in an amount of
$57,880,214.01. On or as soon as reasonably practicable after the Effective
Date, the Disbursing Agent shall indefeasibly pay to BankBoston, as agent for
each holder of an Allowed Class 1 Claim, cash equal to the aggregate amount of
all Allowed Class 1 Claims, in full satisfaction thereof, to be distributed to
such holders by BankBoston in accordance with the terms of the Revolving Credit
Agreement. On the Effective Date, Barry's and the Estate also shall execute the
Agreement Parties Release in favor of the other Agreement Parties, including the
Bank Group and Collateral Agent, as set forth in Section XI.I, and Barry's shall
dismiss with prejudice the Lien Avoidance Complaint.
In consideration for the treatment set forth in the preceding
paragraph and subject to the tender of payment as described therein, on the
Effective Date the Collateral Agent and all holders of Allowed Class 1 Claims
shall execute the Agreement Parties Release in favor of the other Agreement
Parties (which release shall include a release of any and all rights that the
Collateral Agent and all holders of Allowed Class 1 Claims have under the
Intercreditor Agreement).
Although Barry's believes that Class 1 is unimpaired under the
Plan, the Bank Group asserts an entitlement to default interest under the
Revolving Credit Agreement, which interest will not be paid under the Plan.
Accordingly, out of an abundance of caution, Barry's has treated Class 1 as
impaired under the Plan.
2. Class 2 (Secured Claims Of The Bondholders) And Class 5 (Related Unsecured
Deficiency Claims).
Classes 2 and 5 are impaired under the Plan. Holders of
Allowed Class 2 and Class 5 Claims shall receive on account of such Claims, and
in full satisfaction thereof, (a) a Pro Rata share of the Bondholder New Common
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Stock, distributed in the manner set forth in this Section; and (b) the right to
purchase Additional New Common Stock, as described in Section XII.A.2.
On or as soon as reasonably practicable after the Effective
Date, the Reorganized Company shall distribute the Bondholder New Common Stock
to the Indenture Trustee. As soon as reasonably practicable thereafter, the
Indenture Trustee shall make the Pro Rata distribution of the Bondholder New
Common Stock to holders of Allowed Class 2 and Class 5 Claims in the manner set
forth in the Indenture governing the Senior Notes; provided, however, that, upon
request of the Disbursing Agent or the Indenture Trustee, holders of Allowed
Class 2 and 5 Claims shall be required, prior to receiving distributions
pursuant to this Section, to (a) surrender to the Indenture Trustee the
certificates representing such Claims, or (b) provide an affidavit certifying
that such certificates are lost and an appropriate indemnification of Barry's,
the Estate, and the Reorganized Company. The Reorganized Company shall pay the
reasonable fees and expenses of the Indenture Trustee incurred in connection
with the Reorganization Case (including the Lien Avoidance Complaint) and in
distributing the Bondholder New Common Stock. On the Effective Date, Barry's and
the Estate also shall execute the Agreement Parties Release in favor of the
other Agreement Parties, including the Bondholder Committee and the Collateral
Agent, as set forth in Section XI.I.
In consideration for such treatment, on the Effective Date,
the Bondholder Committee and the Collateral Agent shall execute the Agreement
Parties Release in favor of the other Agreement Parties (which release shall
include a release of any and all rights that the Bondholder Committee or the
Collateral Agent have under the Intercreditor Agreement), as set forth in
Section XI.I. Furthermore, on the Effective Date all holders of Allowed Class 2
and 5 Claims unconditionally shall release and be deemed to have released any
and all of their liens and security interests in the property of Barry's, the
Estate, or the Reorganized Company, and shall waive and be deemed to have waived
any rights that they may have under the Intercreditor Agreement and any rights
that they may have to share in the distributions provided under the Plan to
holders of Allowed Class 6 Claims.
3. Class 3 (Secured Tax Claims)
Class 3 is impaired under the Plan. Each holders of an Allowed
Class 3 Claim shall receive on account of such Claim and in full satisfaction
thereof (a) the same treatment provided for holders of Priority Tax Claims in
Section X.B.3, and (b) a payment, on or as soon as reasonably practicable after
the Effective Date, in an amount equal to simple interest accruing at the rate
of eight percent (8%) per annum on the allowed amount of the holder's Allowed
Class 3 Claim from the Petition Date through the Effective Date; provided,
however, that each holder of an Allowed Class 3 Claim shall retain whatever lien
it has on property of the Estate as of the Effective Date until such time as the
allowed amount of the holder's Allowed Class 3 Claim is paid in full pursuant to
this Paragraph.
4. Class 4 (Other Secured Claims).
Class 4 is not impaired under the Plan. Unless the holder
agrees to other treatment, each holder of an Allowed Class 4 Claim shall receive
treatment pursuant to one of the following options, as selected by Barry's in
its sole discretion: (a) on or as soon as reasonably practicable after the
Effective Date, the Disbursing Agent shall convey to such holder the collateral
in which such holder has a security interest; (b) on or as soon as reasonably
practicable after the Effective Date, the Disbursing Agent shall pay to such
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holder cash in the allowed amount of such holder's Allowed Class 4 Claim; (c) on
or as soon as reasonably practicable after the Effective Date, the Disbursing
Agent shall (i) cure any default, other than a default of a kind specified in
section 365(b)(2) of the Code, with respect to such holder's Allowed Class 4
Claim, without recognition of any default rate of interest or similar penalty or
charge, and upon such cure, no default shall then exist, (ii) reinstate the
maturity of such Allowed Class 4 Claim as the maturity existed before any
default, without recognition of any default rate of interest or similar penalty
or charge, (iii) compensate such holder for any actual damages incurred as a
result of the reasonable reliance by such holder on any provision that entitled
the holder to accelerate the maturity of such Allowed Class 4 Claim, and (iv)
leave unaltered all other legal, equitable, and contractual rights of such
holder with respect to such Allowed Class 4 Claim.
Barry's shall be deemed to have selected the treatment set
forth in section (c) of the foregoing paragraph unless Barry's otherwise
notifies the holder of the Allowed Class 4 Claim at issue on or before ten days
prior to the Confirmation Hearing Date.
D. Treatment Of General Unsecured Claims (Class 6).
Class 6 is impaired under the Plan. Holders of Allowed Class 6
Claims shall receive on account of such Claims, and in full satisfaction
thereof, the following treatment:
1. If the amount of all Allowed Class 6 Claims is
equal to or less than $17,000,000, then each holder of an Allowed Class
6 Claim shall receive a cash payment in an amount equal to fifteen
percent (15%) of the amount of such holder's Allowed Class 6 Claim,
distributed in the manner set forth in Section XI.F.2, plus simple
interest on such amount at the rate of five percent (5%) per annum from
the Effective Date until the date of the distribution to such holder;
and
2. If the amount of all Allowed Class 6 Claims
exceeds $17,000,000, then each holder of an Allowed Class 6 Claim shall
receive a Pro Rata share of $2,550,000 in cash, distributed in the
manner set forth in Section XI.F.2, plus simple interest on such Pro
Rata share at the rate of five percent (5%) per annum from the
Effective Date until the date of the distribution to such holder;
provided, however, that, in the event that any resolution (by
settlement or litigation) of the Interpleader Complaint increases to an
aggregate amount of more than $187,537.61 the amount of the Allowed
Unsecured Claims attributable to former employees of Barry's with
respect to the Executive Bonus Plan, Barry's shall increase the amount
of money available to satisfy Allowed Class 6 Claims by fifteen percent
(15%) of the amount by which such former employees' Allowed Class 6
Claims exceeds $187,537.61; provided further, however, that in no event
shall any Allowed Class 6 Claim receive a distribution of more than
fifteen percent (15%) of the amount of such Allowed Class 6 Claim plus
any interest as provided in this Paragraph.
E. Treatment Of Consignment Claims (Class 7)
Class 7 is not impaired under the Plan. Holders of Allowed
Class 7 Claims shall receive on account of such Claims, and in full satisfaction
thereof, the following treatment on or before the later of the Effective Date
and the sixtieth day after the Confirmation Date: the Reorganized Company, in
its sole discretion and only to the extent that it is able to ascertain the
identity of the supplier of Residual Consignment Inventory or to the extent that
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the Court determines the identity of the supplier of Residual Consignment
Inventory after notice and a hearing pursuant to the applicable Bankruptcy
Rules, either shall (a) return to such supplier the Residual Consignment
Inventory that is the subject of the supplier's Allowed Class 7 Claim, or (b)
pay such supplier, in cash and in full, for the amount of its Allowed Class 7
Claim with respect to such Residual Consignment Inventory.
F. Treatment Of Priority Claims (Class 8).
Class 8 in not impaired under the Plan. Unless the holder of
an Allowed Class 8 Claim agrees to other treatment, the Disbursing Agent shall
pay to each holder of an Allowed Class 8 Claim cash equal to the allowed amount
of such Claim, without interest, on or before the later of (a) the Effective
Date or as soon as reasonably practicable thereafter, (b) thirty days after the
date on which such Claim becomes an Allowed Claim, and (c) the date on which
such Claim becomes due and payable.
G. Treatment Of Interests (Class 9).
Class 9 is impaired under the Plan. Holders of Allowed Class 9
Interests shall receive on account of such Interests, and in full satisfaction
thereof, a Pro Rata share of the Reorganized Company Warrants, distributed in
the manner set forth in this Paragraph.
On or as soon as reasonably practicable after the Effective
Date, the Reorganized Company shall distribute the Reorganized Company Warrants
to the Exchange Agent and shall instruct the Exchange Agent to distribute, as
soon as reasonably practicable thereafter, a Pro Rata share of Reorganized
Company Warrants to holders of Allowed Class 9 Interests; provided, however,
that, upon request of the Disbursing Agent or the Exchange Agent, holders of
Allowed Class 9 Interests shall be required, prior to receiving distributions
pursuant to this Section, to (a) surrender to the Exchange Agent the
certificates representing such Interests, or (b) provide an affidavit certifying
that such certificates are lost and an appropriate indemnification of Barry's,
the Estate, and the Reorganized Company.
H. Treatment Of Executory Contracts And Unexpired Leases.
Subject to approval of the Court, the Code empowers debtors in
possession such as Barry's to assume or reject executory contracts and unexpired
leases. As a general matter, an "executory contract" is a contract under which
material performance other than the payment of money is due by either party. If
an executory contract or unexpired lease is rejected by the debtor in
possession, the agreement will be treated as if the debtor in possession
breached its obligations thereunder immediately prior to the commencement of
bankruptcy proceedings, and the other party to the agreement may file a claim
for any damages incurred by reason of the rejection. In the case of rejection of
employment agreements and leases of real property, such damage claims are
subject to certain limitations imposed by the Code. If an executory contract or
unexpired lease is assumed, the debtor in possession is required to perform its
obligations thereunder in accordance with the terms of such agreement.
During the Reorganization Case, Barry's has assumed a number
of unexpired leases and has rejected a number of other unexpired leases. See
Sections VII.E.3 and VII.E.12. The Plan provides for the assumption or rejection
of Barry's remaining contracts and leases as set forth in this Section.
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1. Assumption Of Executory Contracts And Unexpired Leases.
Unless previously assumed or rejected by order of the Court or
pursuant to the operation of section 365 of the Code, as of the Effective Date,
the Reorganized Company shall assume the executory contracts and unexpired
leases that are identified in the Schedule of Assumed Agreements, which will be
attached as Exhibit G and filed and served on the parties to the agreements
identified therein by the Exhibit Filing Date. The Schedule of Assumed
Agreements will identify the necessary amounts, if any, that Barry's believes
need to be paid pursuant to sections 365(b)(1)(A) & (B) of the Code in order to
cure existing defaults for such agreements. Notwithstanding the foregoing,
however, on or before ten (10) days prior to the date of the hearing on adequacy
of the information in the Disclosure Statement, Barry's will file a schedule of
the necessary amounts, if any, that Barry's believes need to be paid pursuant to
sections 365(b)(1)(A) & (B) of the Code in order to cure existing defaults for
any of its remaining unexpired leases of nonresidential real property that are
not then the subject of a motion for assumption or rejection (which schedule
shall be incorporated into the Schedule of Assumed Agreements when filed), and
Barry's shall serve such schedule on the parties to the agreements identified
therein.
Please refer to Section X.H.3 for important deadlines and
procedures regarding objections to the proposed cure amounts for the executory
contracts and unexpired leases that Barry's proposed to assume pursuant to the
Plan.
Barry's reserves the right at any time prior to the
Confirmation Date to amend the Schedule of Assumed Agreements to (a) delete any
executory contract or unexpired lease and therefore provide for its rejection
pursuant to Section X.H.4, (b) add any executory contract or unexpired lease and
therefore provide for its assumption pursuant to this Section, or (c) modify the
identified cure amount. Barry's shall provide notice of any amendment to the
Schedule of Assumed Agreements to the party or parties to the executory contract
or unexpired lease affected by such amendment.
The Confirmation Order shall constitute an order of the Court
approving the assumption, as of the Effective Date, of the agreements identified
on the Schedule of Assumed Agreements as of that time.
2. Cure Payments.
Any and all monetary defaults under each executory contract
and unexpired lease to be assumed pursuant to Section X.H.1 shall be satisfied,
pursuant to section 365(b)(1) of the Code, in one of the following two ways: (a)
by payment by the Disbursing Agent of the default amount, as set forth on the
Schedule of Assumed Agreements, in cash on or as soon as reasonably practicable
after the Effective Date, or (b) on such other terms as agreed to by Barry's and
the non-debtor party or parties to such executory contract or unexpired lease.
3. Objections To Assumption And/Or Proposed Cure Payments.
Any party to an executory contract or unexpired lease to be
assumed under the Plan who contends that the proposed cure payment specified in
the Schedule of Assumed Agreements is incorrect, or who otherwise objects to the
assumption of such contract or lease, must file with the Court and serve upon
Barry's and the Reorganized Company's Counsel a written statement and supporting
declaration specifying the basis for its objection by the later of (a)
twenty-one days prior to the Confirmation Hearing Date and (b) five days after
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the date of filing and service of the Schedule of Assumed Agreements (or, if
applicable, the schedule of cure amounts with respect to remaining unexpired
leases of nonresidential real property, to be filed prior to filing of the
Schedule of Assumed Agreements). Failure to timely serve such a statement shall
waive any and all objections to the proposed assumption and the proposed cure
amount.
In the event of a dispute regarding (a) the amount of any
proposed cure payments, (b) whether adequate assurance of future performance
under the contract or lease to be assumed has been provided, or (c) any other
matter pertaining to the proposed assumption, the cure payments required by
section 365(b)(1) of the Code shall be made within thirty days after the order
of the Court resolving the dispute and approving the assumption has become a
Final Order.
4. Rejection Of Executory Contracts And Unexpired Leases.
Unless (a) previously assumed or rejected by order of the
Court or pursuant to operation of section 365 of the Code, or (b) assumed
pursuant to Section X.H.1, on the Effective Date any and all executory contracts
and unexpired leases of Barry's executed prior to the Petition Date, including
all Existing Warrants and Options (to the extent executory) and those agreements
listed on the Schedule of Rejected Agreements, which will be attached as Exhibit
H and filed and served on the parties to the agreements identified therein by
the Exhibit Filing Date, shall be rejected to the extent, if any, that such
agreements constitute executory contracts or unexpired leases within the meaning
of section 365 of the Code. Listing a contract or lease on the Schedule of
Rejected Agreements, however, does not constitute an admission that such
agreement is an executory contract or unexpired lease or that Barry's or the
Reorganized Company have any liability thereunder. Barry's reserves the right at
any time prior to confirmation to amend the Schedule of Rejected Agreements to:
(a) delete any executory contract or unexpired lease listed therein and provide
for its assumption pursuant to Section X.H.1, or (b) add any executory contract
or unexpired lease to such Schedule and therefore provide for its rejection
pursuant to this Section. Barry's shall provide notice of any amendment to the
Schedule of Rejected Agreements to the party or parties to the executory
contract or unexpired lease affected by the amendment.
The Confirmation Order shall constitute an order of the Court
approving the rejection of the agreements identified on the Schedule of Rejected
Agreements, pursuant to section 365 of the Code, as of the Effective Date.
5. Bar Date For Rejection Damage Claims.
Any Claim for damages arising from the rejection under the
Plan of an executory contract or unexpired lease must be filed with the Court
and served upon the Reorganized Company and the Reorganized Company's Counsel
within thirty (30) days after the mailing of notice of confirmation or be
forever barred and unenforceable against Barry's, the Estate, the Reorganized
Company, and their respective property and barred from receiving any
distributions under the Plan on account of such Claim.
6. Postpetition Contracts And Leases.
Except as expressly provided in the Plan or the Confirmation
Order, all contracts, leases, and other agreements entered into by Barry's after
the Petition Date shall remain in full force and effect notwithstanding the
occurrence of confirmation or the Effective Date.
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7. Indemnification Assumption.
As of the Effective Date, the Reorganized Company shall be
deemed to have assumed the obligations of Barry's to indemnify its directors and
officers who held such positions as of the Petition Date pursuant to applicable
certificates of incorporation, bylaws, written agreements, and statutes with
respect to all present and future actions, suits, and proceedings against any of
such directors and officers based upon any act or omission related to service
with, for, or on behalf of Barry's. Such obligations shall not be discharged or
impaired by confirmation or consummation of the Plan and shall survive
confirmation unaffected by the contemplated reorganization.
Barry's does not believe that any meritorious claims exist
against the parties affected by this Section. Moreover, Barry's believes that,
to the extent that any such claims exist, adequate insurance exists to cover
such claims. Nevertheless, Barry's cannot and does not represent or warrant that
no such claims exist or will not arise in the future or that its obligations
under this Section will not materially affect the financial condition of the
Reorganized Company.
XI.
MEANS OF EXECUTION AND IMPLEMENTATION
OF THE PLAN AND OTHER PROVISIONS
A. Disbursing Agent.
The Reorganized Company, or an entity or entities employed by
the Reorganized Company in its sole discretion (the "Third Party Disbursing
Agent"), shall act as Disbursing Agent under the Plan and, unless otherwise
specified, shall make all distributions required under the Plan. The Disbursing
Agent may employ or contract with other entities to assist in or perform the
distribution of property to be so distributed. Unless otherwise determined by
the Reorganized Company in its sole discretion, the Disbursing Agent shall serve
without bond. The Third Party Disbursing Agent, if any, shall receive from the
Reorganized Company, without further Court approval, reasonable compensation for
distribution services rendered pursuant to the Plan and reimbursement of
reasonable out-of-pocket expenses incurred in connection with such services on
terms agreed to by the Reorganized Company.
B. Revesting Of Assets.
Except as otherwise provided in the Plan or in any agreements
contemplated under the Plan, on the Effective Date all property of the Estate
shall revest in the Reorganized Company, free and clear of all Claims, liens,
encumbrances, and other Interests. From and after the Effective Date, the
Reorganized Company may operate its business and use, acquire, and dispose of
property and settle and compromise Claims or Interests without supervision by
the Court and free of any restrictions of the Code or Bankruptcy Rules, other
than those restrictions expressly imposed by the Plan and the Confirmation
Order.
C. Preservation Of Rights Of Action.
Except as expressly released pursuant to the Plan, pursuant to
section 1123(b) of the Code, the Reorganized Company shall be revested with and
shall retain and may enforce any claims, rights, and causes of action that
Barry's or the Estate may hold or have against any entity, including, without
limitation, (a) any claims, rights, or causes of action under sections 544
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through 550 of the Code or any similar provisions of state law, or any other
statute or legal theory, (b) any rights of equitable subordination or
disallowance, (c) any derivative causes of action that may be brought by or on
behalf of Barry's or the Estate, and (d) any and all other claims, rights, or
causes of action of any kind or nature of Barry's or the Estate that may exist
under applicable bankruptcy or nonbankruptcy law.
Any such recoveries shall be retained by the Reorganized
Company free and clear of all Claims and Interests, and the Reorganized Company
may pursue its revested rights of action in accordance with its best interests.
D. Cancellation Of Stock And Existing Warrants And Options.
On the Effective Date, all existing Interests (including the
Existing Common Stock) and, to the extent not rejected as executory contracts
pursuant to Section X.H.4, all Existing Warrants and Options, shall, without any
further action, be cancelled, annulled, and extinguished and any certificates
representing such Interests and Existing Warrants and Options shall become void.
Holders of Existing Warrants and Options shall retain no rights and receive no
consideration on account thereof.
E. Objections To Claims And Interests.
Except as otherwise provided in Section X.B.1 for applications
of professionals for compensation and reimbursement of expenses and for the
payment of other Administrative Claims, objections to any Claim or Interest
shall be filed and served upon the holder of such Claim or Interest no later
than the date (the "Claims/Interests Objection Deadline") that is the later of
(a) six months after the Effective Date, and (b) six months after the date on
which a proof of Claim or Interest has been filed, unless extended by the Court.
See Section VII.E.14 for a description of the Claims and
Interests to which Barry's currently anticipates that it will object prior to
the Claims/Interests Objection Deadline.
If, on the Effective Date, the amount of all asserted Class 6
Claims is less than $17,000,000 (excluding Claims in excess of $187,537.61
asserted by former employees with respect to the Executive Bonus Plan), the
Reorganized Company shall have the exclusive right to object to, resolve,
compromise, and settle Claims and Interests after the Effective Date.
If, however, on the Effective Date the amount of all asserted
Class 6 Claims (excluding Claims in excess of $187,537.61 asserted by former
employees with respect to the Executive Bonus Plan) is equal to or greater than
$17,000,000, a committee consisting of Mike Shaffet, Tom Libassi, and Ron Tucker
(the "Claims Committee") shall be formed and, after the Effective Date, shall
have the exclusive right to object to, resolve, compromise, and settle Claims
that, if allowed, would be classified into Class 6. The Reorganized Company
shall retain the exclusive right to object to, resolve, compromise, and settle
all other Claims and Interests, including Administrative Claims, after the
Effective Date.
The Reorganized Company will reimburse the Claims Committee,
if formed, for up to $50,000 in actual professional fees and expenses that the
Claims Committee incurs in objecting to, resolving, compromising, and settling
Class 6 Claims after the Effective Date, and the Claims Committee shall have no
authority to incur more than $50,000 in such fees and expenses.
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F. Distribution Of Property Under The Plan.
1. Manner Of Cash Payment Under The Plan.
Cash payments made pursuant to the Plan shall be in U.S.
dollars by checks drawn on a domestic bank selected by the Reorganized Company
or, at the option of the Reorganized Company, by wire transfer from a domestic
bank; provided, however, that payments made to foreign creditors holding Allowed
Claims may be paid, at the option of the Reorganized Company, in such funds and
by such means as are necessary or customary in a particular foreign
jurisdiction.
2. Distributions To Holders Of Allowed Class 6 Claims.
The Disbursing Agent shall make the appropriate distributions
to holders of Allowed Class 6 Claims within thirty days after the earlier of (a)
the date on which the total amount of asserted Class 6 Claims (excluding Claims
in excess of $187,537.61 asserted by former employees with respect to the
Executive Bonus Plan) becomes equal to or less than $17,000,000, and (b) the
date on which the Claims Committee, if formed, informs the Reorganized Company
that no additional objections to Class 6 Claims are warranted. The Disbursing
Agent will make distributions to holders of Class 6 Claims that are allowed
after such initial distribution date, to the extent so allowed, within thirty
days after the order of the Court allowing such Claims becomes a Final Order.
The Reorganized Company shall have no obligation to segregate
the funds to be used for distributions to holders of Allowed Class 6 Claims.
3. Restriction On Distributions Of Fractional Shares.
Notwithstanding anything to the contrary in the Plan,
fractional interests in New Common Stock and Reorganized Company Warrants shall
not be distributed under the Plan. At the time that distributions are made, the
aggregate number of shares of New Common Stock and the aggregate number of
Reorganized Company Warrants that otherwise would have been distributed to a
holder of an Allowed Class 2 and Class 5 Claim, to a Participating Bondholder,
or to a holder of an Allowed Class 9 Interest shall be rounded down to the
nearest whole number for purposes of determining the amount to be distributed to
such Person, without compensation in any form as a result of such rounding. Any
New Common Stock or Reorganized Company Warrants remaining after such
distributions as a result of the limitation on distribution of fractional
interests shall be treated as undeliverable as provided in Section XI.F.5.b.
4. No Distributions With Respect To Disputed Claims And Interests.
Notwithstanding any other provisions of the Plan, no payments
of cash or distributions of Plan Securities or other consideration of any kind
shall be made on account of any Disputed Claim or Disputed Interest until such
Claim or Interest becomes an Allowed Claim or Allowed Interest or is deemed to
be such for purposes of distribution, and then only to the extent that the Claim
or Interest becomes, or is deemed to be for distribution purposes, an Allowed
Claim or Allowed Interest.
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5. Delivery Of Distributions And Undeliverable Or Unclaimed Distributions.
a. Delivery Of Distributions In General.
Except as provided in Section XI.F.5.b for holders of
undeliverable distributions, distributions to holders of Allowed Claims and
Allowed Interests shall be distributed by mail as follows: (a) at the addresses
set forth on the respective proofs of Claim or Interest filed by such holders of
Allowed Claims and Allowed Interests; (b) at the addresses set forth in any
written notices of address changes delivered to the Disbursing Agent after the
date of any related proof of Claim; (c) at the address reflected in the
Schedules if no proof of Claim or Interest is filed and the Disbursing Agent has
not received a written notice of a change of address; and (d) with respect to
holders of Allowed Class 2 and 5 Claims and Allowed Class 9 Interests, at the
last known address of record holders of such Allowed Claims and Allowed
Interests as of the Record Date, as determined by the applicable transfer agent.
b. Undeliverable Distributions.
(1) Holding And Investment Of Undeliverable Property.
If the distribution to the holder of any Allowed Claim or
Allowed Interest is returned to the Disbursing Agent as undeliverable, no
further distribution shall be made to such holder unless and until the
Disbursing Agent is notified in writing of such holder's then current address.
Subject to Section XI.F.5.b(2), undeliverable distributions shall remain in the
possession of the Disbursing Agent pursuant to this Section until such time as a
distribution becomes deliverable.
Unclaimed cash shall be held in an unsegregated bank account
in the name of the Disbursing Agent or the Reorganized Company for the benefit
of the potential claimants of such funds, and shall be accounted for separately.
The parties entitled to such funds shall be entitled to simple interest on the
funds at the rate of five percent (5%) per annum.
(2) Distribution Of Undeliverable Property After It Becomes Deliverable And
Failure To Claim Undeliverable Property.
Any holder of an Allowed Claim or Allowed Interest who does
not assert a claim in writing for an undeliverable distribution held by the
Disbursing Agent within one year after the Effective Date shall no longer have
any claim to or interest in such undeliverable distribution, and shall be
forever barred from receiving any distributions under this Plan. In such cases
any property held for distribution on account of such Claims or Interests shall
be retained by the Reorganized Company, as follows: (a) any undistributed cash
shall be the property of the Reorganized Company, free from any restrictions
thereon; and (b) any undistributed Plan Securities shall be canceled. Nothing
contained in the Plan shall require Barry's, the Reorganized Company, or the
Disbursing Agent to attempt to locate any holder of an Allowed Claim or an
Allowed Interest.
Therefore, any holder of an Allowed Claim or Interest that
does not assert a claim for an undeliverable distribution within one year after
the Effective Date will have any claim for such undeliverable distribution
discharged and forever will be barred from asserting any Claim against Barry's,
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the Estate, the Reorganized Company, or their property.
6. Compliance With Tax Requirements.
The Disbursing Agent shall comply with all withholding and
reporting requirements imposed on it by governmental units, and all
distributions pursuant to the Plan shall be subject to such withholding and
reporting requirements, if any.
7. Setoff And Recoupment.
Notwithstanding anything to the contrary contained in the
Plan, the Reorganized Company may, but shall not be required to, set off,
recoup, and withhold against any Allowed Claim or Allowed Interest and the
distributions to be made pursuant to this Plan on account of such Claim or
Interest claims of any nature that Barry's, the Estate, or the Reorganized
Company may have against the holder of such Allowed Claim or Allowed Interest;
provided, however, that neither the failure to effect such a setoff or
recoupment, nor the allowance of any Claim against or Interest in Barry's or the
Reorganized Company, nor any partial or full payment during the Reorganization
Case or after the Effective Date in respect of any Allowed Claim or Allowed
Interest, shall constitute a waiver or release by Barry's or the Reorganized
Company of any claim that they may possess against such holder; and provided
further that the foregoing paragraph shall not apply to holders of Allowed Class
1 Claims.
G. No Liability For Solicitation Or Participation.
Pursuant to section 1125(e) of the Code, Persons that solicit
acceptances or rejections of the Plan and/or that participate in the offer,
issuance, sale, or purchase of securities offered or sold under the Plan, in
good faith and in compliance with the applicable provisions of the Code, shall
not be liable, on account of such solicitation or participation, for violation
of any applicable law, rule, or regulation governing the solicitation of
acceptances or rejections of the Plan or the offer, issuance, sale, or purchase
of securities.
H. Limitation Of Liability.
None of Barry's, the Reorganized Company, the Estate, the
Creditors' Committee, the Bondholder Committee, the Equity Committee, the Bank
Group, nor any of their employees, officers, directors, agents, members,
representatives, or professional persons employed or retained by any of them,
shall have or incur any liability to any Person for any act taken or omission
made in good faith in connection with or related to formulating, implementing,
confirming, or consummating the Plan, the Disclosure Statement, or any contract,
instrument, release, or other agreement or document created in connection with
the Plan.
I. Consensual General Release.
Except for those obligations expressly set forth in the Plan,
as of the Effective Date the Agreement Parties shall be deemed to have released
each other and all of the other Agreement Parties' respective predecessors,
successors, assigns, members, officers, directors, agents, and professionals of
all claims, rights, causes of action, counterclaims, obligations, and defenses
relating to Barry's or the Estate, or arising in connection with the
Reorganization Case, regardless of whether such claims, rights, or obligations
are matured or unmatured, liquidated or unliquidated, or contingent or
noncontingent, and regardless of whether such claims, rights, causes of action,
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counterclaims, obligations, and defenses arose during the Reorganization Case or
prior to the Petition Date.
To effectuate such releases, on or prior to the Effective
Date, the Agreement Parties shall execute a release in substantially the form of
the release to be attached as Exhibit I (the "Agreement Parties Release"), which
release shall be filed by the Exhibit Filing Date and shall contain a waiver of
all of the Agreement Parties' rights under section 1542 of the California Civil
Code.
J. Dissolution Of Committees.
On the Effective Date, the Creditors' Committee and the
Bondholder Committee shall dissolve and the members of such committees shall be
released and discharged from all further rights and duties arising from or
related to the Reorganization Case, except with respect to final applications
for professionals' compensation. The professionals retained by the Creditors'
Committee and the Bondholder Committee and the members thereof shall not be
entitled to compensation or reimbursement of expenses for any services rendered
or expenses incurred after the Effective Date, except for services rendered and
expenses incurred in connection with any applications by such professionals or
committee members for allowance of compensation and reimbursement of expenses
pending on the Effective Date or timely filed after the Effective Date as
provided in the Plan.
Notwithstanding anything to the contrary in the Plan, nothing
in the Plan shall prevent a professional formerly retained by the Creditors'
Committee or the Bondholder Committee from rendering services to the Reorganized
Company and from being paid by the Reorganized Company for such services without
notice or approval of the Court.
K. Revocation Of The Plan.
Barry's reserves the right to revoke or withdraw the Plan
prior to the Confirmation Date. If Barry's does so, or if confirmation and the
Effective Date otherwise do not occur, the Plan shall be null and void, and
nothing contained in the Plan or the Disclosure Statement shall (a) constitute a
waiver or release of any Claims by or against, or any Interests in, Barry's; or
(b) prejudice in any manner the rights of Barry's, the Estate, or any creditors
in any further proceedings.
L. Post-Effective Date Effect Of Evidences Of Claims Or Interests.
Notes, stock certificates, warrants, and other evidences of
Claims against, or Interests, in Barry's shall, effective upon the Effective
Date, represent only the right to receive the distributions contemplated by the
Plan.
M. Non-applicability Of Local Rule 142(3).
Neither Barry's nor the Reorganized Company shall be required
to comply with Rule 142(3) of the Local Bankruptcy Rules of the United States
Bankruptcy Court for the Central District of California, which requires the
filing of certain status reports after the Confirmation Date.
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N. Modification Of Vendor Return Program.
On the Effective Date, the "Trade Financing Agreement Term
Sheet," dated as of July 22, 1997, among Barry's, the Creditors' Committee, the
Bondholder Committee, and the Bank Group, shall be deemed modified to provide
that Barry's need not offer to execute trade financing agreements with trade
vendors who assert Claims against Barry's in amounts of $1,000 or less.
Notwithstanding anything to the contrary in the Plan, however,
the "trade trust" established pursuant to that agreement shall be preserved and
will remain in full force and effect until such time as Barry's accounts payable
to trade vendors with respect to the period between the Petition Date and the
Effective Date have been paid in accordance with their terms. After such
payment, the "trade trust" shall be dissolved and the remaining funds held in
such "trust" shall be returned to the Reorganized Company free and clear of any
claims of trade vendors, the Bank Group, or the Bondholders.
O. Successors And Assigns.
The rights, benefits, and obligations of any entity named or
referred to in this Plan shall be binding on, and shall inure to the benefit of,
any heir, executor, administrator, successor, or assign of such entity.
P. Saturday, Sunday, Or Legal Holiday.
If any payment or act under the Plan is required to be made or
performed on a date that is not a Business Day, then the making of such payment
or the performance of such act may be completed on the next succeeding Business
Day and shall be deemed to have been completed as of the required date.
Q. Headings.
The headings used in the Plan are inserted for convenience
only and neither constitute a portion of this Plan nor in any manner affect the
provisions of this Plan.
R. Governing Law.
Unless a rule of law or procedure is supplied by (a) federal
law (including the Code and Bankruptcy Rules), or (b) an express choice of law
provision in any agreement, contract, instrument, or document provided for, or
executed in connection with, the Plan, the rights and obligations arising under
the Plan and any agreements, contracts, documents, and instruments executed in
connection with the Plan shall be governed by, and construed and enforced in
accordance with, the laws of the State of California without giving effect to
the principles of conflict of laws thereof.
S. Severability Of Plan Provisions.
If, prior to confirmation, any term or provision of the Plan
is held by the Court to be invalid, void, or unenforceable, the Court shall have
the power to alter and interpret such term or provision to make it valid or
enforceable to the maximum extent practicable, consistent with the original
purpose of the term or provision held to be invalid, void, or unenforceable, and
such term or provision shall then be applicable as altered or interpreted.
Notwithstanding any such holding, alteration, or interpretation, the remainder
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of the terms and provisions of the Plan will remain in full force and effect and
will in no way be affected, impaired, or invalidated by such holding, alteration
or interpretation. The Confirmation Order shall constitute a judicial
determination and shall provide that each term and provision of the Plan, as it
may or may not have been altered or interpreted in accordance with the
foregoing, is valid and enforceable pursuant to its terms.
T. No Admissions.
Notwithstanding anything herein to the contrary, if the Plan
is not confirmed or the Effective Date otherwise does not occur, the Plan shall
be null and void, and nothing contained in the Plan or the Disclosure Statement
shall (a) be deemed to be an admission by Barry's or against any creditor with
respect to any matter set forth herein, including liability on any Claim or the
propriety of the classification of any Claim; (b) constitute a waiver,
acknowledgment or release of any Claims by or against, or any Interests in,
Barry's; or (c) prejudice in any manner the rights of Barry's, the Estate, or
any creditors in any further proceedings.
U. Retention Of Jurisdiction.
Notwithstanding the entry of the Confirmation Order or the
occurrence of the Effective Date, the Court shall retain jurisdiction over the
Reorganization Case after the Effective Date to the fullest extent provided by
law, including the jurisdiction to:
1. Allow, disallow, determine, liquidate, classify, establish
the priority or secured or unsecured status of, estimate, or limit any Claim,
Interest, or Administrative Claim;
2. Grant or deny any and all applications for allowance of
compensation or reimbursement of expenses authorized pursuant to the Code or the
Plan, for periods ending on or before the Effective Date;
3. Resolve any motions pending on the Effective Date to
assume, assume and assign, or reject any executory contract or unexpired lease
to which Barry's is a party or with respect to which Barry's may be liable and
to hear, determine and, if necessary, liquidate, any and all Claims arising
therefrom;
4. Ensure that distributions to holders of Allowed Claims and
Allowed Interests, including but not limited to Administrative Claims, are
accomplished pursuant to the provisions of the Plan;
5. Resolve any and all applications, motions, adversary
proceedings, and other matters involving Barry's that may be pending on the
Effective Date;
6. Enter such orders as may be necessary or appropriate to
implement or consummate the provisions of the Plan and all contracts,
instruments, releases, and other agreements or documents entered into in
connection with the Plan;
7. Resolve any and all controversies, suits, or issues that
may arise in connection with the consummation, interpretation, or enforcement of
the Plan or any Person's rights or obligations in connection with the Plan;
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8. Modify the Plan before or after the Effective Date pursuant
to section 1127 of the Code, or modify the Disclosure Statement or any contract,
instrument, release, or other agreement or document created in connection with
the Plan or Disclosure Statement; or remedy any defect or omission or reconcile
any inconsistency in any order of the Court, the Plan, the Disclosure Statement,
or any contract, instrument, release, or other agreement or document created in
connection with the Plan or Disclosure Statement, in such manner as may be
necessary or appropriate to consummate the Plan, to the extent authorized by the
Code;
9. Issue injunctions, enter and implement other orders, or
take such other actions as may be necessary or appropriate to restrain
interference by any entity with consummation or enforcement of the Plan;
10. Enter and implement such orders as are necessary or
appropriate if the Confirmation Order is for any reason modified, stayed,
reversed, revoked, or vacated;
11. Determine any other matters that may arise in connection
with or relate to the Plan, the Disclosure Statement, the Confirmation Order, or
any contract, instrument, release, or other agreement or document created in
connection with the Plan or the Disclosure Statement; and
12. Enter an order closing the Reorganization Case.
If the Court abstains from exercising jurisdiction or is
otherwise without jurisdiction over any matter, this Section shall have no
effect upon and shall not control, prohibit, or limit the exercise of
jurisdiction by any other court having competent jurisdiction with respect to
such matter.
V. Conditions To Confirmation And Effectiveness Of The Plan.
Distributions under the Plan expressly are contingent on
confirmation and the occurrence of the Effective Date. Conditions to
confirmation and conditions to the Effective Date therefore are important
considerations in determining whether and when distributions under the Plan are
likely to occur.
Because the following conditions relate to the outcome of
future events, Barry's can give no assurance that the conditions will be
satisfied. Moreover, as a result of the conditions to the Effective Date, it is
possible that substantial delays between confirmation of the Plan and the
occurrence of the Effective Date ultimately will occur.
1. Conditions To Confirmation.
In addition to the statutory confirmation requirements set
forth in the Code, Barry's shall not request that the Court enter the
Confirmation Order unless and until each of the following conditions has been
satisfied or waived pursuant to Section XI.V.3:
a. Barry's shall have executed Definitive Financing
Documents, which documents shall contain terms and conditions
reasonably satisfactory to DDJ Capital and Mitchell Hutchins (the
previously-given consent by DDJ Capital and Mitchell Hutchins to the
Financing Commitment Letter shall not be deemed approval or acceptance
of any terms and conditions not expressly included in such Financing
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Commitment Letter, including, without limitation, any financial
covenants contemplated by, but not agreed upon in, such Financing
Commitment Letter).
b. The SEC shall have issued the No-Action Letter in
a form and substance reasonably satisfactory to Barry's.
Barry's anticipates that, if the SEC does not issue
the No-Action Letter, Barry's will amend the Plan and Disclosure
Statement to provide for the registration of the New Common Stock
and/or Reorganized Company Warrants, as appropriate.
2. Conditions To Effective Date.
The Plan shall not be consummated or become binding unless and
until the Effective Date occurs. The Effective Date is the first day that, as
determined by Barry's in its reasonable discretion, is a Business Day (a) that
is at least ten days after the Confirmation Date; (b) on which no stay of the
Confirmation Order is in effect; and (c) on which all of the following
conditions have been satisfied or waived pursuant to Section XI.V.3:
a. All of the conditions to effectiveness of the Plan
Financing shall have been satisfied and the Plan Financing shall have
been funded.
b. Payments for all of the Additional New Common
Stock to be sold to Participating Bondholders, DDJ Capital, and/or
Mitchell Hutchins shall have been received.
c. The Agreement Parties shall have executed and
delivered the Agreement Parties Release.
d. The Collateral Agent shall have delivered any and
all documents necessary to evidence a release of its liens and security
interests in and to the collateral granted by Barry's pursuant to the
Intercreditor Agreement.
e. The date of September 1, 1998, shall not yet have
occurred.
3. Waiver Of Conditions To Confirmation And The Effective Date.
The conditions to confirmation of the Plan and the occurrence
of the Effective Date, as specified in Sections XI.V.1 and XI.V.2, are for the
sole benefit of Barry's. The requirement that any of such conditions be
satisfied may be waived in whole or in part by Barry's. To be effective, such a
waiver must be in writing and filed. The failure to satisfy or waive any of such
conditions may be asserted by Barry's regardless of the circumstances giving
rise to the failure of such condition to be satisfied, including any action or
inaction by Barry's. The failure of Barry's to exercise any of the foregoing
rights shall not be deemed a waiver of any other rights and each such right
shall be deemed ongoing and assertable at any time.
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XII.
SOURCES OF MONEY TO PAY CLAIMS AND
INTEREST-HOLDERS; PROVISIONS REGARDING NEW COMMON
STOCK AND REORGANIZED COMPANY WARRANTS
A. Source Of Funds.
1. Plan Financing.
On or prior to the Effective Date, Barry's shall procure
financing (the "Plan Financing") with substantially the following terms:
a. Lender: Foothill Capital Corporation ("Foothill")
as a lender and as agent (the "Financing Agent") for a lender group
(collectively, with Foothill, the "Lenders"); provided, however, that
if Foothill is unable to syndicate the Plan Financing to other Lenders,
it will provide the Plan Financing on its own.
b. Loan Amount And Structure: The Plan Financing will
have a maximum credit line of $50,000,000. the Lenders will make
revolving advances to the Reorganized Company in an aggregate amount
equal to the lesser of (i) the maximum credit line of $50,000,000 less
any amounts outstanding on the letter of credit "subline" referenced
below; and (ii) the sum of (x) eighty percent (80%) of the amount of
eligible accounts receivable, less customary reserves, plus (y) the
lesser of (aa) seventy percent (70%) of the cost of eligible finished
goods inventory, less customary reserves, or (bb) eighty percent (80%)
of the "going out of business" value of that finished goods inventory,
less (z) any loan availability reserves established under the letter of
credit "subline" referenced below; provided, however, that at no time
will the Reorganized Company's eligible accounts receivable exceed an
amount equal to its collections with respect to such accounts for the
immediately preceding forty-five day period multiplied by a factor of
six.
c. Interest Rate: The annual rate of interest on
advances made pursuant to the Plan Financing will be, at the
Reorganized Company's option, (i) 2.25% per annum over the Eurodollar
rate, or (ii) 0.5% per annum over the prime rate publicly announced by
Norwest Bank Minnesota, National Association; provided, however, that
in no event will the applicable interest rate on any advance be less
than 7% per annum; and provided further that Foothill's obligation to
provide advances at the Eurodollar rate will be subject to the
following: (x) no more than five such loans may be outstanding at any
one time, and (y) no such loans may be made in the event of default
under the Plan Financing. Upon the occurrence and during the
continuation of any event of default under the Plan Financing, all
obligations will bear interest at a per annum rate equal to three
percentage points (3%) above the otherwise applicable interest rate.
d. Seasonal Accommodation: Between December 15 of
each year and February 28 of the next year, the Lenders will increase
the accounts receivable advance rate referenced above to eighty-five
percent (85%), and between September 30 and December 15 of each year,
Foothill will increase the inventory advance rate referenced above to
the lesser of (i) seventy-five percent (75%) and (ii) eighty-five
percent (85%) of the "going out of business" value of such inventory.
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e. Optional Credit Line Reduction: The Reorganized
Company will have the one-time, irrevocable option to reduce the
maximum credit line to no less than $25,000,000 (by an increment wholly
divisible by $5,000,000) upon the sale of its entire accounts
receivable portfolio; provided, however, that such option will expire
eighteen months from the date of closing of the Plan Financing. Upon
exercise of such reduction option, the Lenders will cease all advances
against the Reorganized Company's accounts receivable, and any
subsequent advances with respect to such accounts receivable will be at
the Lenders' sole discretion.
f. Letter Of Credit Subline: The Lenders will provide
$5,000,000 in letters of credit on behalf of the Reorganized Company.
Any such letters of credit opened for the purpose of purchasing
eligible inventory will be reserved on a thirty percent (30%) basis,
plus duty and domestic landing costs, against the loan availability
under the Plan Financing. All other such letters of credit will be
reserved on a one hundred percent basis against loan availability. The
annual fee for such letters of credit will be an amount equal to 1.75%
per annum times the undrawn upon or unreimbursed amount of the letters
of credit plus issuing bank charges.
g. Collateral: As collateral for any and all
obligations to the Financing Agent and the Lenders under the Plan
Financing, the Reorganized Company will grant to the Financing Agent
for the benefit of the Lenders a first priority perfected security
interest in and to all of its now owned or thereafter acquired assets,
whether tangible or intangible; provided, however, that such security
interest shall be subject to each preexisting lien that validly secures
a Secured Tax Claim that has not yet been satisfied in full pursuant to
Section X.C.3.
h. Fees: (i) Barry's has paid Foothill a
fully-earned, non-refundable $75,000 commitment fee upon execution of
the Financing Commitment Letter for the Plan Financing; (ii) Barry's
also has agreed to pay for all of Foothill's reasonable costs and
expenses incurred in connection with negotiating and documenting the
Plan Financing (including the expenses of Foothill's auditors,
appraisers, and attorneys), and Barry's has made a deposit of $85,000
with Foothill against the payment of such expenses (although the unused
portion of such deposit will be refunded by Foothill in the event that
it determines not to proceed with the Plan Financing, the deposit will
be retained by Foothill in the event that Foothill is prepared to
proceed with the transaction but Barry's determines not to consummate
the loan); (iii) the Reorganized Company will pay the Financing Agent a
facility fee of $175,000, earned in full upon closing and payable in
three installments of $58,333 each, at closing and on the following two
anniversary dates thereafter (or at maturity, if occurring sooner);
(iv) the Reorganized Company will pay the Financing Agent for the
benefit of the Lenders an unused line fee in an amount equal to 0.375%,
charged per diem and payable monthly, in arrears, on the average daily
unused portion of the maximum credit line; and (v) the Reorganized
Company will pay the Financing Agent a monthly servicing fee of $3,000,
in arrears.
i. Covenants: The Reorganized Company will covenant
to maintain a minimum level of tangible net worth of $40 million,
tested quarterly beginning at the Reorganized Company's fiscal quarter
ended February 28, 1999. Moreover, the Reorganized Company's ratio of
in-house credit sales to total merchandise sales will not exceed 65%
for the trailing four quarters through May 31, 1999, and 60% for the
trailing four quarters thereafter.
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j. Maturity and Prepayment: The Plan Financing will
mature three years from closing (which is anticipated to occur on the
Effective Date). If the Reorganized Company terminates the Plan
Financing prior to that date, the Plan Financing will be subject to a
prepayment charge equal to two percent (2%) of the initial maximum
credit line ($50,000,000) during the first year of the financing, and
of one percent (1%) of that maximum credit line thereafter; provided,
however, that there will be no prepayment charge for the Reorganized
Company's exercise of the "Optional Credit Line Reduction" referenced
above.
Barry's shall file the definitive financing agreement with
respect to the Plan Financing, to be attached as Exhibit J, by the Exhibit
Filing Date.
Barry's has executed the Financing Commitment Letter with
Foothill, which letter sets forth the material terms and conditions upon which
Foothill will provide the Plan Financing, and DDJ Capital and Mitchell Hutchins
have consented to the terms of Financing Commitment Letter. The consent by DDJ
Capital and Mitchell Hutchins to the Financing Commitment Letter, however, shall
not be deemed approval or acceptance of any terms and conditions not expressly
included in such Financing Commitment Letter, including, without limitation, any
financial covenants contemplated by, but not agreed upon in, the Financing
Commitment Letter.
2. Offering Of Additional New Common Stock.
The ballot (and accompanying attachments) with respect to
Classes 2 and 5 will allow holders of Allowed Class 2 and 5 Claims to elect to
purchase a ratable share (based upon the ratio of the aggregate amount of a
holder's Allowed Class 2 and 5 Claims to the aggregate amount of all Allowed
Class 2 and 5 Claims) of Additional New Common Stock, calculated as follows: for
each $1,000 (which is the face amount of the individual bonds that denominate
the Senior Notes) in principal amount of Senior Notes held by a Bondholder, such
Bondholder will have the right to purchase forty-five (45) shares of Additional
New Common Stock at a total purchase price of $300 (i.e., a price of six and
two-thirds dollars ($6.67) per share).
Bondholders should be aware, however, that the purchase price
of six and two-thirds dollars ($6.67) per share for the Additional New Common
Stock is not necessarily an indication of the per-share value of such stock
following the Effective Date. Barry's makes no representations or warranties
regarding the actual per-share value of the Additional New Common Stock.
Moreover, Barry's will issue the Additional New Common Stock
only if, and at such time as, the Effective Date occurs. Barry's will hold
payments made by Participating Bondholders for Additional New Common Stock
pursuant to the procedures set forth on the ballot (and accompanying
attachments) for Classes 2 and 5 in an interest-bearing escrow account until the
Effective Date occurs, or Barry's withdraws the Plan, or the Court denies
confirmation of the Plan. If the Effective Date occurs, Barry's will issue and
send certificates for Additional New Common Stock to Participating Bondholders
at the address indicated on their ballots. If the Effective Date does not occur,
Barry's will return the applicable payments to Participating Bondholders, with
any interest earned thereon, to the address indicated on their ballots.
The decision to purchase or not to purchase Additional New
Common Stock is irrevocable. Any Participating Bondholder that timely completes
the applicable certification and returns an appropriate payment to Barry's by
the deadline specified in the ballot (and accompanying attachments) for Classes
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2 and 5, pursuant to the procedures set forth therein, will not be able to
revoke its purchase or otherwise receive a refund of its money unless the
Effective Date of the Plan does not occur. Conversely, any Bondholders that do
not timely elect to purchase Additional New Common Stock by satisfying the
requirements set forth in the ballot (and accompanying attachments) for Classes
2 and 5 will be deemed to have forfeited any and all rights to purchase
Additional New Common Stock.
All decisions and determinations regarding compliance with the
requirements for the election to purchase Additional New Common Stock will be
made by Barry's.
Bondholders carefully should review the ballot (and
accompanying attachments) for Classes 2 and 5, which set forth the specific
instructions and deadlines with respect to the foregoing option to purchase
Additional New Common Stock.
Pursuant to the Plan Agreement, DDJ Capital and Mitchell
Hutchins will purchase, on a ratable basis, their respective ratable shares
(based upon the ratio of each's Allowed Class 2 and 5 Claims to the aggregate
amount of all Allowed Class 2 and 5 Claims) of Additional New Common Stock, and
any and all remaining Additional New Common Stock that other Bondholders do not
purchase as described in the preceding paragraphs. Notwithstanding the
foregoing, however, DDJ Capital and Mitchell Hutchins shall have no obligation
to purchase any Additional New Common Stock unless (a) each has consented to the
terms and conditions of the Definitive Financing Documents, which consent may
not be unreasonably withheld (the previously-given consent by DDJ Capital and
Mitchell Hutchins to the Financing Commitment Letter shall not be deemed
approval or acceptance of any terms and conditions not expressly included in
such Financing Commitment Letter, including, without limitation, any financial
covenants contemplated by, but not agreed upon in, such Financing Commitment
Letter); (b) no material adverse event, as reasonably determined by DDJ Capital
and Mitchell Hutchins, has occurred with respect to the business or assets of
Barry's, taken as a whole, between the date of the Plan Agreement and the
Effective Date; and (c) all other conditions to the occurrence of the Effective
Date, as set forth in Section XI.V.2, shall have occurred or been waived
pursuant to Section XI.V.3.
Accordingly, Barry's expects that all 2,250,000 shares of
Additional New Common Stock will be sold on the Effective Date, thereby
generating aggregate gross proceeds of $15,000,000 for the Reorganized Company.
B. Issuance Of New Common Stock And Reorganized Company Warrants.
1. The New Common Stock.
The New Common Stock shall have the following attributes:
a. Authorization And Issuance: The charter of the
Reorganized Company shall authorize the issuance of up to 20,000,000
shares of New Common Stock. Of such authorized shares, the Reorganized
Company shall issue (a) 2,500,000 shares (the "Bondholder New Common
Stock") to make the distributions contemplated by Section X.C.2 to
holders of Allowed Class 2 and 5 Claims; (b) 2,250,000 shares (the
"Additional New Common Stock") for sale to holders of Allowed Class 2
and 5 Claims, as described in Sections X.C.2 and XII.A.2; and (c)
250,000 shares to be reserved for grants to executive officers of the
Reorganized Company. Except upon exercise of the Reorganized Company
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Warrants, no additional shares of New Common Stock shall be issued
other than as directed by the Board of Directors of the Reorganized
Company after the Effective Date.
b. Par Value: The New Common Stock shall have a
par value of $0.001 per share.
c. Rights: The New Common Stock shall have such
rights with respect to dividends, liquidations, voting, and other
matters as are set forth in the charter of the Reorganized Company and
as otherwise provided by Delaware law.
d. Listing: Following the Effective Date, the
Reorganized Company shall use reasonable efforts to have the New Common
Stock listed on a national exchange or listed for quotation on the
NASDAQ National Market System.
2. Reorganized Company Warrants.
The Reorganized Company Warrants shall have the following
attributes:
a. Authorization And Issuance: The charter of the
Reorganized Company shall authorize the issuance of 263,158 Reorganized
Company Warrants, which will be issued to holders of Allowed Class 9
Interests as contemplated by Section X.G. No additional Reorganized
Company Warrants shall be issued other than as directed by the Board of
Directors of the Reorganized Company after the Effective Date.
b. Strike Price: Each Reorganized Company Warrant
will represent the right to purchase one share of New Common Stock on a
fully diluted basis (meaning that the exercise of Reorganized Company
Warrants will cause a dilution of the then-outstanding New Common
Stock) at a price (the "Strike Price") determined as follows: (i)
during the period from the Effective Date through and including the
first anniversary of the Effective Date, the Strike Price shall be
$19.69 per share; (ii) during the period from the first anniversary of
the Effective Date through and including the second anniversary of the
Effective Date, the Strike Price shall be $20.69 per share; (iii)
during the period from the second anniversary of the Effective Date
through and including the third anniversary of the Effective Date, the
Strike Price shall be $21.74 per share; (iv) during the period from the
third anniversary of the Effective Date through and including the
fourth anniversary of the Effective Date, the Strike Price shall be
$22.84 per share; and (v) during the period from the fourth anniversary
of the Effective Date through and including the fifth anniversary of
the Effective Date, the Strike Price shall be $24.00 per share. If not
exercised by the fifth anniversary of the Effective Date, the
Reorganized Company Warrants automatically shall terminate and be of no
further force and effect, and all rights evidenced by the Reorganized
Company Warrants shall cease.
c. Call Option In The Event Of A Subject Transaction:
The Reorganized Company shall have the option to "call" the Reorganized
Company Warrants, pursuant to the terms and conditions set forth in
this Paragraph, upon the occurrence of one or more of the following
transactions (individually, a "Subject Transaction," and, collectively,
the "Subject Transactions"): (i) the sale of all, or substantially all,
of the Reorganized Company's assets; (ii) the sale of all, or
substantially all, of the then-outstanding common stock of the
Reorganized Company; (iii) a follow on public stock offering of common
stock of the Reorganized Company; and (iv) a merger of the Reorganized
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Company in which the Reorganized Company is not the surviving entity.
If a Subject Transaction occurs at a time when the
market price of the New Common Stock is below the then-applicable
Strike Price, the Reorganized Company Warrants may be called by the
Reorganized Company at a price of $0.20 per Reorganized Company
Warrant. If a Subject Transaction occurs at a time when the market
price of the New Common Stock is above the then-applicable Strike
Price, the Reorganized Company Warrants may be called by the
Reorganized Company at a price equal to the greater of (x) $0.20 per
Reorganized Company Warrant and (y) the "net" exercise value of each
such Reorganized Company Warrant (i.e., the difference between the
fully diluted market price of the New Common Stock and the Strike
Price), to be paid as follows: (aa) in cash, in the event of a sale of
all, or substantially all of the Reorganized Company's assets or stock
in an all cash transaction; (bb) in publicly-traded stock or other
securities in the event of a non-cash sale of the kind described in
subparagraph (aa) above, or in the event of a follow on public stock
offering or merger of the Reorganized Company into a new entity; or
(cc) in both stock and cash in applicable proportions, in a transaction
for cash and stock. The Warrant Agreement shall contain reasonable
provisions for the mechanism for valuing any such non-cash
consideration.
d. Forced Exercise In The Event Of Certain Trading In
Excess Of The Strike Price: After the New Common Stock has been listed
on a national securities exchange or listed for quotation on the NASDAQ
National Market System, if the New Common Stock trades at a price which
is twenty percent (20%) in excess of the then-applicable Strike Price
for a period of not less than twenty consecutive trading days, the
Reorganized Company may, upon the provision of reasonable notice to all
holders of Reorganized Company Warrants, require holders of the
Reorganized Company Warrants either to exercise their Reorganized
Company Warrants at the then-applicable Strike Price or forfeit any and
all rights thereunder.
e. Listing: Following the Effective Date, the
Reorganized Company shall use reasonable efforts to have the
Reorganized Company Warrants listed on a national exchange or listed
for quotation on the NASDAQ National Market System.
f. Form: The Reorganized Company Warrants shall be
issued in substantially the form of, and shall have such other terms
and conditions as set forth in, the warrant agreement to be attached as
Exhibit K (the "Warrant Agreement") and filed by the Exhibit Filing
Date. The Warrant Agreement shall contain, among other things,
anti-dilution provisions typically used in financing transactions.
C. Registration Rights.
Following the Effective Date, the Reorganized Company will
offer to enter into an agreement (the "Registration Rights Agreement"), in
substantially the form of the agreement to be attached as Exhibit L and filed by
the Exhibit Filing Date, with Eligible Holders.
The Reorganized Company will use reasonable commercial efforts
to cause to become effective within ninety days after the Effective Date a shelf
Registration Statement covering resales of New Common Stock owned by Eligible
Holders and to maintain such registration for one year. Under and subject to the
terms of the Registration Rights Agreement, during the period commencing on the
91st day after the Effective Date and ending on the first anniversary thereof,
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the Reorganized Company will be required, upon request of any Eligible Holder
that then owns at least ten percent (10%) of the outstanding shares of New
Common Stock or that certifies to the Reorganized Company that such Eligible
Holder may be deemed to be an "affiliate" of the Reorganized Company, to effect
the registration under the Securities Act of resales by such Eligible Holder of
New Common Stock; provided, however, that in no event will the Reorganized
Company be required to so register such New Common Stock (a) at any time prior
to the 91st day after the Effective Date, or (b) pursuant to a Registration
Statement other than a shelf Registration Statement at any time when a shelf
Registration Statement of the Reorganized Company covering New Common Stock is
effective under the Securities Act. No more than one such request for
registration of resales of New Common Stock may be made by any particular
Eligible Holder. Under the Registration Rights Agreement, Eligible Holders also
will be entitled to customary "piggyback" registration rights.
XIII.
THE REORGANIZED COMPANY
A. Management Of The Reorganized Company.
1. Directors Of The Reorganized Company.
As of the Effective Date, the Board of Directors of the
Reorganized Company will consist of the following seven members: (a) one member
to be appointed by the Bondholder Committee; (b) two members to be appointed by
DDJ Capital; (c) two members to be appointed by Mitchell Hutchins; (d) Randy N.
McCullough (subject to the execution of an employment agreement to be negotiated
between the Bondholder Committee and McCullough); and (e) E. Peter Healey
(subject to the execution of an employment agreement to be negotiated between
the Bondholder Committee and Healey). The Bondholder Committee shall select the
initial Chairperson of the Board of Directors.
The membership of the Board of Directors shall be subject to
an election at the annual meeting of the Reorganized Company in the year 2000.
The bylaws of the Reorganized Company shall provide for cumulative voting for
directors.
2. Officers Of The Reorganized Company.
The Officers of the Reorganized Company will serve at the
discretion of its Board of Directors. Pursuant to the Plan Agreement, Barry's,
the Bondholder Committee, the Creditors' Committee, the Equity Committee, and
the Bank Group agreed that the following individuals shall initially shall serve
as officers of the Reorganized Company; provided, however, that if employment
agreements for the following individuals have not been negotiated by and between
such individuals and the Bondholder Committee by five (5) days prior to the date
of the hearing on adequacy of the information in the Disclosure Statement, the
Bondholder Committee shall have the right to select other individuals to serve
as the Chief Executive Officer and the Chief Financial Officer of the
Reorganized Company upon terms and conditions acceptable to the Bondholder
Committee:
a. Randy N. McCullough, 45, Chief Executive Officer:
Mr. McCullough joined Barry's in April 1997 and was Barry's Senior Vice
President - Merchandising on the Petition Date. During the
Reorganization Case, the Board of Directors promoted Mr. McCullough to
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the position of Chief Operating Officer and then, upon Samuel
Merksamer's termination of employment, to Chief Executive Officer. Mr.
McCullough has over twenty-five years of experience in the retail
jewelry industry. Prior to joining Barry's, Mr. McCullough served as
President of Silverman's Factory Jewelers from 1991 through March 1997.
Prior to that time, Mr. McCullough also was a senior manager with a
leading national retail chain for over eighteen years. The compensation
arrangements that Mr. McCullough has negotiated with the Bondholder
Committee will be summarized in the Summary of Management Compensation.
b. E. Peter Healey, 44, Chief Financial Officer: Mr.
Healey joined Barry's in February 1997 and has served as Executive Vice
President and Chief Financial Officer during the course of the
Reorganization Case. Mr. Healey has over nineteen years of financial
management experience, primarily in the retail jewelry industry. Prior
to joining Barry's, Mr. Healey was the Vice President, Chief Financial
Officer, Secretary, and Treasurer of MS Financial, Inc., from 1994 to
1996. From 1985 to 1993, Mr. Healey was Vice President and Treasurer of
Zale Corporation, the nation's largest retail jeweler. Zale Corporation
previously operated as a debtor in possession in reorganization
proceedings under chapter 11 of the Code, and emerged from such
proceedings in 1993. Mr. Healey's background includes debt
restructuring as part of the chapter 11 reorganization process, cost
reductions and cash flow improvements, corporate re-engineering,
recapitalizations, initial public offerings, mergers and acquisitions,
divestitures, and systems installation and development. The
compensation arrangements that Mr. Healey has negotiated with the
Bondholder Committee will be summarized in the Summary of Management
Compensation.
Barry's also anticipates that, subject to the approval of the
Court pursuant to section 1129(a)(5) of the Code, the Board of Directors will
appoint the following persons to serve as additional Officers of the Reorganized
Company:
a. Bill R. Edgel, 32, Vice President - Marketing: Mr.
Edgel has been Barry's Vice President - Marketing since February 1997.
Prior to joining Barry's, 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. From 1993 to 1995, Mr. Edgel
served as Advertising Manager/Creative Director for Troutman's
Emporium, Inc., and from 1992 to 1993, Mr. Edgel served as
Partner/Creative Director of Vaki Advertising. Inc. The anticipated
compensation arrangements for Mr. Edgel will be summarized in the
Summary of Management Compensation.
b. Chad C. Haggar, 34, Vice President - Operations:
Mr. Haggar has been Barry's Vice President - Operations since February
1997. Prior to joining Barry's, 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. The
anticipated compensation arrangements for Mr. Haggar will be summarized
in the Summary of Management Compensation.
c. Paul W. Hart, 40, Vice President - Management
Information Systems: Mr. Hart has been Barry's Vice President -
Management Information Systems since August 1997. Prior to joining
Barry's, Mr. Hart served as Vice President - Management Information
Systems of MS Financial, Inc. From 1974 to 1995, Mr. Hart was employed
by Zale Corporation, serving as Director of Credit Systems from 1994 to
1995, and as its Manager of Business Systems Planning and Support from
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1988 to 1994. The anticipated compensation arrangements for Mr. Hart
will be summarized in the Summary of Management Compensation.
d. Robert J. Herman, 37, Vice President, Controller,
and Assistant Secretary: Mr. Herman has been Barry's Vice President,
Controller, and Assistant Secretary since February 1998. Prior to
joining Barry's, Mr. Herman served as the Controller for Datamark, Inc.
from 1997 to February 1998. From 1994 to 1997, Mr. Herman served as the
Controller for Silverman's Factory Jewelers. From 1987 to 1994, Mr.
Herman was employed by Sunbelt Nursery Group, Inc., serving as its
Controller from 1991 to 1994. The anticipated compensation arrangements
for Mr. Herman will be summarized in the Summary of Management
Compensation.
B. New Certificate Of Incorporation And Bylaws.
A copy of the proposed form of Certificate of Incorporation
and Bylaws of the Reorganized Company will be attached as Exhibits N and O,
respectively, and filed by the Exhibit Filing Date.
Among other things, the Certificate of Incorporation and the
Bylaws of the Reorganized Company shall (a) prohibit the issuance of nonvoting
equity securities as required by section 1123(a)(6) of the Code, subject to
amendment of such Certificate of Incorporation and Bylaws as permitted by
applicable law, and (b) effectuate the provisions of the Plan, in each case
without any further action by the shareholders or directors of Barry's or the
Reorganized Company. The Certificate of Incorporation also shall contain the
following additional provisions:
a. Stockholder Action by Written Consent; Special
Meetings. Action may not be taken by stockholders by written consent in
lieu of a meeting. Special meetings of stockholders may be called only
by the Chairman of the Board, the President, or a majority of the Board
of Directors of the Reorganized Company.
b. Preferred Stock. The Board of Directors of the
Reorganized Company is authorized, without action by the stockholders,
to issue up to 20,000,000 shares of preferred stock, par value $0.001
per share, in one or more series, to establish the number of shares to
be included in each such series, and to fix the designation, voting
powers, preferences and relative, participating, optional and other
rights, of the shares of each such series, and the qualifications,
limitations and restrictions thereof. Such qualifications, limitations
and restrictions may include, among others, voting rights, conversion
and exchange privileges, dividend rates, redemption rights, sinking
fund provisions and liquidation rights that could be superior and prior
to New Common Stock.
The issuance of one or more series of preferred
stock, under certain circumstances, could adversely affect the voting
power of the holders of New Common Stock and could have the effect of
discouraging or making more difficult any attempt by a person or group
to effect a change in control of the Reorganized Company.
C. Change Of Name And State of Incorporation.
Barry's is incorporated under the name "Barry's Jewelers,
Inc." in the State of California. On or prior to the Effective Date, Barry's
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shall cause "Samuels Jewelers, Inc." ("Samuels") to be incorporated in the State
of Delaware for the sole purpose of changing the state of incorporation and name
of Barry's.
To effect the reincorporation from California to Delaware and
the name change, Barry's and Samuels will enter into an agreement and Plan of
Merger, which will provide for the merger, on the Effective Date, of Barry's
with and into Samuels (with Samuels being the surviving entity). Upon such
merger, Samuels will be the successor to Barry's.
D. Future Financial Outlook Of The Reorganized Company.
Barry's believes that its economic health has improved and
will continue to improve from its pre-bankruptcy state for a number of reasons.
Perhaps most importantly, Barry's now has access to and offers for sale
significantly greater levels of high-quality merchandise than it did prior to
the Petition Date. See Section VII.E.9. Moreover, as a result of its rejection
or restructuring of leases for numerous underperforming stores, Barry's now has
a vastly-improved core of leases for its stores. Barry's also has tightened its
credit-granting standards considerably, thereby improving the collectability of
its accounts receivable, and has implemented better collection procedures for
those accounts.
Barry's anticipates that its current efforts to unify the
names of all of its stores will result in greater consumer name recognition and
increased sales. Similarly, Barry's anticipates that its ongoing investment in
administrative technology will increase efficiency and reduce its overhead and
administrative expenses, thereby further increasing profits in the coming years.
See Section VII.E.12. Barry's rejection of its headquarters lease and move to
more affordable space also will reduce overhead and result in more efficient
operations. See Section VII.E.13.
Finally, as a result of confirmation of the Plan and, in
particular, the discharge of more than $100 million in Claims and the infusion
of $15 million of new capital by Participating Bondholders, the Reorganized
Company will have a substantially improved balance sheet and greater access to
financing and credit at reduced cost.
See Section XV.A for a description of the projections for the
Reorganized Company and of the assumptions that underlie those projections.
XIV.
EFFECT OF CONFIRMATION OF PLAN
A. Discharge And Injunction.
The rights afforded in the Plan and the treatment of all
Claims and Interests herein shall be in exchange for and in complete
satisfaction, discharge, and release of all Claims and Interests of any nature
whatsoever, including any interest accrued on such Claims from and after the
Petition Date, against Barry's, the Reorganized Company, the Estate, or any of
their property. Except as otherwise provided in the Plan or the Confirmation
Order: (a) on the Effective Date, Barry's, the Reorganized Company, the Estate,
and their property shall be deemed discharged and released to the fullest extent
permitted by section 1141 of the Code from all Claims and Interests, including,
but not limited to, demands, liabilities, Claims, and Interests that arose
before the Confirmation Date and all debts of the kind specified in sections
502(g), 502(h), or 502(i) of the Code, regardless of whether or not (i) a proof
of Claim or proof of Interest based on such debt or Interest is filed or deemed
filed, (ii) a Claim or Interest based on such debt or Interest is allowed
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pursuant to section 502 of the Code, or (iii) the holder of a Claim or Interest
based on such debt or Interest has or has not accepted the Plan; and (b) all
Persons shall be precluded from asserting against Barry's, the Reorganized
Company, the Estate, and their property any other or further Claims or Interests
based upon any act or omission, transaction, or other activity of any kind or
nature that occurred prior to the Confirmation Date.
Except as otherwise provided in the Plan or the Confirmation
Order, the Confirmation Order shall act as a discharge of any and all Claims
against and all debts and liabilities of Barry's, as provided in sections 524
and 1141 of the Code, and such discharge shall void any judgment against Barry's
obtained at any time to the extent that it relates to a Claim discharged.
Except as otherwise provided in the Plan or the Confirmation
Order, on and after the Effective Date, all Persons who have held, currently
hold, or may hold a debt, Claim, or Interest discharged pursuant to the terms of
the Plan are permanently enjoined from taking any of the following actions on
account of any such discharged debt, Claim, or Interest: (a) commencing or
continuing in any manner any action or other proceeding against Barry's, the
Reorganized Company, the Estate, or their property; (b) enforcing, attaching,
collecting, or recovering in any manner any judgment, award, decree, or order
against Barry's, the Reorganized Company, the Estate, or their property; (c)
creating, perfecting, or enforcing any lien or encumbrance against Barry's, the
Reorganized Company, the Estate, or their property; (d) asserting any setoff,
right of subrogation, or recoupment of any kind against any obligation due to
Barry's, the Reorganized Company, the Estate, or their property; and (e)
commencing or continuing any action, in any manner, in any place that does not
comply with or is inconsistent with the provisions of the Plan or the
Confirmation Order. Any Person injured by any willful violation of such
injunction shall recover actual damages, including costs and attorneys' fees,
and, in appropriate circumstances, may recover punitive damages, from the
willful violator.
Barry's does not believe that any "retiree benefits," as such
term is used in sections 1114 and 1129(a)(13) of the Code, exist in the
Reorganization Case. Accordingly, the Plan does not provide for the continuation
of any such benefits, and all applicable Claims and Interests will be subject to
the above-noted discharge and injunction.
B. Modification Of The Plan.
Subject to the restrictions set forth in section 1127 of the
Code, Barry's reserves the right to alter, amend, or modify the Plan before its
substantial consummation.
XV.
FINANCIAL RECORDS TO ASSIST IN DETERMINING
WHETHER PROPOSED PAYMENTS ARE FEASIBLE,
WITH ACCOMPANYING EXPLANATIONS AND RISK FACTORS
A. Financial Projections.
The Court will not confirm the Plan unless it determines that
the Plan is "feasible," which means that confirmation of the Plan is not likely
to be followed by the liquidation or the need for further financial
reorganization of the Reorganized Company. Thus, the Court must determine that
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there is a reasonable likelihood that the Reorganized Company will possess the
working capital and other resources necessary to operate profitably and to
satisfy its obligations under the Plan.
Exhibit D provides financial projections for Barry's and the
Reorganized Company containing projected balance sheets, cash flow statements,
and income and expense statements (collectively, the "Projections"). The
Projections project financial information on an annual basis for fiscal years
1998 through 2003.
The Projections have been prepared by or under the direction
of Barry's. To the best of Barry's knowledge, the Projections present the
expected financial results for the periods projected, subject to the various
assumptions set forth therein. Readers are urged to review carefully all of the
notes and assumptions included in the Projections and to consult with their own
financial and legal advisors regarding the same.
THE PROJECTIONS ARE BASED UPON A VARIETY OF ESTIMATES AND
ASSUMPTIONS, WHICH THOUGH CONSIDERED REASONABLE AT THE TIME THEY WERE PREPARED,
MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS,
ECONOMIC, AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE
BEYOND BARRY'S CONTROL. BARRY'S CAUTIONS THAT NO REPRESENTATIONS CAN BE MADE AS
TO THE ACCURACY OF THE PROJECTIONS OR THE REORGANIZED COMPANY'S ABILITY TO
ACHIEVE THE PROJECTED OR ILLUSTRATED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL
NOT MATERIALIZE, AND EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE
ON WHICH THE PROJECTIONS WERE PREPARED, OR WHICH WERE NOT THEN KNOWN TO BARRY'S,
MAY DIFFER MATERIALLY FROM THOSE ASSUMED. THE PROJECTIONS THEREFORE MAY NOT BE
RELIED UPON AS A GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL
OCCUR.
CERTAIN INFORMATION INCLUDED IN THE PROJECTIONS CONTAINS
FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE SECURITIES ACT AND THE
EXCHANGE ACT. SUCH FORWARD LOOKING STATEMENTS ARE BASED UPON INFORMATION
AVAILABLE WHEN THE STATEMENTS WERE MADE AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN THE STATEMENTS.
Barry's does not, as a matter of course, publish its business
plans and strategies or projections of its anticipated financial position or
results of operations. Accordingly, Barry's does not intend to, and disclaims
any obligation to, furnish updated business plans or projections at any time
prior to or after the Effective Date.
B. Resale Of Securities And Certain Securities Law Matters.
1. Generally; Pending Request For No-Action Letter.
The Plan provides for (a) the issuance of Bondholder New
Common Stock to holders of Allowed Class 2 and 5 Claims; (b) the offer for sale
of Additional New Common Stock to such holders (the "Bondholder Contribution
Election Procedure"); (c) the sale to DDJ Capital and Mitchell Hutchins of a
ratable share of the Additional New Common Stock that is not purchased by
Participating Bondholders; (d) the issuance of Reorganized Company Warrants to
holders of Allowed Class 9 Interests; and (e) the merger of Barry's into Samuels
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for the purpose of changing the Reorganized Company's state of incorporation
from California to Delaware (the "Reincorporation Merger").
The New Common Stock, Reorganized Company Warrants, and other
rights under the Plan will be issued without registration under the Securities
Act or under any state or local law in reliance on the exemptions set forth in
section 1145 of the Code and section 4(2) of the Securities Act.
Specifically, Barry's believes that:
1. Upon the effectiveness of the Reincorporation Merger, the
Reorganized Company will constitute a successor to Barry's within the meaning of
section 1145(a)(1) of the Code;
2. No registration under the Securities Act or any state
securities law is required in connection with the issuance by Barry's of (a) the
"purchase rights" (the "Purchase Rights") inherent in the Bondholder
Contribution Election Procedure (to the extent that such Purchase Rights
constitute a separate security under the Securities Act and state securities
laws), or (b) following the effectiveness of the Reincorporation Merger, the
issuance by the Reorganized Company of Additional New Common Stock to
Participating Bondholders (the "Bondholder Contribution New Common Stock") and
to DDJ Capital and Mitchell Hutchins (the "DDJ Capital/Mitchell Hutchins
Contribution Obligation New Common Stock"), and of Bondholder New Common Stock,
in reliance on (i) with respect to the Purchase Rights, section 1145(a)(1)(B) of
the Code; (ii) with respect to the Bondholder Contribution New Common Stock and
the DDJ Capital/Mitchell Hutchins Contribution Obligation New Common Stock,
sections 1145(a)(1)(B) and 1145(a)(2) of the Code; and (iii) with respect to the
Bondholder New Common Stock, section 1145(a)(1)(B) of the Code (the Purchase
Rights, the Bondholder Contribution New Common Stock, the DDJ Capital/Mitchell
Hutchins Contribution Obligation New Common Stock, the Bondholder New Common
Stock, and the Reorganized Company Warrants are collectively referred to in this
Section as the "Securities");
3. If the issuance to DDJ Capital and Mitchell Hutchins of the
Bondholder Contribution New Common Stock and the DDJ Capital/Mitchell Hutchins
Contribution Obligation New Common Stock were to be characterized as a separate
transaction, that such separate transaction would be entitled to exemption from
registration under section 4(2) of the Securities Act and should not be
integrated with the issuance of any of the Securities to Bondholders other than
DDJ Capital and Mitchell Hutchins; and
4. The Reorganized Company Warrants are exempt from
registration under the Securities Act pursuant to section 1145(a)(1)(A) of the
Code, and that the New Common Stock issuable upon exercise of the Reorganized
Company Warrants will be exempt from registration under the Securities Act
pursuant to section 1145(a)(2) of the Code.
Barry's intends to submit a no-action request to the SEC with
respect to the matters set forth in paragraphs (1), (2) and (3) above, and one
of the conditions to confirmation of the Plan is the issuance of the No-Action
Letter. No assurances can be given, however, that the SEC ultimately will honor
Barry's request for the No-Action Letter.
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2. Bankruptcy Code And Securities Act Exemptions From Registration Requirements.
a. Initial Offer And Sale of Securities.
Section 1145(a)(1) of the Code exempts the offer and sale of
securities under a plan of reorganization from registration under the Securities
Act and state and local securities laws if three principal requirements are
satisfied: (i) the securities are offered and sold under a plan of
reorganization and are securities of the debtor, of an affiliate of the debtor
participating in a joint plan with the debtor, or of a successor to the debtor
under the plan; (ii) the recipients of the securities hold a prepetition or
administrative claim against the debtor or an interest in the debtor; and (iii)
the securities are issued entirely in exchange for the recipient's claim against
or interest in the debtor, or principally in such exchange and partly for cash
or property.
Section 1145(a)(2) of the Code exempts from registration under
the Securities Act (a) the offer of a security through any warrant, option,
right to subscribe or conversion privilege that was sold in the manner specified
in section 1145(a)(1), and (b) the sale of a security upon the exercise of any
such warrant, option, right or privilege.
Section 4(2) of the Securities Act exempts from registration
under the Securities Act the offer and sale of securities issued in transactions
by an issuer not involving any public offering.
As described above, Barry's believes that the offer and sale
of the Securities under the Plan satisfies the requirements of section
1145(a)(1)(A), section 1145(a)(1)(B), section 1145(a)(2), and section 4(2), in
each case as set forth above, and that each such offer and sale is exempt from
registration under the Securities Act and state securities laws.
b. Subsequent Transfers Of Securities.
Assuming exemption from initial registration as set forth in
Section XV.B.2.a, in general, all resale and subsequent transactions in the New
Common Stock (including the New Common Stock issued upon exercise of the
Reorganized Company Warrants) and the Reorganized Company Warrants distributed
under the Plan will be exempt from registration under section 4(1) of the
Securities Act unless the holder thereof is deemed to be an "underwriter" with
respect to such Securities, an "affiliate," or a "dealer."
Section 1145(b) defines four types of underwriters: (a) a
Person who purchases a claim against, interest in, or claim for an
administrative expense in the case with a view to distributing any security
received in exchange for that claim or interest; (b) a Person who offers to sell
securities offered or sold under a plan for the holders of those securities; (c)
a Person who offers to buy securities offered or sold under a plan from the
holders of those securities if the offer is (i) made with a view to distribution
of the securities, and (ii) made under an agreement made in connection with the
plan, the consummation of the plan, or the offer or sale of securities under the
plan; and (d) a Person who is an "issuer" with respect to the securities, as
defined in section 2(11) of the Securities Act.
Under section 2(11) of the Securities Act, an "issuer" may
include any Person directly or indirectly controlling or controlled by Barry's,
or any Person under direct or indirect common control with Barry's (an
"affiliate"). Whether a Person is such an affiliate, and therefore an
"underwriter" with respect to Barry's for purposes of section 1145(b) of the
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Code will depend on a number of factors. Such factors include: (a) the Person's
equity interest in Barry's; (b) the distribution and concentration of other
equity interests in Barry's; (c) whether the Person is an officer or director of
Barry's; (d) whether the Person, either alone or acting in concert with others,
has a contractual or other relationship giving that Person power over management
policies and decisions of Barry's; and (e) whether the Person actually has that
power notwithstanding the absence of formal indicia of control. Among other
things, it is possible that an officer or director of Barry's or the holder of
ten percent or more of the outstanding stock of Barry's may be deemed an
affiliate.
Under section 2(12) of the Securities Act, a "dealer" is any
Person who engages either for all or part of his or her time, directly or
indirectly, as agent, broker or principal, in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person.
To the extent that a Person deemed to be an "underwriter"
receives Securities, resales by that Person may not be exempted by section 1145
of the Code from registration under the Securities Act except in "ordinary
trading transactions" (within the meaning of section 1145(b)(1) of the Code).
The Code does not define the term "ordinary trading transactions," and the SEC
has not given definitive guidance with respect to the proper construction of the
term. Barry's is informed and believes, however, that in no-action letters the
staff of the SEC has concurred in the view that a transaction will be an
"ordinary trading transaction" if it is carried out on an exchange or in the
over-the-counter market at a time when the issuer of the traded securities is a
reporting company under the Exchange Act and does not involve any of the
following factors:
(a) (i) Concerted action by two or more recipients of
securities issued under a plan of reorganization in connection with the
sale of those securities, or (ii) concerted action by distributors on
behalf of one or more such recipients in connection with sales;
(b) The preparation or use of informational documents
concerning the offering of plan securities to assist in the resale of
the plan securities, other than the disclosure statement approved in
connection with the plan and documents filed with the SEC by the debtor
or the reorganized company pursuant to the Exchange Act; or
(c) Special compensation to brokers or dealers in
connection with the sale of the securities designed as a special
incentive to resell the securities, other than compensation that would
be paid pursuant to arms-length negotiations between a seller and a
broker or dealer, each acting unilaterally, that is not greater than
the compensation that would be paid for a routine, similar-sized sale
of similar securities of a similar issuer.
The views of the SEC on the matter, however, have not been sought by Barry's
and, therefore, no assurance can be given regarding the proper application of
the "ordinary trading transaction" exemption described above. Any person
intending to rely on such exemption is urged to consult his or her own counsel
as to the applicability thereof to his or her circumstances.
In addition, a Person deemed to be an "underwriter" solely
because he/she/it is an affiliate may be able to sell securities without
registration, in accordance with Rule 144 issued under the Securities Act, which
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permits public sales of securities received pursuant to a plan by statutory
underwriters subject to volume limitations and certain other conditions.
Specifically, Rule 144 allows a holder of unrestricted securities that is an
affiliate of the issuer of such securities to sell, without registration, within
any three-month period a number of shares of such unrestricted securities that
does not exceed the greater of one percent (1%) of the number of outstanding
securities in question or the average weekly trading volume in the securities in
question during the four calendar weeks preceding the date on which notice of
such sale was filed pursuant to Rule 144, subsequent to the satisfaction of
certain other requirements of Rule 144 regarding the manner of sale, notice
requirements and the availability of current public information regarding the
issuer.
Barry's believes that, pursuant to section 1145(c) of the
Code, the New Common Stock and Reorganized Company Warrants will be unrestricted
securities for purposes of Rule 144. Barry's also is informed and believes that
the SEC has expressed its view in no-action letters that a Person deemed to be
an underwriter solely because he is an affiliate may be able to sell securities
without registration in accordance with Rule 144 without complying with the
holding period requirement of Rule 144(d).
Because of the complex, subjective nature of the question of
whether a particular holder may be an underwriter, Barry's makes no
representation concerning the ability of any Person to dispose of the
Securities. Barry's recommends that recipients of Securities under the Plan
consult with their own counsel concerning the limitations on their ability to
dispose of the Securities under federal and state securities law.
State securities laws also generally provide registration
exemptions for subsequent transfers by a bona-fide owner for his or her own
account and subsequent transfers to institutional or accredited investors. Such
exemptions are generally expected to be available for subsequent transfers of
New Common Stock and Reorganized Company Warrants.
c. Certain Transactions By Stockbrokers.
Under Section 1145(a)(4) of the Code, stockbrokers effecting
transactions in the New Common Stock or Reorganized Company Warrants prior to
the expiration of forty days after the Effective Date are required to deliver to
the purchaser of such securities a copy of this Plan and Disclosure Statement
(and supplements hereto, if any, if ordered by the Court) at or before the time
of delivery of such securities to such purchaser. In connection with prior cases
under the Code, the staff of the SEC has taken "no-action" positions with
respect to noncompliance by stockbrokers with such requirement in circumstances
in which the debtor was, and the reorganized debtor was to continue to be,
subject to and in compliance with the periodic reporting requirements of the
Exchange Act. The views of the SEC on the matter, however, have not been sought
by Barry's and, therefore, no assurance can be given regarding the possible
consequences of noncompliance by stockbrokers with the disclosure statement
delivery requirements of section 1145(a)(4). Stockbrokers are urged to consult
their own counsel with respect to such requirements.
3. Valuation Considerations.
If the Plan is confirmed, ownership of a substantial number of
shares of the New Common Stock will likely be concentrated in a relatively small
number of holders. Sales of or offers to sell a substantial number of shares of
the New Common Stock, or the perception by investors, investment professionals,
and securities analysts of the possibility of such sales, could affect adversely
the market for and price of such securities.
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As noted in Section XII.B, Barry's and/or the Reorganized
Company will attempt to have the New Common Stock and Reorganized Company
Warrants listed on a national exchange. There can be no assurance, however, that
such a listing can be obtained in the foreseeable future, if ever, or that a
significant public or private market for the securities will develop. In the
event that such a market does develop, it is possible that the market will be
unstable for the foreseeable future as creditors and shareholders who have not
previously been able to liquidate their positions attempt to do so. Such
instability could affect negatively the value of the securities.
4. Reservation Of Rights.
The foregoing discussion is for disclosure purposes only, and
nothing set forth herein shall be deemed to be an admission by Barry's or any
other party as to, among other things, whether any particular entity is an
"underwriter" or "issuer."
C. Additional Risk Factors.
In addition to the foregoing, the ability of the Reorganized
Company to perform its obligations under the Plan is subject to a variety of
other factors and contingencies, some of which are described in this Section.
The following discussion, however, is not intended to be inclusive and should be
read in connection with the other disclosures contained in this Plan and
Disclosure Statement and the Exhibits. Creditors and shareholders should consult
their legal and financial advisors regarding the risks associated with the Plan
and any distributions that they may receive under the Plan.
1. Risks Associated With The Reorganized Company's Future Operations.
Merchandise Supply: The world supply and price of diamonds are
influenced considerably by the Central Selling Organization, which is the
marketing subsidiary of DeBeers Consolidated Mines, Ltd., a South African
Company. Through the Central Selling Organization, DeBeers has supplied
approximately eighty percent of the world demand for rough diamonds, by selling
to gem cutters and polishers at controlled prices, over the past several years.
The continued availability of diamonds to Barry's suppliers therefore is
dependent, to some degree, upon the political and economic situation in South
Africa. Although several other countries, including Australia, the Commonwealth
of Independent States, Zaire, Angola, Tanzania, and Sierra Leone, also are
suppliers of diamonds, Barry's 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 Central Selling Organization, or DeBeers.
Barry's also is subject to other supply risks, including
fluctuations in the price of precious gems and metals. Barry's presently does
not engage in any hedging activity with respect to possible fluctuations in the
price of such items. As a result, if such fluctuations should be unusually large
or rapid and result in prolonged higher or lower prices, Barry's can provide no
assurance that the necessary retail price adjustments will be made quickly
enough to prevent Barry's business from adverse effects.
Finally, as part of Barry's business restructuring, management
has sought to increase the level of consigned merchandise offered for sale in
its stores. See Section VII.E.9. Barry's does not believe that its consignment
agreements and arrangements with vendors will be subject to substantial adverse
change after the Effective Date. However, Barry's can give no assurances that
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the Reorganized Company will be able to continue to obtain substantial amounts
of merchandise on currently-existing terms.
Seasonality: Barry's level of success is heavily dependent
each year upon the success of its Christmas/Hanukkah selling season, which in
turn depends on many factors beyond Barry's control, including the general
business environment and competition in the industry. Barry's sales during the
Christmas/Hanukkah season generally account for approximately twenty-five
percent of its net sales and all or nearly all of its annual earnings.
As a result of the seasonal nature of Barry's sales, a
downturn of sales during the Christmas/Hanukkah season could have a
disproportionately large impact on Barry's performance.
Competition: The retail jewelry industry is highly
competitive. It is estimated that approximately 35,000 retail jewelry stores
exist in the United States, most of which stores are independently operated and
are not part of a major retail chain. Moreover, numerous companies, including
publicly- and privately-held independent stores and small chains, department
stores, catalog showrooms, direct-mail suppliers, and television shopping
networks, provide competition on a regional and national basis. The malls and
shopping centers where many of Barry'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 of such
malls. Some of Barry's competitors are substantially larger than Barry's and
have greater financial resources.
Barry's 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. Barry's believes that it previously was unable to
compete successfully as a result of, among other things, failed merchandising
programs, poor credit underwriting practices, cash flow constraints, excessive
collection costs, poor inventory controls, below-average percentage of
consignment inventory, executive turnover, restrictive financing arrangements,
insufficient investment in technology, and the resultant excessive
administrative costs. Barry's also 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.
Barry's has attempted and is attempting to address each of
these issues. See Section VII.E. However, because the competitive environment
often is affected by factors beyond the control of any particular retailer (such
as shifts in consumer preferences, economic conditions, population, and traffic
patterns), Barry's can provide no assurances that its ongoing business
operations, including the steps undertaken in reorganization of the business,
ultimately will be successful or that future losses will not result.
Year 2000 Compliance: Many existing computer systems and
applications, and other control devices, use only two digits to identify a year
in the date field, without considering the impact of the upcoming change in the
century. As a result, such systems and applications could fail or create
erroneous results unless corrected so that they can process data related to the
year 2000 and beyond.
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Barry's relies on its systems, applications and devices in
operating and monitoring all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll modules), customer
services, infrastructure, embedded computer chips, networks, telecommunications
equipment and end products. Barry's therefore is in the process of obtaining and
implementing a new integrated management information system that includes a
system processor and operating system, applications software, point of sale
hardware and additional microcomputers. See Section VII.E.12. The year 2000
issue was addressed during the planning process and all new system technology is
expected to be year 2000 compliant. However, Barry's has no current intention to
replace its current customer accounts receivable system, which is not year 2000
compliant. Barry's is planning to outsource the billing and collection functions
of its customer accounts receivables and is confident that remaining needs will
be addressed before the end of 1999.
As a result, Barry's believes that the year 2000 issue will
not pose significant operational problems or result in unplanned costs that
would have a material adverse impact on its financial condition or results of
operations. However, Barry's also relies, directly and indirectly, on external
systems of business enterprises such as customers, suppliers, creditors, and
financial organizations, and of governmental entities, for accurate exchange of
data. Thus, even if Barry's internal systems are not materially affected by the
year 2000 issue, Barry's possibly could be affected through disruptions in the
operations of the enterprises with which Barry's interacts.
Therefore, despite Barry's efforts to address the year 2000
impact on its internal systems and business operations, there can be no
assurance that such impact will not result in a material disruption of its
business or have a material adverse effect on its business, financial condition,
or results of operations.
2. Risks Associated With New Management.
The Plan contemplates that the Reorganized Company will alter
the composition of its management team and Board of Directors. See Section
XIII.A. While members of current management will continue to play a material
role in the management of the Reorganized Company, it is possible that positions
ultimately will be filled by persons who are not currently employed by Barry's.
The new directors and management of the Reorganized Company may propose changes
in the business and operations of the Reorganized Company that could alter
materially the assumptions underlying the Projections.
XVI.
ASSETS AND LIABILITIES OF THE ESTATE
A. Assets.
The identity and estimated liquidation value of the Estate's
assets are listed on Exhibit E, which will assist the reader in assessing the
assets that, at least theoretically, are available to satisfy Claims and
Interests and to evaluate the overall worth of the Estate.
B. Liabilities.
The estimated amount of the Estate's liabilities are
identified in Exhibit E. The treatment of Claims and Interests is set forth in
detail in Section X.
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C. Reorganization Value.
In connection with confirmation of the Plan, the Court may be
requested to determine the "reorganization value" of the Reorganized Company on
the Effective Date. The reorganization value of an enterprise often is utilized
for the purpose of evaluating the consideration that creditors and shareholders
will receive under a plan of reorganization. Reorganization value has been
defined as follows:
Reorganization value is a forecast of future earnings
converted to present value by a capitalization or discount
rate. This capitalization or discount rate reflects the
expected annual rate of return on an investment and the choice
of this rate is a question of judgment which must be
reasonably related to the rates of return generally expected
by investors from comparable investment opportunities.
In re Equity Funding Corp., 391 F. Supp. 768, 772 (C.D. Cal. 1975).
Exhibit F sets forth a determination of the reorganization
value of the Reorganized Company. Based on the methodology set forth in that
Exhibit, the reorganization value of the Reorganized Company, as of the
Effective Date (assuming effectiveness of the Plan Financing and the
contribution of $15 million by Participating Bondholders for Additional New
Common Stock), is in the range of $72 million to $93 million.
The reorganization value of a debtor does not necessarily
correspond to the anticipated market or trading value of the debtor's securities
upon plan effectiveness. Nevertheless, Barry's believes that a determination of
reorganization value is the proper means of valuing the Reorganized Company for
purposes of confirmation, to the extent that such a valuation is necessary.
XVII.
EXPLANATION OF TREATMENT OF NONCONSENTING CLASSES
Section 1129(b) of the Code provides for confirmation (or
"cramdown") of a plan even if the plan is not accepted by all impaired classes.
Under the "cramdown" provisions, if a class votes to reject a
plan, the court nevertheless may confirm the plan if it does not unfairly
discriminate against the dissenting class and is "fair and equitable" to that
class. A plan is "fair and equitable" to a dissenting class of secured claims if
(a) each holder of a claim within the class retains the lien securing its claim
and receives cash payments totaling at least the allowed amount of its claim, of
a value, as of the effective date of the plan, of at least the value of the
holder's interest in the estate's interest in such property, (b) the property is
sold with the holder's lien attaching to the proceeds from the sale, or (c) the
holder realizes "the indubitable equivalent" of its claim. A plan is "fair and
equitable" to a dissenting class of unsecured claims if (i) each holder of a
claim included in the dissenting class receives or retains on account of that
claim property that has a value, as of the plan's effective date, equal to the
allowed amount of that claim or (ii) the holder of any claim or interest that is
junior to the claims within the dissenting class will not receive or retain any
property on account of that junior claim or interest. Finally, a plan is "fair
and equitable" to a dissenting class of equity interests if (x) each holder of
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an interest included in the dissenting class receives or retains on account of
that interest property that has a value, as of the plan's effective date, equal
to the greatest of the allowed amount of any fixed liquidation preference to
which that holder is entitled, any fixed redemption price to which that holder
is entitled, or the value of that interest, or (y) the holder of any interest
that is junior to that holder's interest does not receive any property at all on
account of that junior interest.
XVIII.
EXPLANATION TREATMENT OF NONCONSENTING MEMBERS
OF CONSENTING CLASS (CHAPTER 7 LIQUIDATION ANALYSIS)
Section 1129(a)(7) of the Code requires that each holder of a
claim or interest in an impaired class either (a) vote to accept the plan, or
(b) receive or retain under the plan cash or property of a value, as of the
effective date of the plan, that is not less than the value such holder would
receive or retain if the debtor were liquidated under chapter 7 of the Code.
In a chapter 7 case, a trustee or trustees would be elected or
appointed to liquidate Barry's assets for distribution to creditors in
accordance with the priorities set forth in the Code. Secured creditors
generally are paid first from the proceeds of sale of the properties securing
their liens. If any assets are remaining after the satisfaction of secured
claims, administrative expenses generally are next to receive payment. Unsecured
claims are paid from any remaining sales proceeds, according to their rights to
priority. Unsecured claims with the same priority share in proportion to the
amount of their allowed claim in relationship to the amount of total allowed
unsecured claims. Finally, interest holders receive the balance that remains, if
any, after all creditors are paid.
Thus, for the Court to be able to confirm the Plan, the Court
must find that all creditors and shareholders who do not accept the Plan will
receive at least as much under the Plan as such holders would receive under a
hypothetical chapter 7 liquidation. Barry's believes that the Plan satisfies
this requirement.
Specifically, the liquidation analysis included in Exhibit E
projects that general unsecured creditors and existing shareholders would
receive no distribution in the event that Barry's were to be liquidated under
chapter 7 of the Code. In contrast, under the Plan general unsecured creditors
(other than Bondholders) will receive a distribution of fifteen percent of the
allowed amount of their Claims or an aggregate of $2,550,000 to be distributed
on a Pro Rata basis, and existing shareholders will retain some value in the
form of Reorganized Company Warrants. Similarly, the liquidation analysis
projects that, in a mid-range liquidation scenario, Bondholders would receive
only an aggregate payment of approximately $2,000,000. In contrast, under the
Plan Bondholders will receive significant consideration in the form of
Bondholder New Common Stock, valued significantly in excess of that amount, and
the right to purchase a ratable share of Additional New Common Stock. Thus, it
is clear that all creditors will receive at least as favorable treatment under
the Plan as they would in a hypothetical chapter 7 liquidation and that, in
fact, creditors and shareholders will receive far better treatment under the
Plan than in a chapter 7 liquidation.
Barry's has estimated the liquidation value of its assets
based upon the most accurate information which currently is available. Because
that estimate is a prediction of what could be obtained in the future if such
assets actually were liquidated, there is no way to guarantee that the estimate
is entirely accurate. It is probable that the actual liquidation of the assets
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would generate either more or less than the estimated value set forth above and
in Exhibit E. Although the liquidation analysis illustrates the consequences of
a liquidation commencing or occurring on or about April 30, 1998, Barry's
believes that the analysis of the consequences of such liquidation would be
substantially the same if the Effective Date were used as the date for the
commencement or occurrence of the liquidation.
XIX.
TAX CONSEQUENCES OF PLAN
A. Introduction.
Implementation of the Plan may have federal, state, and local
tax consequences to Barry's and to the creditors and shareholders of Barry's. No
tax opinion has been sought or will be obtained with respect to any tax
consequences of the Plan, and the following disclosure (the "Tax Disclosure")
does not constitute and is not intended to constitute either a tax opinion or
tax advice to any Person. Rather, the Tax Disclosure is provided for
informational purposes only.
Moreover, the Tax Disclosure summarizes only certain of the
federal income tax consequences associated with the Plan's implementation, and
does not attempt to comment on all such aspects. Similarly, the Tax Disclosure
does not attempt to consider any facts or limitations applicable to any
particular creditor or shareholder which may modify or alter the consequences
described below. The Tax Disclosure also does not address state, local, or
foreign tax consequences or the consequences of any federal tax other than the
federal income tax.
The Tax Disclosure is based upon the provisions of the
Internal Revenue Code of 1986, as amended, the regulations promulgated
thereunder, existing judicial decisions, and administrative rulings. In light of
the numerous recent amendments to the Internal Revenue Code, no assurance can be
given that legislative, judicial, or administrative changes will not be
forthcoming that would affect the accuracy of the discussion below. Any such
changes could be material and could be retroactive with respect to the
transactions entered into or completed prior to the enactment or promulgation
thereof. Finally, the tax consequences of certain aspects of the Plan are
uncertain due to a lack of applicable legal authority and may be subject to
judicial or administrative interpretations that differ from the discussion
below.
Tax legislation has been introduced into Congress which, if
enacted, would fundamentally alter the basic scheme of federal taxation by
replacing the federal income tax with a national retail sales tax or a form of
value added tax. Other proposed tax legislation would transform the current
graduated-rate federal income tax into an income-based flat tax. Although
fundamental tax reform of the type described above is unlikely to be enacted in
1998, it may be enacted in 1999 or subsequent years. Insofar as the discussion
below addresses income tax consequences in 1998 and/or subsequent years, such
discussion may be completely invalidated if fundamental tax reform is enacted.
Creditors and shareholders therefore are advised to consult
with their own tax advisors regarding the tax consequences to them and to
Barry's of the transactions contemplated by the Plan, including federal, state,
local, and foreign tax consequences.
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B. Federal Income Tax Consequences To Barry's.
1. Tax Reorganization.
Section 368 of the Internal Revenue Code defines certain tax
reorganizations, including reorganizations under the Code. Tax reorganizations
usually involve exchanges of stock and tax securities in which the issuing
corporation (or another corporation that is a party to the reorganization) and
the holders of stock and tax securities participate.
Barry's believes that the transactions contemplated by the
Plan will constitute a recapitalization tax reorganization under section
368(a)(1)(E) of the Internal Revenue Code. However, no assurances can be given
that such an interpretation ultimately will be sustained by the courts if
challenged.
2. Carryover And Availability Of Barry's Net Operating Losses.
a. Generally.
Based on its 1997 federal income tax return as filed, Barry's
will have approximately $72 million of net operating losses ("NOLs") carrying
forward from the tax year ending May 31, 1997 into the tax year ending May 31,
1998. The utilization of approximately one-half of such NOLs is sharply
restricted under Internal Revenue Code section 382 because of an ownership
change that occurred in June 1992. Barry's anticipates that it will have an NOL
in the current tax year (that is, the tax year ending May 31, 1998) in excess of
$20 million.
Such NOL amounts are subject to review and significant
adjustment upon audit by the Internal Revenue Service. In addition, estimates of
Barry's NOLs are subject to legal and factual uncertainty. The tax attribute
reduction rules of section 108 of the Internal Revenue Code will severely reduce
Barry's NOLs as a result of debt cancellation under the Plan.
b. Section 382
Section 382 of the Internal Revenue Code places potentially
severe limitations upon the use of a corporation's NOLs and certain other tax
attributes if an "ownership change" occurs with respect to such corporation's
stock. Based upon the anticipated stock ownership of the Reorganized Company on
and immediately after the Effective Date, Barry's believes that an "ownership
change" will occur with respect to the Reorganized Company on the Effective
Date. Accordingly, the limitations and restrictions of section 382 should apply
as a result of the issuance of New Common Stock.
Under section 382, following an "ownership change" the amount
of a loss corporation's taxable income that can be offset by pre-ownership
change NOLs during any post-ownership change year generally cannot exceed an
amount equal to the loss corporation's value immediately before the ownership
change (excluding proscribed contributions to capital) multiplied by the
long-term tax-exempt rate. The long-term tax-exempt rate changes from month to
month based on changes in prevailing interest rates. For ownership changes
occurring in May 1998, the long-term tax-exempt rate is 5.05 percent.
In addition, the section 382 limitation for any of the five
years following the Effective Date is increased by the amount of any gain
recognized in that year from the sale of an asset to the extent that such asset
has unrealized built-in gain at the time of the ownership change. The built-in
gain rule applies only if at the time of the ownership change the loss
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corporation has net unrealized built-in gain that exceeds the lesser of (a) $10
million or (b) fifteen percent of the fair market value of its assets (excluding
cash and cash equivalents). It has not been determined yet whether net
unrealized built-in gain exists that meets or exceeds the foregoing criteria,
but there is a clear possibility that such criteria will not be met or exceeded,
and therefore the built-in gain rule would not apply.
Moreover, no NOLs will survive (except for certain items
specified in section 382(c)(2) of the Internal Revenue Code) if the loss
corporation does not continue its historic business or use a significant portion
of its assets in such a business at all times during the two-year period
beginning on the date of the ownership change. If the loss corporation has more
than one line of business, continuity of business enterprise for this purpose
requires only that it continue a significant line of business.
The section 382 provisions discussed above, however, may be
ameliorated by certain provisions of section 382 that provide a more liberal
rule for a corporation that is in a bankruptcy case when the ownership change
occurs. These provisions -- sections 382(l)(5) and 382(l)(6) -- are discussed
below.
Section 382(l)(5) of the Internal Revenue Code generally
provides that the limitations of section 382 shall not apply to any ownership
change occurring in a case under the jurisdiction of a bankruptcy court under
the Code if qualifying creditors and shareholders own fifty percent or more of
the loss corporation's stock after such ownership change. Under section
382(l)(5), the loss corporation's NOLs and specified credits must be recomputed
to eliminate deductions for interest paid or accrued by the loss corporation on
that portion of the debt which was exchanged for stock, and for which the loss
corporation had previously claimed deductions for federal income tax purposes
during (a) the three taxable years prior to the taxable year in which the
ownership change occurs, and (b) the portion of the taxable year of the
ownership change up to, but not including, the ownership change date.
A tax election exists which permits a loss corporation to whom
section 382(l)(5) applies to elect to have section 382(l)(5) not apply. If such
election is made by an eligible loss corporation, (or, alternatively, if the
loss corporation's ownership change does not qualify under section 382(l)(5))
and if new stock is exchanged for old debt under a plan of reorganization, the
section 382 limitation is determined under section 382(l)(6), which allows the
value of the loss corporation (immediately before the ownership change) to be
increased by the added value that results from the elimination of creditors'
claims pursuant to the plan.
Barry's is studying whether the ownership change with respect
to the Reorganized Company that will occur on the Effective Date qualifies under
section 382(l)(5) and, if so, whether such application would be beneficial.
Barry's anticipates that section 382(l)(6) will apply to such ownership change
in the event section 382(l)(5) does not apply.
Any shift (deemed or actual) in the ownership of stock of
Barry's, directly or by attribution, outside the scope of the Plan may trigger
(or already may have triggered) the application of section 382 and other
provisions of the Internal Revenue Code that may affect the availability of the
Reorganized Company's NOLs. Because the federal income tax consequences of any
such shift would depend on the particular facts and circumstances at such time
and the application of complex legislation and regulations, Barry's expresses no
views as to the effect of any transactions outside the scope of the Plan or the
survival of any NOLs or other carryovers.
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3. Reduction Of Barry's Indebtedness.
As a result of the Plan's implementation, the amount of
Barry's aggregate outstanding indebtedness will be reduced substantially. (Any
amount of potential discharged indebtedness for federal income tax purposes will
be referred to herein as a "Debt Discharge Amount"). In general, the Internal
Revenue Code provides that a taxpayer who realizes a discharge of indebtedness
must include the Debt Discharge Amount in its gross income in the taxable year
of discharge to the extent that the Debt Discharge Amount exceeds any
consideration given for such discharge. No income from the discharge of
indebtedness is realized to the extent that payment of the liability being
discharged would have given rise to a deduction.
If a taxpayer is in a case under the Code and the discharge of
indebtedness occurs pursuant to a confirmed plan, however, such discharge of
indebtedness is specifically excluded from gross income.
Accordingly, Barry's will not be required to include in income
any Debt Discharge Amount as a result of Plan transactions. The Internal Revenue
Code, however, requires certain tax attributes of Barry's to be reduced by the
Debt Discharge Amount excluded from income. Tax attributes are reduced in the
following order of priority: net operating losses and net operating loss
carryovers; general business credits; minimum tax credits; capital loss
carryovers; basis of property of the taxpayer; passive activity loss or credit
carryovers; and foreign tax credit carryovers. Tax attributes are generally
reduced by one dollar for each dollar excluded from gross income, except that
general tax credits, minimum tax credits, and foreign tax credits are reduced by
33.3 cents for each dollar excluded from gross income. As discussed above, the
tax attribute reduction rules will eliminate a large portion of Barry's NOLs
and/or other tax attributes of Barry's.
An election can be made to alter the order of priority of
attribute reduction by first applying the reduction against depreciable property
held by the taxpayer in an amount not to exceed the aggregate adjusted basis of
such property. Barry's does not presently intend to make such election. If this
decision were to change, the deadline for making such election is the due date
(including extensions) of Barry's federal income tax return for the taxable year
in which such debt is discharged pursuant to the Plan.
Any claim against Barry's (except a claim that would give rise
to a deduction if paid) that is discharged by payment to a creditor of cash
and/or property will result in the creation of a Debt Discharge Amount reducing
tax attributes to the extent that the adjusted issue price of the discharged
debt (plus accrued interest) exceeds the fair market value of the payment made
in cancellation thereof.
Barry's Debt Discharge Amount may be increased to the extent
that unsecured creditors holding unscheduled claims fail to timely file a proof
of Claim and have their Claims discharged on the Confirmation Date pursuant to
section 1141 of the Code.
C. Tax Consequences To Creditors.
The tax consequences of the Plan's implementation to a
creditor will depend on whether the creditor's present debt Claim constitutes a
"security" of Barry's for federal income tax purposes and the type of
consideration received by the creditor in exchange for its Claim, whether the
creditor reports income on the cash or accrual method, whether the creditor
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receives consideration in more than one tax year of the creditor, and whether
all the consideration received by the creditor is deemed to be received by that
creditor in an integrated transaction. The tax consequences upon the receipt of
cash, debt instruments, or other property allocable to interest are discussed in
Section XIX.C.3.
1. Claims Constituting Tax Securities.
a. Definition Of "Security" For Tax Purposes.
The determination whether a Claim of any particular creditor
constitutes a "security" for federal income tax purposes is based upon the facts
and circumstances surrounding the origin and nature of the Claim and its
maturity date. Generally, Claims arising out of the extension of trade credit
have been held not to be "securities" for federal income tax purposes ("Tax
Securities"). Instruments with a term of five years or less rarely qualify as
Tax Securities. On the other hand, bonds or debentures with an original term in
excess of ten years have generally been held to be Tax Securities. Barry's
believes, but cannot provide any assurance, that a Claim based upon a Senior
Note constitutes a Tax Security. EACH CREDITOR IS URGED TO CONSULT ITS OWN TAX
ADVISOR IN THIS REGARD.
b. Receipt Of Tax Securities.
Section 354 of the Internal Revenue Code provides for
nonrecognition of gain or loss by holders of Tax Securities of a corporation who
exchange these Claims solely for stock or Tax Securities, pursuant to certain
tax reorganizations, including a recapitalization pursuant to section
368(a)(1)(E) of the Internal Revenue Code. In the context of the Plan, such
section would apply where a holder of Tax Securities of Barry's exchanges such
items for New Common Stock or Tax Securities of Barry's. The nonrecognition rule
of section 354 is not applicable by its terms if: (i) the principal amount of
Tax Securities received exceeds the principal amount of Tax Securities
surrendered; or (ii) Tax Securities are received, but none are surrendered; or
(iii) New Common Stock or Tax Securities are received for accrued interest. If
solely New Common Stock or Tax Securities of Barry's are received, but clause
(i) or (ii) applies, gain (but not loss) will be recognized to the extent of the
fair market value of the amounts described in clauses (i) or (ii), as
applicable. The treatment of Tax Securities received for accrued interest is
described in Section XIX.C.3.
c. Receipt Of Cash Or Debt Not Constituting Tax Securities For Tax Securities.
A creditor whose existing Claims constitute Tax Securities of
Barry's may recognize gain (but not loss) if, in addition to New Common Stock or
Tax Securities of Barry's, such creditor receives cash, debt of Barry's not
constituting Tax Securities, or other property ("boot"). Cash distribution
rights likely constitute boot, unless they are reclassified by IRS as a class of
stock. The amount of such gain, if any, to a cash-basis taxpayer will equal the
lesser of (i) the excess, if any, of the sum of cash and fair market value of
all other consideration received over the basis of the creditor in such
creditor's existing claims (other than any Claims in respect of accrued
interest); or (ii) the amount of cash and the fair market value of other boot
items.
d. Determination Of Character Of Gain.
In the case of a creditor whose existing Claim constitutes a
capital asset in such creditor's hands, the gain required to be recognized will
be classified as a capital gain, except to the extent of interest (including
accrued market discount, if any). Any gain recognized will be treated as
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ordinary income to the extent of accrued market discount. To the extent gain at
least equal to any accrued market discount is not recognized by the holder, such
unrecognized accrued market discount will be attributed to the Tax Securities
received. Any gain recognized by the creditor upon a subsequent sale or exchange
of such Tax Securities or New Common Stock will be ordinary income to the extent
of such accrued market discount. In this regard, it should be noted that section
582(c) of the Internal Revenue Code provides that the sale or exchange of a
bond, debenture, note or certificate, or other evidence of indebtedness by a
bank or certain other financial institutions shall not be considered the sale or
exchange of a capital asset. Accordingly, any gain recognized by such creditors
as a result of the Plan's implementation will be ordinary income,
notwithstanding the nature of their Claims. Any capital gain recognized by a
creditor will be long-term gain with respect to those Claims for which the
creditor's holding period is more than 18 months, mid-term capital gain with
respect to those Claims for which the creditor's holding period is more than one
year but not more than 18 months , and short-term capital gain with respect to
such Claims for which the creditor's holding period is one year or less. As a
result of the Taxpayer Relief Act of 1997 and the Revenue Reconciliation Act of
1990, there may be a favorable tax rate applied to capital gains for certain
holders.
e. Tax Basis And Holding Period Of Items Received.
The aggregate tax basis of any New Common Stock or Tax
Securities received by a cash basis creditor, other than amounts received on
account of interest, will be a substituted basis equal to the creditor's basis
in the Claim surrendered (other than any Claims in respect of accrued interest),
increased by any gain recognized on the exchange, and decreased by the amount of
any cash and the fair market value of any other boot items received. If a
creditor subsequently recognizes any gain on the sale or exchange of stock
received, the gain recognized by such creditor on such sale or exchange will be
treated as ordinary income to the extent of any bad debt deduction attributable
to such creditor's Claim or ordinary loss deduction previously claimed by such
creditor, provided that the stock constitutes a capital asset in the creditor's
hands.
A creditor's holding period for any New Common Stock or Tax
Securities (other than New Common Stock or Tax Securities received on account of
interest) received pursuant to the Plan will include the period during which
such creditor held the exchanged Tax Security.
f. Receipt Solely Of Boot.
A creditor holding Tax Securities who receives solely cash
and/or other boot items in full satisfaction of such creditor's Claim will be
required to recognize gain or loss on the exchange. The creditor will recognize
gain or loss equal to the difference between the amount realized in respect of
such Claim and the creditor's tax basis in the Claim.
2. Claims Not Constituting Tax Securities.
a. Gain/Loss On Exchange.
A creditor whose existing Claims do not constitute Tax
Securities (such as most or all trade Claims) will recognize gain or loss on the
actual or constructive exchange of such creditor's existing Claims (other than
Claims for accrued interest) for cash and any other consideration received equal
to the difference between (i) the "amount realized" in respect of such Claims
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and (ii) the creditor's tax basis in such Claims. The "amount realized" will be
equal to the sum of the cash and (i) as to a cash-basis taxpayer, the fair
market value of all other consideration received, and (ii) as to an
accrual-basis taxpayer, the face amount of any new debt instruments and fair
market value of the other consideration received, less any amounts allocable to
interest, unstated interest, or original issue discount.
b. Tax Basis And Holding Period Of Items Received.
The aggregate tax basis in the items received by a creditor
will equal the amount realized in respect of such items (other than amounts
allocable to any accrued interest). The holding period for items received in the
exchange will begin on the day following the exchange.
3. Receipt Of Interest.
Income attributable to accrued but unpaid interest will be
treated as ordinary income, regardless of whether the creditor's existing Claims
are capital assets in its hands.
A creditor who, under its accounting method, was not
previously required to include in income accrued but unpaid interest
attributable to existing Claims, and who exchanges its interest Claim for cash,
or other property pursuant to the Plan, will be treated as receiving ordinary
interest income to the extent of any consideration so received allocable to such
interest, regardless of whether that creditor realizes an overall gain or loss
as a result of the exchange of its existing Claims. A creditor who had
previously included in income accrued but unpaid interest attributable to its
existing Claims will recognize a loss to the extent such accrued but unpaid
interest is not satisfied in full. For purposes of the above discussion,
"accrued" interest means interest which was accrued while the underlying Claim
was held by the creditor. The extent to which consideration distributed under
the Plan is allocable to such interest is uncertain.
4. Effect Of Modification Of Debt.
A modification of the terms of indebtedness can result in a
constructive exchange of the new modified debt for the old unmodified debt.
Under Treasury Regulations, a constructive exchange occurs if the alteration of
the terms of indebtedness constitutes a "significant modification" as defined in
such regulations.
The regulations' approach is to establish specific rules for
determining the significance of certain types of modifications and to provide a
general rule for dealing with modifications not otherwise addressed. The general
rule broadly provides that a modification is a significant modification only if,
based on all facts and circumstances, the legal rights or obligations that are
altered and the degree to which they are altered is "economically significant."
The specific rules deal with (a) a change in yield, (b) a change in the timing
of payments, (c) a change in the identity of the obligor or the security for the
debt, (d) certain changes in the nature of the debt, and (e) a change in
accounting or financial covenants.
A full and complete discussion of these specific rules would
consume many pages and is beyond the scope of this Disclosure Statement. What
follows is an abbreviated discussion of the specific rules. Creditors and other
parties in interest should consult their own tax advisors with respect to the
application of the Treasury Regulations' debt modification rules to the
treatment of their Claims under the Plan.
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Change in Yield. A change in yield is a significant
modification if the new yield (determined under rules promulgated in the
Treasury Regulations) varies from the annual yield on the unmodified debt
(determined as of the date of modification) by more than the greater of (a)
one-fourth of one percent (twenty-five basis points), or (b) five percent of the
annual yield of the unmodified debt.
Changes in Timing of Payments. A modification that changes the
timing of one or more payments due under the terms of the debt is a significant
modification if it "results in the material deferral of scheduled payments." The
regulations establish a safe harbor whereby the deferral of one or more
scheduled payments is not a material deferral if the deferred payments are
unconditionally payable no later than at the end of the safe harbor period. The
safe harbor period begins on the original due date of the first scheduled
payment that is deferred and extends for a period equal to the lesser of five
years or fifty percent of the original term of the debt.
Change in Obligor or Security. The substitution of a new
obligor on a recourse debt generally is a significant modification. For this
purpose, the filing of a bankruptcy petition in and of itself does not result in
the substitution of a new obligor. A modification that releases, substitutes,
adds or otherwise alters the collateral for, a guarantee on, or other form of
credit enhancement for a recourse debt is a significant modification if the
modification results in a change in payment expectations. A change in the
priority of debt relative to other debt of the borrower is a significant
modification if it results in a change of payment expectations.
Changes in the Nature of a Debt Instrument. A modification in
the terms of a claim that results in an instrument or property right that is not
debt for federal income tax purposes is a significant modification. For this
purpose, any deterioration in the financial condition of the obligor between the
issue date of the debt and the modification date generally is not taken into
account.
Accounting and Financial Covenants. A modification that adds,
deletes, or alters customary accounting or financial covenants is not a
significant modification.
A modification described above that is effective only upon the
occurrence of a substantial contingency or that is effective on a deferred basis
is tested under the general rule rather than the specific rules. Modifications
occurring pursuant to a plan of reorganization generally are treated as
occurring on the effective date of the plan.
The Treasury Regulations apply to any alteration of the terms
of debt occurring on or after September 24, 1996. Taxpayers, however, may rely
on the regulations for alterations of debt occurring after December 2, 1992 and
before September 24, 1996.
5. Other Tax Considerations.
a. Market Discount.
If a creditor has a lower tax basis in a debtor obligation
than its face amount, the difference may constitute market discount under
section 1276 of the Internal Revenue Code. (Certain debtor obligations are
excluded from the operation of this rule, such as obligations with a fixed
maturity date not exceeding one year from the date of issue, installment
obligations to which section 453B of the Internal Revenue Code applies and, in
all likelihood, demand instruments). Holders in whose hands debtor obligations
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are market discount bonds will be required to treat as ordinary income any gain
recognized upon the exchange of such obligations to the extent of the market
discount accrued during the holder's period of ownership, unless the holder has
elected to include such market discount in income as it accrued.
b. Original Issue Discount.
The actual or constructive exchange of a reorganized debtor
debt instrument for an existing debtor debt instrument (including certain
constructive exchanges that occur when an existing debt instrument is
significantly or materially modified) may result in the creation of original
issue discount ("OID") to the extent that the issue price of the new debt
instrument is less than its stated redemption price at maturity (generally, its
face amount).
The holder of an OID instrument must include in income the sum
of the daily portion of the OID accretion during the taxable year for each year
it holds the instrument even in the absence of payments during such year. The
daily portion of the OID accretion on an instrument is determined by allocating
to each day in the period the ratable portion of the increase in the adjusted
issue price of the instrument during that period.
c. Withholding.
The Disbursing Agent will withhold any amounts required by law
from payments made to creditors. This may require payments by certain creditors
of the required withholding tax on the non-cash consideration issued under the
Plan. In addition, creditors may be required to provide general tax information
to the Disbursing Agent.
d. Taxation Of Certain Reserves.
Section 468B(g) of the Internal Revenue Code provides that
escrow accounts, settlement funds or similar funds are subject to current
taxation. It also provides that the IRS shall prescribe regulations for the
taxation of any such account or fund, whether as a grantor trust or otherwise.
The IRS issued final regulations regarding settlement funds on December 18,
1992. However, such regulations specifically reserve the tax treatment of
settlement funds in bankruptcy and the treatment of stock of the issuer to
satisfy such obligations. It is thus uncertain as to who is responsible for
reporting income generated by the funds in any unclaimed property or Disputed
Claims Reserve formed pursuant to the Plan. If any reserves are treated as a
grantor trust created by Barry's, then the income generated by such reserves
would likely be reported on Barry's federal income tax return. If the reserves
are not treated as such a grantor trust, they will likely be treated as an
association or trust taxable currently as separate entities on their income. It
is also possible that the reserves could be treated as a grantor trust for which
the creditor beneficiaries are treated as grantors. As such, the creditor
beneficiaries would be subject to current taxation on the income generated by
such reserves. Pursuant to the Plan and related documents, any party responsible
for administering such reserves will also be required to file appropriate income
tax returns and pay any tax due out of such reserves as a result of any income
earned in such reserves.
D. Tax Consequences To Shareholders.
Recently-promulgated Treasury Regulations (applicable to
transactions occurring on or after March 9, 1998) provide that a right to
acquire common stock generally is treated as a Tax Security having a zero
principal amount. Accordingly, pursuant to this Treasury Regulation and section
354 of the Internal Revenue Code, a shareholder of Barry's will recognize
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neither gain nor loss as a result of an exchange under the Plan of Existing
Common Stock for Reorganized Company Warrants.
E. General Disclaimer.
PERSONS CONCERNED WITH THE TAX CONSEQUENCES OF THE PLAN SHOULD
CONSULT THEIR OWN ACCOUNTANTS, ATTORNEYS AND/OR ADVISORS. BARRY'S MAKES THE
AFOREMENTIONED DISCLOSURE OF POSSIBLE TAX CONSEQUENCES FOR THE SOLE PURPOSE OF
ALERTING READERS OF TAX ISSUES THEY MAY WISH TO CONSIDER. BARRY'S CANNOT AND
DOES NOT REPRESENT THAT THE TAX CONSEQUENCES MENTIONED ABOVE ARE COMPLETELY
ACCURATE BECAUSE, AMONG OTHER THINGS, THE TAX LAW EMBODIES MANY COMPLICATED
RULES, WHICH MAKE IT DIFFICULT TO ACCURATELY STATE WHAT THE TAX IMPLICATIONS OF
ANY ACTION MIGHT BE.
XX.
RECOMMENDATION AND CONCLUSION
Barry's, the Creditors' Committee, the Bondholder Committee,
and the Equity Committee believe that confirmation and implementation of the
Plan are preferable to any of the feasible alternatives because the Plan will
provide substantially greater recoveries for holders of Claims and Interests.
Accordingly, Barry's, the Creditors' Committee, the Bondholder Committee, and
the Equity Committee urge holders of impaired Claims and Interests to vote to
accept the Plan by so indicating on their ballots and returning them as
specified in the Plan and Disclosure Statement and on the ballots.
Dated: April 30, 1998 BARRY'S JEWELERS, INC.
debtor and debtor in possession
By /s/ Randy N. McCullough
------------------------------
RANDY N. McCULLOUGH
Chief Executive Officer
SUBMITTED BY:
/s/ STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
- ---------------------------------------
LEE R. BOGDANOFF,
MICHAEL L. TUCHIN,
JAMES O. JOHNSTON, and
JOSHUA R. ELLINGWOOD, Members of
STUTMAN, TREISTER & GLATT
PROFESSIONAL CORPORATION
3699 Wilshire Boulevard, Suite 900
Los Angeles, California 90010
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XXI.
DECLARATION IN SUPPORT OF DISCLOSURE STATEMENT AND PLAN
I, Randy N. McCullough, declare under penalty of perjury under
the laws of the United States of America that the following statements are true
and based upon personal knowledge.
1. I am the Chief Executive Officer of Barry's Jewelers, Inc.
("Barry's').
2. Barry's reorganization counsel Stutman, Treister & Glatt
Professional Corporation, including attorneys Lee R. Bogdanoff, Michael L.
Tuchin, James O. Johnston, and Joshua R. Ellingwood, prepared the foregoing Plan
and Disclosure Statement, at the direction, and with the review, input, and
assistance, of me and other Barry's personnel and professionals.
3. All financial data referenced in the Plan and Disclosure
Statement has been generated by Barry's from information in its books and
records.
4. All facts and representations in the Plan and Disclosure
Statement are true to the best of my knowledge.
5. To the best of my knowledge, no fact material to a claimant
or equity security holder in voting to accept or reject the proposed Plan has
been omitted.
6. The firm of SBC Warburg Dillon Read Inc., as financial
advisors to Barry's, assisted Barry's management in the preparation of the
financial information contained in Exhibits D, E, and F to the Plan and
Disclosure Statement.
Dated: April 29, 1998 /s/ RANDY N. McCULLOUGH
------------------------------------
RANDY N. McCULLOUGH
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SCHEDULE OF EXHIBITS TO ORIGINAL DISCLOSURE STATEMENT
AND PLAN OF REORGANIZATION, DATED APRIL 30, 1998,
PROPOSED BY BARRY'S JEWELERS, INC.
Exhibit A Schedule of Claims Subject to Future Objection and Pending
Litigation
Exhibit B Schedule of Claims Asserted by Former Employees with respect
to Executive Bonus Plan
Exhibit C Schedule of Consignment Claims
Exhibit D Projections
Exhibit E Liquidation Analysis
Exhibit F Reorganization Valuation
(the remainder of Exhibits to be filed by Exhibit Filing Date)
Exhibit G Schedule of Assumed Agreements (a schedule of proposed cure
amounts with respect to Barry's remaining unexpired leases
of nonresidential real property will be filed on or before
ten days prior to the hearing on the Disclosure Statement)
Exhibit H Schedule of Rejected Agreements
Exhibit I Form of Agreement Parties Release
Exhibit J Form of Definitive Financing Agreement
Exhibit K Form of Warrant Agreement
Exhibit L Form of Registration Rights Agreement
Exhibit M Summary of Management Compensation
Exhibit N Form of Certificate of Incorporation
Exhibit O Form of Bylaws
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
DISCLOSURE STATEMENT
<S> <C>
I. INTRODUCTION.............................................................................................1
II. GENERAL INFORMATION AND DISCLAIMERS......................................................................1
III. WHO MAY OBJECT TO CONFIRMATION OF THE PLAN...............................................................2
IV. WHO MAY VOTE TO ACCEPT OR REJECT THE PLAN................................................................3
V. VOTES NECESSARY TO CONFIRM THE PLAN......................................................................4
VI. INFORMATION REGARDING VOTING IN THIS CASE................................................................4
VII. BACKGROUND INFORMATION (DESCRIPTION OF BARRY'S PAST AND FUTURE BUSINESS, EVENTS
PRECIPITATING BARRY'S BANKRUPTCY PETITION, AND SIGNIFICANT EVENTS IN THE REORGANIZATION CASE)............5
A. Business Background.............................................................................5
B. Barry's Current Creditor And Shareholder Constituents...........................................6
1. The Bank Group, The Bondholders, And The Intercreditor Agreement.......................6
2. Unsecured Creditors....................................................................7
3. Interest Holders.......................................................................7
C. The Prior Chapter 11 Case.......................................................................7
D. The New Management Team And Events Leading To The Reorganization Case...........................7
E. The Chapter 11 Case.............................................................................9
1. Overview Of Chapter 11 And The Plan Process............................................9
2. The Cash Collateral Stipulation.......................................................10
3. Lease Rejections......................................................................10
4. Other First-Day Motions...............................................................11
5. Barry's Retention Of Professionals And The Appointment Of Official
Committees............................................................................11
6. The Interim Fee Procedures............................................................12
7. Payment Of Postpetition Interest And The Bank Group's Professional Fees
And Expenses..........................................................................13
8. The Executive Management Contracts....................................................14
9. The Postpetition Consignment, Trade Financing, And Vendor Return Programs.............15
10. The 1997 Christmas/Hanukkah Season....................................................16
11. January-March 1998 Results............................................................17
12. Other Business Restructuring Efforts..................................................17
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13. Relocation Of Corporate Headquarters And Rejection Of Headquarters Lease..............18
14. The Bar Date, Claims Objections, And Estimated Aggregated Claims Amounts..............19
15. Extension Of The Time Within Which To Assume Or Reject Leases Of
Nonresidential Real Property..........................................................20
16. Plan Exclusivity......................................................................20
17. Litigation............................................................................21
18. The Plan Agreement....................................................................23
VIII. SUMMARY OF CRITICAL PLAN PROVISIONS.....................................................................23
A. Summary Of Distributions.......................................................................23
B. Summary Of Source Of Funds.....................................................................24
THE PLAN OF REORGANIZATION.......................................................................................25
IX. DEFINITIONS AND RULES OF CONSTRUCTION...................................................................25
A. Definitions....................................................................................25
B. Rules Of Interpretation........................................................................32
X. DESIGNATION OF CLASSES AND TREATMENT OF CLAIMS, INTERESTS, EXECUTORY CONTRACTS, AND
UNEXPIRED LEASES........................................................................................33
A. Classification Of Claims And Interests.........................................................33
1. Class 1 (Secured Claims Of The Bank Group)............................................34
2. Class 2 (Secured Claims Of The Bondholders)...........................................35
3. Class 3 (Secured Tax Claims)..........................................................35
4. Class 4 (Other Secured Claims)........................................................35
5. Class 5 (Unsecured Claims Of The Bondholders).........................................35
6. Class 6 (General Unsecured Claims)....................................................35
7. Class 7 (Consignment Claims)..........................................................36
8. Class 8 (Priority Claims).............................................................36
9. Class 9 (Interests)...................................................................36
10. Unclassified: Administrative Claims And Priority Tax Claims..........................36
B. Allowance And Treatment Of Unclassified Administrative Claims And Priority Tax
Claims.........................................................................................36
1. Allowance Of Administrative Claims....................................................36
2. Treatment Of Allowed Administrative Claims (Unclassified).............................39
3. Treatment Of Priority Tax Claims (Unclassified).......................................39
C. Treatment Of Secured Claims (Classes 1, 2, 3, And 4) And Related Unsecured
Deficiency Claims (Class 5)....................................................................40
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1. Class 1 (Secured Claims Of The Bank Group)............................................40
2. Class 2 (Secured Claims Of The Bondholders) And Class 5 (Related Unsecured
Deficiency Claims)....................................................................40
3. Class 3 (Secured Tax Claims)..........................................................41
4. Class 4 (Other Secured Claims)........................................................41
D. Treatment Of General Unsecured Claims (Class 6)................................................42
E. Treatment Of Consignment Claims (Class 7)......................................................42
F. Treatment Of Priority Claims (Class 8).........................................................43
G. Treatment Of Interests (Class 9)...............................................................43
H. Treatment Of Executory Contracts And Unexpired Leases..........................................43
1. Assumption Of Executory Contracts And Unexpired Leases................................44
2. Cure Payments.........................................................................44
3. Objections To Assumption And/Or Proposed Cure Payments................................44
4. Rejection Of Executory Contracts And Unexpired Leases.................................45
5. Bar Date For Rejection Damage Claims..................................................45
6. Postpetition Contracts And Leases.....................................................45
7. Indemnification Assumption............................................................46
XI. MEANS OF EXECUTION AND IMPLEMENTATION OF THE PLAN AND OTHER PROVISIONS..................................46
A. Disbursing Agent...............................................................................46
B. Revesting Of Assets............................................................................46
C. Preservation Of Rights Of Action...............................................................46
D. Cancellation Of Stock And Existing Warrants And Options........................................47
E. Objections To Claims And Interests.............................................................47
F. Distribution Of Property Under The Plan........................................................48
1. Manner Of Cash Payment Under The Plan.................................................48
2. Distributions To Holders Of Allowed Class 6 Claims....................................48
3. Restriction On Distributions Of Fractional Shares.....................................48
4. No Distributions With Respect To Disputed Claims And Interests........................48
5. Delivery Of Distributions And Undeliverable Or Unclaimed Distributions................49
6. Compliance With Tax Requirements......................................................50
7. Setoff And Recoupment.................................................................50
G. No Liability For Solicitation Or Participation.................................................50
H. Limitation Of Liability........................................................................50
I. Consensual General Release.....................................................................50
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J. Dissolution Of Committees......................................................................51
K. Revocation Of The Plan.........................................................................51
L. Post-Effective Date Effect Of Evidences Of Claims Or Interests.................................51
M. Non-applicability Of Local Rule 142(3).........................................................51
N. Modification Of Vendor Return Program..........................................................52
O. Successors And Assigns.........................................................................52
P. Saturday, Sunday, Or Legal Holiday.............................................................52
Q. Headings.......................................................................................52
R. Governing Law..................................................................................52
S. Severability Of Plan Provisions................................................................52
T. No Admissions..................................................................................53
U. Retention Of Jurisdiction......................................................................53
V. Conditions To Confirmation And Effectiveness Of The Plan.......................................54
1. Conditions To Confirmation............................................................54
2. Conditions To Effective Date..........................................................55
3. Waiver Of Conditions To Confirmation And The Effective Date...........................55
XII. SOURCES OF MONEY TO PAY CLAIMS AND INTEREST-HOLDERS; PROVISIONS REGARDING NEW COMMON STOCK
AND REORGANIZED COMPANY WARRANTS........................................................................56
A. Source Of Funds................................................................................56
1. Plan Financing........................................................................56
2. Offering Of Additional New Common Stock...............................................58
B. Issuance Of New Common Stock And Reorganized Company Warrants..................................59
1. The New Common Stock..................................................................59
2. Reorganized Company Warrants..........................................................60
C. Registration Rights............................................................................61
XIII. THE REORGANIZED COMPANY.................................................................................62
A. Management Of The Reorganized Company..........................................................62
1. Directors Of The Reorganized Company..................................................62
2. Officers Of The Reorganized Company...................................................62
B. New Certificate Of Incorporation And Bylaws....................................................64
C. Change Of Name And State of Incorporation......................................................64
D. Future Financial Outlook Of The Reorganized Company............................................65
XIV. EFFECT OF CONFIRMATION OF PLAN..........................................................................65
A. Discharge And Injunction.......................................................................65
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B. Modification Of The Plan.......................................................................66
DISCLOSURE STATEMENT (continued)
XV. FINANCIAL RECORDS TO ASSIST IN DETERMINING WHETHER PROPOSED PAYMENTS ARE FEASIBLE, WITH
ACCOMPANYING EXPLANATIONS AND RISK FACTORS..............................................................66
A. Financial Projections..........................................................................66
B. Resale Of Securities And Certain Securities Law Matters........................................67
1. Generally; Pending Request For No-Action Letter.......................................67
2. Bankruptcy Code And Securities Act Exemptions From Registration
Requirements..........................................................................69
3. Valuation Considerations..............................................................71
4. Reservation Of Rights.................................................................72
C. Additional Risk Factors........................................................................72
1. Risks Associated With The Reorganized Company's Future Operations.....................72
2. Risks Associated With New Management..................................................74
XVI. ASSETS AND LIABILITIES OF THE ESTATE....................................................................74
A. Assets.........................................................................................74
B. Liabilities....................................................................................74
C. Reorganization Value...........................................................................75
XVII. EXPLANATION OF TREATMENT OF NONCONSENTING CLASSES.......................................................75
XVIII. EXPLANATION TREATMENT OF NONCONSENTING MEMBERS OF CONSENTING CLASS (CHAPTER 7 LIQUIDATION
ANALYSIS)...............................................................................................76
XIX. TAX CONSEQUENCES OF PLAN................................................................................77
A. Introduction...................................................................................77
B. Federal Income Tax Consequences To Barry's.....................................................78
1. Tax Reorganization....................................................................78
2. Carryover And Availability Of Barry's Net Operating Losses............................78
3. Reduction Of Barry's Indebtedness.....................................................80
C. Tax Consequences To Creditors..................................................................80
1. Claims Constituting Tax Securities....................................................81
2. Claims Not Constituting Tax Securities................................................82
3. Receipt Of Interest...................................................................83
4. Effect Of Modification Of Debt........................................................83
5. Other Tax Considerations..............................................................84
D. Tax Consequences To Shareholders...............................................................85
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E. General Disclaimer.............................................................................86
XX. RECOMMENDATION AND CONCLUSION...........................................................................86
XXI. DECLARATION IN SUPPORT OF DISCLOSURE STATEMENT AND PLAN.................................................87
</TABLE>
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EXHIBITS
Exhibit A Schedule of Claims Subject to Future Objection and Pending
Litigation
Exhibit B Schedule of Claims Asserted by Former Employees with respect
to Executive Bonus Plan
Exhibit C Schedule of Consignment Claims
Exhibit D Projections
Exhibit E Liquidation Analysis
Exhibit F Reorganization Valuation
(the remainder of Exhibits to be filed by Exhibit Filing Date)
Exhibit G Schedule of Assumed Agreements (a schedule of proposed cure
amounts with respect to Barry's remaining unexpired leases
of nonresidential real property will be filed on or before
ten days prior to the hearing on the Disclosure Statement)
Exhibit H Schedule of Rejected Agreements
Exhibit I Form of Agreement Parties Release
Exhibit J Form of Definitive Financing Agreement
Exhibit K Form of Warrant Agreement
Exhibit L Form of Registration Rights Agreement
Exhibit M Summary of Management Compensation
Exhibit N Form of Certificate of Incorporation
Exhibit O Form of Bylaws
vii
EXHIBIT 2.2
CORRECTED CERTIFICATE OF OWNERSHIP AND MERGER
of
BARRY'S JEWELERS, INC.
with and into
SAMUELS JEWELERS, INC.
(Under Section 253 of the Delaware General Corporation Law
and Section 1110 of the California General Corporation Law)
THE UNDERSIGNED, Barry's Jewelers, Inc. and Samuels Jewelers, Inc.
filed the Certificate of Ownership and Merger of Barry's Jewelers, Inc. with and
into Samuels Jewelers, Inc. on September 28, 1998 (the "Merger Certificate").
The Merger Certificate contained date errors with respect to the effective date
of the merger and the date on which Barry's Jewelers, Inc. emerged from
bankruptcy proceedings and other minor errors. The undersigned hereby certify as
follows:
FIRST: The date of this Corrected Certificate of Ownership and
Merger is October 2, 1998.
SECOND: The Certificate of Ownership and Merger of Barry's Jewelers,
Inc. with and into Samuels Jewelers, Inc. as filed on September 28, 1998 is
hereby corrected to read in its entirety as follows:
HOFS04...:\01\21901\0001\2166\AGR4228S.20C
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
of
BARRY'S JEWELERS, INC.
with and into
SAMUELS JEWELERS, INC.
(Under Section 253 of the Delaware General Corporation Law
and Section 1110 of the California General Corporation Law)
THE UNDERSIGNED, Barry's Jewelers, Inc. ("Non-Survivor") and Samuels
Jewelers, Inc. ("Survivor"), in connection with the merger of Non-Survivor with
and into Survivor (the "Merger"), hereby certify as follows:
FIRST: The name and the state of incorporation of each of the
constituent corporations are:
Name State of Incorporation
---- ----------------------
Barry's Jewelers, Inc. California
Samuels Jewelers, Inc. Delaware
SECOND: The Non-Survivor is the parent of the Survivor, and the
Non-Survivor owns 100% of the outstanding capital stock of the Survivor.
THIRD: Resolutions of merger relating to the Merger (the "Merger
Resolutions") have been approved and adopted by each of the constituent
corporations in accordance with Section 253 of the Delaware General Corporation
Law and Section 1110 of the California General Corporation Law.
FOURTH: The name of the surviving corporation is Samuels Jewelers,
Inc.
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FIFTH: The Certificate of Incorporation of the surviving corporation
shall be the Certificate of Incorporation of the Survivor as filed with the
Secretary of State of the State of Delaware on August 20, 1998.
Except as hereinabove provided, the Certificate of Incorporation of
the surviving corporation shall remain in full force and effect.
SIXTH: The Merger Resolutions approved and adopted at an omnibus
meeting of the Boards of Directors of the Survivor and the Non-Survivor on
August 26, 1998 are on file at the principal place of business of the surviving
corporation at 2914 Montopolis Drive, Suite 200, Austin, Texas 78741.
SEVENTH: A copy of the Merger Resolutions will be furnished by the
surviving corporation, on request and without cost, to any stockholder of either
constituent corporation.
EIGHTH: The Merger Resolutions of the Non-Survivor and Survivor as
approved by the Boards of Directors of the Non-Survivor and Survivor on August
26, 1998 are attached hereto as Exhibit A.
NINTH: The Non-Survivor will emerge from Chapter 11 bankruptcy
proceedings on October 2, 1998, immediately prior to the effective time of the
Merger. Under the Non-Survivor's plan of reorganization as confirmed by order of
the United States Bankruptcy Court, Central District of California (Los Angeles
Division) dated September 16, 1998 (as modified and confirmed, the "Plan"), at
the effective time of the Plan the stockholders of the Non-Survivor shall cease
being stockholders of the Non-Survivor. At the effective time of the Merger, the
Non-Survivor will have no stockholders. After the effective time of the Merger,
the Survivor shall issue shares of its common stock, par value $.001 per share,
to certain claimholders in the bankruptcy proceedings as required by the Plan.
TENTH: To become effective at 12:00 p.m. (Delaware time) on
October 2, 1998.
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EXHIBIT A
RESOLUTIONS OF BARRY'S JEWELERS, INC.
ADOPTED BY THE BOARD OF DIRECTORS
AT A MEETING HELD ON AUGUST 26, 1998
* * *
WHEREAS, in accordance with the Plan, it has been proposed that
Barry's merge with and into Samuels Jewelers, Inc. ("Samuels");
WHEREAS, pursuant to Section 253 of the Delaware General Corporation
Law and Section 1110 of the California Business Corporation Act, Barry's
as owner of all the issued and outstanding shares of stock of Samuels, may
merge itself with and into Samuels; and
WHEREAS, the Board of Directors of Barry's deems it to be in the
best interest of Barry's to merge with and into Samuels;
NOW, THEREFORE, BE IT RESOLVED that Barry's be merged (the "Merger")
with and into Samuels pursuant to Section 253 of the Delaware General
Corporation Law and Section 1110 of the California Business Corporation
Act, and that Samuels be the surviving corporation in the Merger, in
accordance with the provisions of the Delaware General Corporation Law
and the California Business Corporation Act;
RESOLVED FURTHER, that the Proper Officers of Barry's be, and any
one of such officers acting singly hereby is, authorized and directed to
make and execute a Certificate of Ownership and Merger (the "Certificate
of Merger") in substantially the form as attached hereto, with such
changes and additions as any Proper Officer deems necessary or advisable,
on behalf of Barry's with respect to the Merger under the Delaware General
Corporation Law;
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RESOLVED FURTHER, that the Proper Officers of Barry's be, and any
one of such officers acting singly hereby is, authorized and directed to
cause the Certificate of Merger to be filed with the Secretary of State of
the States of Delaware and California;
RESOLVED FURTHER, that the Proper Officers of Barry's be, and any
one of such officers acting singly hereby is, authorized and directed to
do all acts and things whatsoever, whether within or without the States of
Delaware and California, which such officer may deem necessary or proper
to effect the Merger;
RESOLVED FURTHER, that the Secretary and any Assistant Secretary of
Barry's be, and each of such officers acting singly hereby is, authorized
and directed to attest to the Certificate of Merger and any other
documents as such officer may deem necessary, advisable or desirable and
in the best interests of Barry's in connection with the foregoing
resolutions;
RESOLVED FURTHER, that at any time prior to the filing of the
Certificate of Merger with the Secretary of State of the States of
Delaware and California, the Merger may be amended or terminated by
resolution of the Board of Directors of Barry's; and
RESOLVED FURTHER, that the Merger shall become effective upon the
date of the filing of the Certificate of Merger with the Secretary of
State of the States of Delaware and California, at such time on such date
as shall be specified therein.
* * *
5
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RESOLUTIONS OF SAMUELS JEWELERS, INC.
ADOPTED BY THE BOARD OF DIRECTORS
AT A MEETING HELD ON AUGUST 26, 1998
* * *
WHEREAS, in accordance with the Plan, it has been proposed that
Barry's merge with and into Samuels;
WHEREAS, pursuant to Section 253 of the Delaware General Corporation
Law and Section 1110 of the California Business Corporation Act, Barry's
as owner of all the issued and outstanding shares of stock of Samuels, may
merge itself with and into Samuels; and
WHEREAS, the Board of Directors of Samuels deems it to be in the
best interest of Samuels to merge with Barry's;
NOW, THEREFORE, BE IT RESOLVED that Barry's be merged (the "Merger")
with and into Samuels pursuant to Section 253 of the Delaware General
Corporation Law and Section 1110 of the California Business Corporation
Act, and that Samuels be the surviving corporation in the Merger, in
accordance with the provisions of the Delaware General Corporation Law
and the California Business Corporation Act;
RESOLVED FURTHER, that the Proper Officers of Samuels be, and any
one of such officers acting singly hereby is, authorized and directed to
make and execute a Certificate of Ownership and Merger (the "Certificate
of Merger") in substantially the form as attached hereto, with such
changes and additions as any Proper Officer deems necessary or advisable,
on behalf of Samuels with respect to the Merger under the Delaware General
Corporation Law;
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RESOLVED FURTHER, that the Proper Officers of Samuels be, and any
one of such officers acting singly hereby is, authorized and directed to
cause the Certificate of Merger to be filed with the Secretary of State of
the States of Delaware and California;
RESOLVED FURTHER, that the Proper Officers of the Samuels be, and
any one of such officers acting singly hereby is, authorized and directed
to do all acts and things whatsoever, whether within or without the States
of Delaware and California, which such officer may deem necessary or
proper to effect the Merger;
RESOLVED FURTHER, that the Secretary and any Assistant Secretary of
Samuels be, and each of such officers acting singly hereby is, authorized
and directed to attest to the Certificate of Merger and any other
documents as such officer may deem necessary, advisable or desirable and
in the best interests of Samuels in connection with the foregoing
resolutions;
RESOLVED FURTHER, that at any time prior to the filing of the
Certificate of Merger with the Secretary of State of the States of
Delaware and California, the Merger may be amended or terminated by
resolution of the Board of Directors of Samuels;
RESOLVED FURTHER, that the Merger shall become effective upon the
date of the filing of the Certificate of Merger with the Secretary of
State of the States of Delaware and California, at such time on such date
as shall be specified therein.
* * *
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IN WITNESS WHEREOF, the undersigned corporations have duly executed
this Corrected Certificate of Ownership and Merger as of the date first above
written.
SAMUELS JEWELERS, INC.
By: /s/ E. Peter Healey
------------------------------------
Name: E. Peter Healey
Title: Executive Vice President,
Chief Financial Officer and
Secretary
BARRY'S JEWELERS, INC.
By: /s/ E. Peter Healey
------------------------------------
Name: E. Peter Healey
Title: Executive Vice President,
Chief Financial Officer and
Secretary
8
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SAMUELS JEWELERS, INC.
The undersigned, for the purpose of organizing a corporation
under the General Corporation Law of the State of Delaware, hereby certifies
that:
FIRST: The name of the corporation is Samuels Jewelers, Inc. (the
"Company").
SECOND: The address of the registered office of the Company in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware 19801. The registered agent for
the Company at such address is The Corporation Trust Company.
THIRD: The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law, as amended (the "DGCL").
FOURTH: The total number of shares of all classes of capital stock
that the Company shall have authority to issue is 40,000,000 shares, consisting
of:
(i) 20,000,000 shares of Common Stock, par value $0.001 per share
(the "Common Stock"); and
(ii) 20,000,000 shares of Preferred Stock, par value $0.001 per
share (the "Preferred Stock").
Except as otherwise provided by law, the shares of capital stock of
the Company, regardless of class, may be issued by the Company from time to time
in such amounts, for such lawful consideration and for such corporate purpose(s)
as the Board of Directors may from time to time determine.
Subject to the laws of the State of Delaware and to the limitations
set forth below, authority is hereby vested in the Board of Directors of the
Company to issue said twenty million (20,000,000) shares of Preferred Stock from
time to time in one or more series, with such designations, voting powers,
preferences and relative, participating, optional and other rights, and such
qualifications, limitations or restrictions thereof, as shall be stated in the
resolution or
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<PAGE>
resolutions providing for the issuance of such stock adopted by the Board of
Directors. Without limiting the generality of the foregoing, in the resolution
or resolutions providing for the issuance of each particular series of Preferred
Stock, the Board of Directors is expressly authorized:
(a) to fix the distinctive serial designation of the shares of any
such series;
(b) to fix the consideration for which the shares of any such series
are to be issued;
(c) to fix the rate per annum, if any, at which the holders of the
shares of any such series shall be entitled to receive dividends, the dates on
which such dividends shall be payable, whether such dividends shall be
cumulative or noncumulative, and if cumulative, the date or dates from which
such dividends shall be cumulative;
(d) to fix the price or prices at which, the times during which, and
the other terms, if any, upon which the shares of any such series may be
redeemed;
(e) to fix the rights, if any, which the holders of shares of any
such series shall have in the event of a dissolution or upon distribution of the
assets of the Company;
(f) to determine whether the shares of any such series shall be made
convertible into or exchangeable for other securities of the Company, including
shares of the Common Stock of the Company or shares of any other series of the
Preferred Stock of the Company, now or hereafter authorized, or any new class of
stock of the Company hereafter authorized, the price or prices or the rate or
rates at which such conversion or exchange may be made, and the terms and
conditions upon which any such conversion right or exchange right may be
exercised;
(g) to determine whether a sinking fund shall be provided for the
purchase or redemption of shares of such series and, if so, to fix the terms and
amount of such sinking fund;
(h) to determine whether the shares of any such series shall have
voting rights, and, if so, to fix the voting rights of the shares of such
series, provided, however, that the holders of shares of Preferred Stock shall
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not be entitled to more than one vote per share when voting as a class with the
holders of shares of Common Stock; and
(i) to fix such other preferences, rights, privileges and
restrictions applicable to any such series as may be permitted by law.
Subject to the prior rights of the holders of any shares of
Preferred Stock, the holders of the Common Stock shall be entitled to receive,
to the extent permitted by law, such dividends as may be declared from time to
time by the Board of Directors.
Subject to the provisions of applicable law and the Company's Bylaws
with respect to the closing of the transfer books or the fixing of a record date
for the determination of stockholders entitled to vote, the holders of
outstanding shares of capital stock of the Company shall exclusively possess the
voting power for the election of directors of the Company and for all other
purposes as prescribed by applicable law, with each holder of record of shares
of Common Stock having voting power being entitled to one vote for each share of
Common Stock registered in his or its name on the books, registers and/or
accounts of the Company (subject to the immediately succeeding paragraph).
Subject to the provisions of applicable law, at all elections of
directors of the Company, each holder of record of shares of Common Stock having
voting power shall be entitled to as many votes as shall equal the number of
votes which (except for this sentence) such holder would be entitled to cast for
the election of directors with respect to such shares of Common Stock,
multiplied by the number of directors to be elected by such holder, and such
holder may cast all of such votes for a single director or may distribute them
among the number to be voted for, or for any two or more of them as such holder
may see fit.
Election of directors need not be by written ballot.
FIFTH: The name and mailing address of the incorporator is Paul D.
Aubert, c/o Weil, Gotshal & Manges, LLP, 700 Louisiana Ave, Suite 1600, Houston,
Texas 77002, Phone: (713) 546-5260.
SIXTH: A director of the Company shall not be personally liable
either to the Company or to any stockholder
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for monetary damages for breach of fiduciary duty as a director, except (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
or (ii) for acts or omissions which are not taken or omitted to be taken in good
faith or which involve intentional misconduct or knowing violation of the law,
or (iii) for any matter in respect of which such director would be liable under
Section 174 of the DGCL or any amendment or successor provision thereto, or (iv)
for any transaction from which the director shall have derived an improper
personal benefit. Neither the amendment nor the repeal of this Article SIXTH nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article SIXTH shall eliminate or reduce the effect of this Article
SIXTH in respect of any matter occurring, or any cause of action, suit or claim
that, but for this Article SIXTH, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director or an officer of the
Company, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the fullest extent and in the
manner set forth in and permitted by the DGCL, and any other applicable law, as
from time to time in effect. Such right of indemnification shall not be deemed
exclusive of any other rights to which such director or officer may be entitled
apart from the foregoing provisions. The foregoing provisions shall be deemed to
be a contract between the Company and each director and officer who serves in
such capacity at any time while this Article SIXTH and the relevant provisions
of the DGCL and other applicable law, if any, are in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action
then or theretofore brought or threatened based in whole or in part upon any
such state of facts.
The Company may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was an employee or
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agent of the Company, or is or was serving at the request of the Company, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the extent and in the manner set forth in and permitted by the DGCL, and any
other applicable law, as from time to time in effect. Any such indemnification
shall not be deemed exclusive of any other rights to which any such person may
be entitled.
SEVENTH: Notwithstanding Section 228(a) of the DGCL, any action
required or permitted to be taken by the stockholders of the Company must be
effected at a duly called annual or special meeting of such stockholders and may
not be effected by any consent in writing by such stockholders. Except as
otherwise required by law and subject to the rights of the holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation, special meetings of stockholders of the Company may be called
only by the Chairman of the Board, the President, or the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors.
EIGHTH: The Company expressly elects not to be governed by Section
203 of the DGCL.
NINTH: Notwithstanding any other provision contained herein, the
Company shall not issue nonvoting equity securities (which term shall not
include any warrant to purchase shares of Common Stock) in connection with the
Plan of Reorganization dated April 30, 1998 Proposed by Barry's Jewelers, Inc.
and shall comply, to the extent applicable, with Section 1123(a)(6) of Chapter
11 of Title 11 of the United States Code; provided, that this Article NINTH may
be amended or repealed as permitted by applicable law.
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IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Incorporation on this 20th day of August, 1998.
SOLE INCORPORATOR:
By: /s/ Paul D. Aubert
----------------------------------
Name: Paul D. Aubert
6
EXHIBIT 3.2
Adopted by the
Board of Directors
on 08/26/98
SAMUELS JEWELERS, INC.
-------------------
BY-LAWS
-------------------
ARTICLE I
OFFICES
Section 1.1. Registered office in Delaware. The registered office of
the Corporation in the State of Delaware shall be in the City of Wilmington,
County of New Castle.
Section 1.2. Other Offices. The principal executive offices of the
Corporation shall be in Austin, Texas. The Corporation may also have offices in
such other places as the Board of Directors may from time to time determine or
the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. Place of Meetings. All meetings of the stockholders
shall be held at the executive offices of the Corporation in Austin, Texas, or
at such other place as may be designated by the Board of Directors or, in the
case of a special meeting called by the Chairman of the Board or the President,
by the person calling the meeting.
Section 2.2. Annual Meetings. An annual meeting of the stockholders,
for the election of directors and for the transaction of such other business as
may properly come before the meeting, shall be held on the first Tuesday
following the first Monday in November, or on such other date or at such other
time as the Board of Directors may designate.
Written notice of an annual meeting of stockholders, stating the
place, date and hour of the meeting, shall be mailed to each stockholder
entitled to vote thereat, at such
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address as appears on the records of the Corporation, not less than ten nor more
than sixty (60) days prior to the date of the meeting.
At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be a. specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, b. otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or c. otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not later than ninety (90) days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the date of the annual
meeting is advanced by more than thirty (30) days from such anniversary date,
then, to be considered timely, notice by the stockholder must be received not
later than the close of business on the tenth day following the date on which
notice of such meeting was mailed to stockholders. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (1) a brief description of the business desired to be
brought before the annual meeting, (2) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such business, (3) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder, and (4) any material interest of the stockholder in such
business. Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2. The presiding officer of an annual meeting shall,
if the facts warrant, determine that business was not properly brought before
the meeting in accordance with the provisions of this Section 2, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 2.3. Special Meetings. Except as otherwise required by law
and subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation, special
meetings of the stockholders may be called only by the Chairman of the Board,
the President or the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors.
Written notice of a special meeting of the stockholders, stating the
place, date and hour of the meeting, and the purpose or purposes for which the
meeting is called, shall be mailed to each stockholder entitled to vote thereat,
at such address as appears on the records of
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the Corporation, not less than ten nor more than sixty (60) days prior to the
date of the meeting.
The business transacted at any special meeting of the stockholders
shall be confined to the purpose or purposes stated in the call.
Section 2.4. Organization. Each meeting of the stockholders shall be
presided over by the Chairman of the Board, or in the absence of the Chairman,
by the President; if neither is present, the meeting shall be presided over by a
chairman to be chosen at the meeting. The Secretary of the Corporation shall act
as secretary of the meeting; if he is not present, the secretary of the meeting
shall be such person as the presiding officer appoints.
Section 2.5. Voting. At each meeting of the stockholders, each
stockholder shall have one vote for each share of stock having voting power
registered in his name on the books of the Corporation. Each stockholder having
the right to vote may vote in person or by proxy appointed either by an
instrument in writing or by a transmission permitted by Section 212(c)(2) of the
Delaware General Corporation Law subscribed or transmitted, as the case may be,
by such stockholder or by his authorized agent, except that no proxy shall be
voted after three years from its date unless such proxy provides for a longer
period.
Section 2.6. Quorum. At all meetings of the stockholders, the
presence, in person or by proxy, of the holders of record of a majority of the
shares issued and outstanding and entitled to vote thereat shall constitute a
quorum for the transaction of business, except as otherwise provided by law, by
the Certificate of Incorporation or by these By-Laws.
In the absence of a quorum, the holders of record of a majority of
the shares present in person or by proxy and entitled to vote at the meeting may
adjourn the meeting from time to time until a quorum is present. No notice need
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken, unless the adjournment is for
more than thirty (30) days or a new record date is fixed for the adjourned
meeting, in which event a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat. At any such adjourned meeting at
which a quorum is present, any business may be transacted that might have been
transacted at the meeting as originally called.
Section 2.7. Vote Required for Action. At each meeting of the
stockholders, if a quorum is present, the affirmative vote of the holders of a
majority of the shares represented in person or by proxy and entitled to vote
shall decide all matters brought before the meeting, except as otherwise
provided by law, by the Certificate of Incorporation or by these By-Laws.
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Section 2.8. List of Stockholders. A complete list of the
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting at the place
where the meeting is to be held. The list shall also be kept at the place of the
meeting during the whole time thereof and shall be open to inspection by any
stockholder who is present.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, the Board of Directors may exercise all
powers and do all such acts and things as may be exercised or done by the
Corporation.
Section 3.2. Number, Election, Term of Office and Qualification.
Unless and until changed by amendment to this By-Law, the number of directors
constituting the Board of Directors shall be not less than five (5) nor more
than nine (9), the exact number of which shall be fixed by resolution of the
Board of Directors from time to time; provided, however, that if and whenever by
the terms and provisions of the Certificate of Incorporation the holders of any
class of stock other than the common stock shall be entitled to elect additional
directors, the number of directors shall be increased in accordance with the
terms and provisions of the Certificate of Incorporation; and if and whenever
the common stock shall become revested with the exclusive voting right for the
election of directors, the number of directors shall be reduced by the number of
additional directors chosen by the holders of such other class of stock.
Directors need not be stockholders. All elections of directors by the holders of
the common stock shall be by a plurality of the votes cast. Except as otherwise
provided in this Article III, the directors to be chosen by the holders of the
common stock shall be elected at the annual meeting of the stockholders. Each
such director shall continue in office until the annual meeting of the
stockholders held next after his election and until his successor shall have
been elected and shall qualify, or until his earlier resignation or removal. The
directors, if any, to be chosen by the holders of any class of stock other than
the common stock shall be elected in the manner, and their tenure of office
shall be limited, as set forth in the Certificate of Incorporation.
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Subject to the rights of holders of any class or series of stock
having a preference over the common stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the Board of Directors
or a committee appointed by the Board of Directors or by any stockholder
entitled to vote in the election of directors generally. However, any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a meeting only if the
stockholder has given timely notice in writing to the Secretary of the
Corporation of such stockholder's intent to make such nomination or nominations.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation not later than a) with
respect to an election to be held at an annual meeting of stockholders, ninety
(90) days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the date of
the annual meeting is advanced by more than thirty (30) days from such
anniversary date, then, to be considered timely, notice by the stockholder must
be received not later than the close of business on the tenth day following the
date on which notice of such meeting was mailed to stockholders, and b) with
respect to an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the tenth day following the date
on which notice of such meeting was mailed to stockholders. Each such notice
shall set forth: a. the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; b. a representation
that the stockholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; c. a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; d. such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated by the Board of Directors; and e. the consent of each
nominee to serve as a director of the Corporation, if so elected. The presiding
officer of the meeting shall refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.
Section 3.3. Resignation. Any director may resign at any time by
written notice to the Corporation, addressed to the attention of the Chairman of
the Board, the President or the Secretary. Unless otherwise specified therein,
such resignation shall take effect on receipt thereof.
Section 3.4. Vacancies. If the position of any director elected, or
entitled to be elected, by the holders of the common stock becomes vacant by
reason of death, resignation, removal, increase in the number of directors or
otherwise, such vacancy may be filled by the
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vote of a majority of the remaining directors elected, or entitled to be
elected, by the holders of the common stock, though less than a quorum. If the
position of any director elected, or entitled to be elected, by the holders of
stock other than the common stock becomes vacant by reason of death,
resignation, removal from office (otherwise than by reason of the revesting in
the common stock of the exclusive voting right for the election of directors),
or otherwise, such vacancy may be filled by the vote of a majority of the
remaining directors elected, or entitled to be elected, by the holders of such
stock other than the common stock, though less than a quorum.
Section 3.5. Annual and Regular Meetings. As soon as practicable
after the annual meeting of the stockholders in each year, an annual meeting of
the Board of Directors shall be held for the election of officers and for the
transaction of such other business as may properly come before the meeting.
Annual and regular meetings of the Board of Directors may be held at
such times and places (within or without the State of Delaware) as the Board may
from time to time determine. No notice of any such meeting need be given.
Section 3.6. Special Meetings. A special meeting of the Board of
Directors may be called at any time by the Chairman of the Board or by the
President, and shall be called by the Chairman, the President or the Secretary
upon the written request of two directors. The person calling such meeting shall
fix the time and place therefor. Notice of such meeting shall be given a. by
written notice delivered personally, sent by telegram or mailed to each director
at his business or home address or b. by verbal notice communicated personally
or by telephone to each director. Such notice shall be given at least six hours
prior to the meeting, except that if given by mail such notice shall be given at
least two (2) days prior to the meeting. If mailed, such notice shall be deemed
delivered when deposited in the United States mail. If given by telegram, such
notice shall be deemed delivered when the telegram is delivered to the telegraph
company. No such notice need be given to any director if waived by such director
in writing, whether before or after such meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of the Board need be
specified in the notice or waiver of notice of such meeting.
Section 3.7. Quorum and Vote Required for Action. At all meetings of
the Board of Directors, the presence in person of a majority of the total number
of directors shall constitute a quorum for the transaction of business, and,
except as otherwise provided by law, by the Certificate of Incorporation or by
these By-Laws, if a quorum is present, the act of a majority of the directors
present shall be the act of the Board of Directors. In the absence of
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a quorum, a majority of the directors present, without notice other than by
announcement at the meeting, may adjourn the meeting to another date, time or
place.
Section 3.8. Participation in a Meeting by Conference Telephone. A
member of the Board of Directors, or of any committee thereof, may participate
in a meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence at such meeting.
Section 3.9. Written Consent in Lieu of Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 3.10. Compensation. Directors, as such, may receive such
compensation for their services, including their services as members of
committees of the Board of Directors, as the Board of Directors may fix from
time to time.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
Section 4.1. Designation and Powers. The Board of Directors may, by
resolution or resolutions adopted by a majority of the whole Board, designate
one or more committees, each committee to consist of two or more directors,
which, to the extent specified in such resolution or resolutions, and except as
otherwise provided by law, shall have and may exercise all of the powers of the
Board of Directors in the management of the business and affairs of the
Corporation.
The members of each committee shall be appointed by the Board of
Directors. Any member of a committee may resign at any time by written notice
addressed to the Chairman of the Board, the President or the Secretary. Unless
otherwise specified therein, such resignation shall take effect on receipt
thereof. Any member of a committee may be removed at any time, either with or
without cause, by a majority vote of the directors then in office. Any committee
designated pursuant to this Article IV may at any time thereafter be dissolved
by resolution of the Board of Directors.
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Section 4.2. Meetings. Each committee may provide for the holding of
regular meetings at such times and places (within or without the State of
Delaware) as it may from time to time determine. No notice of any such meeting
need be given. A special meeting of a committee may be called at any time by the
chairman of such committee (if one has been appointed) or by Chairman of the
Board or by the President. The person calling such meeting shall fix the time
and place therefor. Notice of such meeting shall be given a. by written notice
delivered personally, sent by telegram or mailed to each member of the committee
at his business or home address or b. by verbal notice communicated personally
or by telephone to each member of the committee. Such notice shall be given at
least six hours prior to the meeting, except that if given by mail such notice
shall be given at least two (2) days prior to the meeting. If mailed, such
notice shall be deemed delivered when deposited in the United States mail. If
given by telegram, such notice shall be deemed delivered when the telegram is
delivered to the telegraph company. Such notice need not state the purpose of
the meeting. Each committee shall keep minutes of its proceedings and shall
report the same to the Board of Directors when so requested by the Board. At any
meeting of a committee, the presence in person of a majority of the members of
the committee shall constitute a quorum for the transaction of business, and,
except as otherwise provided by law, by the Certificate of Incorporation or by
these By-Laws, if a quorum is present, the act of a majority of the members
present shall be the act of such committee. In the absence of a quorum, a
majority of the members present, without notice other than by announcement at
the meeting, may adjourn the meeting to another date, time or place.
ARTICLE V
NOTICES
Section 5.1. Waiver of Notice. Whenever any notice is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a written
waiver thereof signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to such
notice. Neither the business to be transacted at, nor the purpose of, any
meeting need be specified in such waiver.
Section 5.2. Attendance at Meeting. Attendance of a person at any
meeting shall constitute a waiver of notice of such meeting, except when the
person attends such meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
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ARTICLE VI
OFFICERS
Section 6.1. Number. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a
Treasurer, and such other officers as the Board of Directors may from time to
time appoint. Any number of offices may be held by the same person.
Section 6.2. Selection, Term of Office and Duties. All officers
shall be elected by the Board of Directors. Each officer shall hold office until
his successor is elected and qualified or until his earlier resignation or
removal. Each officer shall have such authority and perform such duties as may
be prescribed by these By-Laws or by the Board of Directors.
Section 6.3. Resignation. Any officer may resign at any time by
written notice to the Corporation, addressed to the attention of the Chairman of
the Board, the President or the Secretary. Unless otherwise specified therein,
such resignation shall take effect on receipt thereof.
Section 6.4. Removal. Any officer may be removed at any time, either
with or without cause, by the affirmative vote of a majority of the directors
then in office.
Section 6.5. Vacancies. If an office becomes vacant by reason of
death, resignation, removal or otherwise, such vacancy may be filled by the
Board of Directors.
Section 6.6. Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors or such committee thereof
as the Board may designate.
Section 6.7. Chairman of the Board. The Chairman of the Board shall
be chosen from among the directors and shall, if present, preside at all
meetings of the stockholders and of the Board of Directors. Except where by law
the signature of the President is required, the Chairman of the Board shall
possess the same power as the President to sign all certificates, contracts and
other instruments of the Corporation. The Chairman of the Board shall, subject
to the direction and control of the Board of Directors, have overall
responsibility for the management and supervision of the business and affairs of
the Corporation. He shall, in general, perform all duties incident to the office
of the
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Chairman of the Board and such other duties as from time to time may be assigned
to him by the Board of Directors.
Section 6.8. President. The President shall, subject to the
direction and control of the Board of Directors, share with the Chairman of the
Board responsibility for the management and supervision of the business and
affairs of the Corporation. He shall have the power to sign all certificates,
contracts and other instruments of the Corporation. In general, the President
shall perform all duties incident to the office of the President and shall have
such other duties as the Board of Directors may from time to time prescribe.
Section 6.9. Vice Presidents. Each Vice President shall have such
duties as may be assigned to him from time to time by the Board of Directors. In
the absence of both the Chairman of the Board and the President, or in the event
of his death or disability, the Vice President having the greatest seniority
with the Corporation shall perform the duties and exercise the powers of the
Chairman of the Board and the President.
Section 6.10. Secretary and Assistant Secretaries. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
of the Board of Directors in accordance with these By-Laws, shall attend all
meetings of the stockholders and of the Board of Directors, and shall record
their proceedings in a book to be kept for that purpose. The Secretary shall
have custody of the corporate seal and affix the seal to any instrument
requiring it. He shall perform such other duties as the Board of Directors may
from time to time prescribe.
The Assistant Secretary or Assistant Secretaries, if any, shall, in
the absence or disability of the Secretary, or at his request, perform his
duties and exercise his powers and authority.
Section 6.11. Treasurer and Assistant Treasurers. The Treasurer
shall have custody of the funds and securities of the Corporation, shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation, and shall deposit all money and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer shall disburse the funds of
the Corporation as may be prescribed by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors, at
meetings of the Board of Directors or whenever the Board may require it, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. The Treasurer shall perform such other duties as the Board of
Directors may from time to time prescribe.
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The Assistant Treasurer or Assistant Treasurers, if any, shall, in
the absence or disability of the Treasurer, or at his request, perform his
duties and exercise his powers and authority.
Section 6.12. Delegation of Authority. Notwithstanding any provision
hereof, the Board of Directors may from time to time delegate the powers or
duties of any officer to any other officer.
Section 6.13. Surety Bonds. In the event that the Board of Directors
shall so require, any officer of the Corporation shall execute to the
Corporation a bond in such sum and with such surety or sureties as the Board of
Directors may direct, conditioned on the faithful performance of his duties to
the Corporation.
Section 6.14. Proxies. Subject to such limitations as the Board of
Directors may from time to time prescribe, the Chairman of the Board, the
President and any other officer of the Corporation so authorized by the Chairman
of the Board or the President shall have full power and authority on behalf of
the Corporation to attend, to vote at, and to waive notice of, any meeting of
stockholders of any other corporation, shares of stock of which are owned by or
stand in the name of the Corporation, to execute and deliver proxies and actions
in writing, and otherwise to exercise on behalf of the Corporation any and all
rights and powers incident to the ownership of such shares.
ARTICLE VII
STOCK
Section 7.1. Certificates of Stock. The interest of each stockholder
shall be evidenced by a certificate or certificates representing shares of stock
of the Corporation which shall be in such form as the Board of Directors may
from time to time adopt. Each such certificate shall exhibit the stockholder's
name and the number of shares represented thereby, shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, shall be sealed with the seal of the
Corporation, and shall be countersigned and registered in such manner, if any,
as the Board of Directors may prescribe. If such certificate is signed by a
transfer agent of the Corporation, the signature of any such officer and the
seal of the Corporation on such certificate may be facsimile. If any officer who
has signed, or whose facsimile signature has been used, on any such certificate
shall cease to be such officer of the Corporation before such certificate is
issued and delivered by the Corporation, such certificate may nevertheless
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be issued and delivered with the same effect as if the person who signed such
certificate, or whose facsimile signature was used thereon, had not ceased to be
such officer. There shall be entered on the stock books of the Corporation the
number of each certificate issued, the number of shares represented thereby, the
name of the person to whom such certificate was issued and the date of issuance
thereof.
Section 7.2. Transfer of Stock. Transfers of shares of the stock of
the Corporation shall be made only on the books of the Corporation by the holder
of record thereof, or by his attorney thereunto duly authorized by a power of
attorney, upon the surrender of the certificate or certificates for such shares
properly endorsed, with such evidence of the authenticity of such transfer,
authorization and other matters as the Corporation or its agents may reasonably
require, and accompanied by all necessary federal and state stock transfer
stamps.
Section 7.3. Lost, Stolen or Destroyed Certificates. A certificate
for shares of stock of the Corporation may be issued in place of any certificate
alleged to have been lost, stolen or destroyed, but only upon delivery to the
Corporation of such evidence of loss, theft or destruction as the Board of
Directors may require, and, if the Board of Directors so requires, of a bond of
indemnity, in form and amount and with one or more sureties satisfactory to the
Board.
Section 7.4. Regulations, Transfer Agents and Registrars. The Board
of Directors may establish such other rules and regulations as it deems
appropriate concerning the issuance and transfer of certificates for shares of
the stock of the Corporation and may appoint one or more transfer agents or
registrars, or both.
Section 7.5. Record Date. (a) In order that the Corporation may
determine the stockholders entitled to notice of and to vote at any meeting of
stockholders, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting. If no record date is fixed
by the Board of Directors, the record date for determining stockholders entitled
to notice of and to vote at a meeting of stockholders shall be the close of
business on the day next preceding the day on which notice of the meeting is
given. A determination of the stockholders of record entitled to notice of and
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
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(b) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be the close of business on
the date on which the Board of Directors adopts the resolution relating thereto.
Section 7.6. Dividends and Reserves. Dividends shall be declared and
paid at such times as the Board of Directors may determine, provided that no
dividends shall be paid or declared contrary to applicable provisions of law or
of the Certificate of Incorporation. The Board of Directors may, from time to
time, set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board, in its discretion, deems proper as a reserve fund for
working capital, or to meet contingencies, or for repairing or maintaining the
property of the Corporation, or for any other purpose that the Board deems to be
in the best interests of the Corporation. The Board of Directors may modify or
abolish any such reserve at any time.
Section 7.7. Record Ownership. The Corporation shall be entitled to
treat the holder of record of any shares of stock of the Corporation as the
holder in fact thereof and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Corporate Seal. The corporate seal of the Corporation
shall be circular and shall have inscribed thereon the name of the Corporation
and the words "Corporate Seal, Delaware." In all cases in which the corporate
seal is authorized to be used, it may be used by causing it or a facsimile of it
to be impressed, affixed, reproduced, engraved or printed.
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Section 8.2. Fiscal Year. The fiscal year of the Corporation shall
be either a 52 or 53 week year which shall commence on the Sunday occurring on
or nearest to June 1 and shall end on the Saturday occurring on or nearest to
the following May 31.
Section 8.3. Amendments. Subject to the provisions of the
Certificate of Incorporation, these By-Laws may be amended or repealed at any
regular meeting of the stockholders, or at any special meeting thereof duly
called for that purpose, at which a quorum is present, by a majority vote of the
shares represented and entitled to vote at such meeting. Subject to the laws of
the State of Delaware, the Certificate of Incorporation and these By-Laws, the
Board of Directors may, by majority vote of those directors present at any
meeting of the Board at which a quorum is present, amend these By-Laws or adopt
such other By-Laws as in their judgment may be advisable for the regulation of
the conduct of the affairs of the Corporation.
/s/ E. Peter Healey
--------------------------
E. Peter Healey
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EXHIBIT 4.1
WARRANT AGREEMENT
This Agreement ("Agreement"), dated as of October 2, 1998, is made between
Samuels Jewelers, Inc., a Delaware corporation (the "Company"), and Norwest Bank
Minnesota, N.A. ("Warrant Agent"), with reference to the following facts:
In connection with the reorganization of the Company pursuant to its Plan
of Reorganization (as confirmed, the "Plan"), which was confirmed by the United
States Bankruptcy Court, Central District of California overseeing the Company's
case under chapter 11 of the United States Bankruptcy Code by order entered on
September 16, 1998, the Company has been authorized and required to issue and
deliver to the holders of Allowed Class 9 Interests (as that term is defined in
the Plan), at the time and subject to the terms and conditions specified in the
Plan, warrants (collectively, and with any additional warrants issued hereunder,
the "Warrants") to purchase up to an aggregate of 263,158 shares of its Common
Stock.
Capitalized terms used herein without definition in context shall have the
meanings, if any, given to such terms in Section 22 hereof.
NOW, THEREFORE, in consideration of these premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the terms and
conditions hereinafter set forth, and the Warrant Agent hereby accepts such
appointment. The Company may from time to time appoint such co-warrant agents as
it may deem necessary or desirable.
Section 2. Form of Warrant Certificates. The Warrant Certificates shall be
substantially in the form of Exhibit A hereto and may have such letters, numbers
or other marks of identification or designation and such legends (including,
without limitation, a legend referring to restrictions on resale by statutory
underwriters), summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange or securities trading system on which the Warrants may
from time to time be listed or traded. The Company shall furnish to Warrant
Agent, in writing, any such legend or endorsement. Each Warrant Certificate
shall be dated as of the date on which countersigned by the Warrant Agent,
either upon initial issuance or upon transfer or exchange. Each Warrant shall
entitle the Holder thereof to purchase one share of Common Stock, subject to
adjustment and at the Exercise Price set forth herein, and subject to the other
terms and conditions set forth herein.
Section 3. Issuance, Countersignature and Registration. The Warrants shall
originally be issued as of the Effective Date, subject to the terms and
conditions specified in the Plan, or at such other time or times as may be
provided in the Plan. The Warrant Agent shall, upon the Company's written
instructions, issue, countersign and deliver Warrant Certificates to, or on
written order of, the Company. The Warrant Certificates shall have been executed
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of the Company by its Chairman of the Board, the President or a Senior Vice
President, by facsimile signature, and have affixed thereto a facsimile of the
Company's seal which shall be attested to by the Secretary or an Assistant
Secretary of the Company by facsimile signature. The Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before countersignature by the Warrant Agent and issuance and
delivery by the Company, such Warrant Certificates, nevertheless, may be
countersigned by the Warrant Agent, issued and delivered with the same force and
effect as though the Person who signed such Warrant Certificates had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any Person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such Person was not such an officer.
The Warrant Agent will maintain a Warrant register for registration and
transfer of the Warrant Certificates issued hereunder. Such Warrant register
shall show the names and addresses of the respective Holders of the Warrant
Certificates, the number of Warrants evidenced on its face by each of the
Warrant Certificates, and the date of issuance of each of the Warrant
Certificates.
Notwithstanding any other provision of this Agreement, the Warrant Agent
shall comply with all applicable requirements and rules of each securities
exchange or securities trading system on which the Company shall determine to
list or trade the Warrants in connection with the listing or trading of the
Warrants on each such exchange. The Company shall advise the Warrant Agent of
each securities exchange or securities trading system on which listing is
effected.
Section 4. Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates. Subject
to the provisions of Section 13 hereof, any Warrant Certificate may be
transferred, split up, combined or exchanged for another Warrant Certificate or
Warrant Certificates, entitling the Holder to purchase a like number of shares
of Common Stock as the Warrant Certificate or Warrant Certificates surrendered
then entitled him to purchase. Any Holder desiring to transfer, split up,
combine or exchange any Warrant Certificate shall make such request in writing
delivered to the Warrant Agent, and shall surrender the Warrant Certificate or
Warrant Certificates to be transferred, split up, combined or exchanged at the
principal office of the Warrant Agent or at its facility retained for such
purpose at Norwest Bank Minnesota, N.A., Shareowner Services Department, 161
North Concord Exchange, South St. Paul, Minnesota 55075. Thereupon, the Company
shall have such other Warrant Certificate or Warrant Certificates signed as
provided in Section 3 and the Warrant Agent shall countersign and deliver to the
Person entitled thereto such Warrant Certificate or Warrant Certificates, as the
case may be, as so requested. The Company may require payment by the Holder of
the Warrant of a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any transfer, split up, combination or exchange of
Warrant Certificates.
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Upon receipt by the Company and the Warrant Agent of evidence satisfactory
to them of the loss, theft, destruction or mutilation of a Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them (including with respect to the amount of such indemnity or
security), and reimbursement by the Holder of the Warrant to the Company and the
Warrant Agent of all expenses incidental thereto, and upon surrender and
cancellation of the Warrant Certificate if mutilated, the Company will make and
deliver a new Warrant Certificate of like tenor to the Warrant Agent for
countersignature and delivery to the Holder in lieu of the Warrant Certificate
so lost, stolen, destroyed or mutilated. Applicants for substitute Warrants
shall also comply with such other regulations and pay such other reasonable
charges as the Company may prescribe.
Section 5. Subsequent Issue of Warrant Certificates. Subsequent to their
original issuance, no Warrant Certificates shall be issued except (a) Warrant
Certificates issued upon any transfer, combination, split up or exchange of
Warrants pursuant to Section 4 hereof, (b) Warrant Certificates issued in
replacement of mutilated, destroyed, lost or stolen Warrant Certificates
pursuant to Section 4 hereof, (c) Warrant Certificates issued pursuant to
Section 6 hereof upon the partial exercise of any Warrant to evidence the
unexercised portion of such Warrant, and (d) Warrant Certificates issued upon
the exercise of the Company's election set forth in Section 10(h). Except as
expressly provided herein, nothing contained in this Agreement shall prohibit or
limit the Company from issuing from time to time additional options, warrants or
other derivative securities representing the right to purchase Common Stock.
Section 6. Exercise of Warrants; Exercise Price.
(a) The Holder of any Warrant Certificate may exercise the Warrants
evidenced thereby in whole or in part at any time after issuance thereof upon
surrender of the Warrant Certificate with the form of election to purchase on
the reverse side thereof duly executed to the Warrant Agent at its facility
maintained for such purpose at Norwest Bank Minnesota, N.A., Shareowner Services
Department, 151 North Concord Exchange, South St. Paul, Minnesota 55075 or at
the principal office of the Warrant Agent, if then different, together with
payment of the Exercise Price for each share of Common Stock as to which the
Warrants are exercised, at or prior to 5:00 p.m. (New York time) on the
Expiration Date. On the Expiration Date, all unexercised Warrants shall
automatically terminate and cease to be of any further force or effect, and all
rights under any outstanding Warrant Certificates shall cease.
(b) The Exercise Price for each share of Common Stock pursuant to the
exercise of a Warrant shall be as follows:
(1) $19.69 per share during the period from the Effective Date
through and including the first anniversary thereof;
(2) $20.69 per share during the period after the first anniversary
of the Effective Date through and including the second anniversary thereof;
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(3) $21.74 per share during the period after the second anniversary
of the Effective Date through and including the third anniversary thereof;
(4) $22.84 per share during the period after the third anniversary
of the Effective Date through and including the fourth anniversary thereof; and
(5) $24.00 per share during the period after the fourth anniversary
of the Effective Date to the Expiration Date.
The Exercise Price shall be subject to adjustment as provided in Section
10 hereof and shall be payable only in the consideration specified in paragraph
(c) immediately below.
(c) Upon receipt of a Warrant Certificate, with the form of election to
purchase duly executed, accompanied by payment, in cash, or by certified check,
bank draft or postal or express money order payable to the order of the Company,
of the Exercise Price for the shares to be purchased and an amount equal to any
applicable transfer tax, the Warrant Agent shall thereupon promptly: (i)
requisition from the transfer agent of the Common Stock of the Company
certificates for the number of whole shares of Common Stock to be purchased and
the Company hereby authorizes its transfer agent to comply with such requests,
(ii) when appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares, and (iii) promptly after receipt
of such certificates cause the same to be delivered to or upon the order of the
Holder of such Warrant Certificate, registered in such name or names as may be
designated by such Holder, and, when appropriate, after receipt promptly deliver
such cash to or upon the order of the Holder of such Warrant Certificate.
(d) In case the Holder of any Warrant Certificate shall exercise less than
all the Warrants evidenced thereby, a new Warrant Certificate evidencing
Warrants equivalent to the Warrants remaining unexercised shall be issued by the
Warrant Agent to the Holder of such Warrant Certificate or to his duly
authorized assigns, subject to the provisions of Section 13 hereof.
(e) Nothing herein shall be deemed to restrict the Company from purchasing
or otherwise acquiring Warrants at such times, in such manner and for such
consideration as it may deem appropriate.
(f) Notwithstanding any of the provisions of this Agreement or of the
Warrant Certificates to the contrary, the Company may, at its option, issue
replacement Warrant Certificates evidencing Warrants in such form as may be
approved by its Board of Directors to reflect any adjustment or change in the
Exercise Price per share and the number or kind or class of shares of stock or
other securities or property purchasable under the several Warrant Certificates
made in accordance with the provisions of this Agreement.
(g) Notwithstanding anything in this Warrant Agreement to the contrary,
the Company at its option may, at any time after the twentieth (20th)
consecutive trading day on which the
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daily closing price per share of Common Stock as quoted on a national securities
exchange or the Nasdaq National Market or SmallCap has been twenty percent (20%)
or more in excess of the Exercise Price prevailing on each of such trading days,
fix an Exercise Deadline in accordance with this subsection (g) (such daily
closing price shall be the last sale price on such day or, if no sale occurs on
such day, the average of the last reported closing bid and asked prices on such
day). If the Company elects to fix an Exercise Deadline, it shall notify the
Warrant Agent of the Exercise Deadline at least sixty (60) days (unless a
shorter notice shall be satisfactory to the Warrant Agent) before the Exercise
Deadline Date. At least 30 days but not more that 60 days before the Exercise
Deadline Date, the Company shall cause to be mailed an Exercise Deadline Notice
by first class mail to each Holder of a Warrant Certificate, at such Holder's
last address at it appears in the Warrant register. The Exercise Deadline Notice
shall state the Company's election to fix an Exercise Deadline, the Exercise
Deadline Date, and the name and address of the Warrant Agent. Once the Exercise
Deadline Notice is mailed, all Warrants shall become exercisable on or before
the Exercise Deadline. Warrants not exercised on or before the Exercise Deadline
shall expire immediately thereafter and thereafter shall be of no further force
or effect.
Section 7. Cancellation and Destruction of Warrant Certificates. All
Warrant Certificates surrendered for the purpose of exercise (in whole or in
part), exchange, transfer, split up, combination or substitution if mutilated
shall, if surrendered to the Company or to any of its agents, be delivered to
the Warrant Agent for cancellation or in cancelled form, or if surrendered to
the Warrant Agent shall be cancelled by it, and no Warrant Certificates shall be
issued in lieu thereof except as expressly permitted by any of the provisions of
this Agreement. If the Company purchases or acquires Warrants and if the Company
so chooses, the Company may deliver to the Warrant Agent for cancellation and
retirement, and the Warrant Agent shall so cancel and retire, the Warrant
Certificates evidencing said Warrants. The Warrant Agent shall retain all
cancelled Warrant Certificates for a period of one year and return the cancelled
certificates to the Company.
Section 8. Reservation and Availability of Shares of Common Stock. The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of Common Stock, the number
of shares of Common Stock that will be sufficient to permit the exercise in full
of all outstanding Warrants.
When and so long as Warrants representing at least one-quarter (1/4) of
the Warrants originally issued pursuant to and in accordance with the Plan
remain issued and outstanding, the Company shall use reasonable efforts to cause
the Warrants and all shares issuable upon exercise of all issued and outstanding
Warrants to be listed or included for trading on a national securities exchange
or the Nasdaq National Market or SmallCap.
The Company covenants and agrees that it will take all such action as may
be necessary to ensure that all shares of Common Stock delivered upon the
exercise of Warrants shall, at the time of delivery of the certificates for such
shares (subject to payment of the Exercise Price and
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compliance with all other provisions of this Agreement), be duly and validly
authorized and issued and fully paid and nonassessable shares.
The Holder shall pay all expenses in connection with, and all taxes and
other governmental charges that may be imposed with respect to, the issue or
delivery of shares of Common Stock issuable upon the exercise of any Warrant.
Section 9. Common Stock Record Date. Each Person in whose name any
certificate for shares of Common Stock is issued upon the exercise of Warrants
shall for all purposes be deemed to have become the holder of record of the
Common Stock represented thereby, and such certificates shall be dated as of the
exercise date, which is the date upon which the Warrant Certificate evidencing
such Warrants was duly surrendered and payment of the Exercise Price (and any
applicable transfer taxes) was made; provided, however, that if such exercise
date is a date upon which the Common Stock transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding business day
on which the Common Stock transfer books of the Company are open.
No Holder of a Warrant Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of Common Stock or of any
other securities of the Company which may at any time be issuable on the
exercise thereof, nor shall anything contained in this Agreement be construed to
confer upon the Holder thereof, as such, any of the rights of a stockholder of
the Company or any right to vote upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, change of par value, consolidation, merger, conveyance, or otherwise) or,
except as provided in this Agreement, to receive notice of meetings, or to
receive dividends or subscription rights or otherwise, until the Warrant or
Warrants evidenced by the Warrant Certificate shall have been exercised as
provided in this Agreement.
Section 10. Adjustment of Exercise Price, Number of Shares or Number of
Warrants. The Exercise Price, the number of shares of Common Stock covered by
each Warrant and the number of Warrants outstanding are subject to adjustment
from time to time upon the occurrence of the events enumerated in this Section
10.
(a) In case the Company shall at any time after the date of this Agreement
(i) pay dividend on the Common Stock in shares of Common Stock, (ii) subdivide
the outstanding Common Stock into a greater number of shares, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock (other
than in a transaction covered by Section 12), the Exercise Price in effect at
the time immediately prior to such dividend, issuance, subdivision or
combination, and the number of and kind of shares of capital stock issuable at
such time upon exercise of the Warrants shall be proportionately adjusted so
that the Holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which,
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if such Warrant had been exercised immediately prior to such time, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination, or issuance, subject to the provisions of
Section 10(e) hereof. Such adjustment shall be made successively whenever any
event listed above shall occur.
(b) In case the Company shall distribute rights, options or warrants to
all holders of Common Stock entitling them to subscribe for or purchase Common
Stock (or securities convertible into Common Stock), other than any transaction
covered by Section 10(a) or Permitted Issuances, at a price per share of Common
Stock (or having a conversion price per share of Common Stock, if a security
convertible into Common Stock) less than ninety percent (90%) of the Current
Market Price per share of Common Stock on the date of such distribution, then
the Exercise Price to be in effect after such distribution shall be determined
by multiplying the Exercise Price immediately prior to such distribution by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to such distribution plus the number of shares of
Common Stock which the aggregate offering price of the total number of shares of
Common Stock so to be offered (or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such Current Market
Price and of which the denominator shall be the number of shares of Common Stock
outstanding immediately prior to such distribution plus the number of additional
shares of Common Stock so to be offered for subscription or purchase (or into
which the convertible securities to be offered are initially convertible). In
case such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined by the Board of Directors of the Company, whose determination shall
be conclusive, and described in a statement filed with the Warrant Agent. Shares
of Common Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a distribution occurs, subject to
Section 10(d) hereof. No further adjustments of the Exercise Price shall be made
upon the actual issuance of Common Stock upon exercise of such rights, options
or warrants (or the conversion of such convertible securities); provided,
however, that in the event any such rights, options or warrants are not
exercised (or, in the case of convertible securities, are not converted) prior
to the respective expiration dates thereof, then, on each such expiration date,
the Exercise Price shall be readjusted to reverse the adjustment made pursuant
to this Section 10(b) in respect of such number(s) of rights, options or
warrants that were not exercised (or, in the case of convertible securities,
were not converted) prior to such expiration date. Notwithstanding anything to
the contrary set forth in this Section 10(b), in the event the Company shall
distribute any rights, options or warrants to subscribe for or purchase Common
Stock or any securities convertible into Common Stock (other than Permitted
Issuances or any transaction covered by Section 10(a)) pursuant to any so-called
"poison pill" or shareholders' rights or similar plan or agreement, the
distribution of separate certificates representing such rights, options or
warrants subsequent to their initial distribution shall be deemed to be the
distribution thereof for purposes of this Section 10(b); provided that the
Company may, in lieu of making any adjustment pursuant to this Section 10(b)
upon such a distribution of separate certificates, make proper provision so that
each Holder of Warrants who exercises such Warrants (or any portion thereof) (i)
after such initial distribution but before such distribution of separate
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certificates shall be entitled to receive upon such exercise shares of Common
Stock issued with such rights, options or warrants and (ii) after such
distribution of separate certificates and prior to the expiration, redemption or
termination of such rights, options or warrants shall be entitled to receive
upon such exercise, in addition to the shares of Common Stock issuable upon such
exercise, the same number of such rights, options or warrants as would have
accompanied such shares of Common Stock had such Warrants been exercised
immediately prior to such distribution of separate certificates.
(c) In case the Company shall distribute to all holders of Common Stock
evidences of indebtedness, shares of capital stock, assets or rights, options or
warrants to subscribe for or purchase any evidences of indebtedness, shares of
capital stock or assets (other than Permitted Issuances, cash dividends or cash
distributions payable out of consolidated earnings or earned or capital surplus,
and those distributions referred to in Sections 10(a) and 10(b) hereof), the
Exercise Price to be in effect after such distribution shall be determined by
multiplying the Exercise Price in effect immediately prior to such distribution
by a fraction, of which the numerator shall be the Current Market Price per
share of Common Stock on the date of such distribution, less the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a statement filed with the
Warrant Agent) of the portion of the assets, evidences of indebtedness, shares
of capital stock, rights, options or warrants so to be distributed, applicable
to one share of Common Stock, and of which the denominator shall be such Current
Market Price per share of Common Stock. Such adjustments shall be made
successively whenever such a distribution occurs, subject to Section 10(d)
hereof.
(d) No adjustment in the Exercise Price shall be required unless such
adjustment, together with any amount being carried forward as hereinafter
provided, would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 10(d)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 10 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be. Notwithstanding the first sentence of this Section 10(d), any adjustment
required by this Section 10 shall be made no later than the expiration of the
right to exercise any Warrant.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Section 10(a) hereof, the Holder of any Warrant thereafter exercised
shall become entitled to receive any shares of capital stock of the Company
other than shares of Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Section 10(a) through
(c) hereof, inclusive, and the provision of this Agreement with respect to the
shares of Common Stock shall apply on like terms to any such other shares.
(f) Irrespective of any adjustments in the Exercise Price or the number of
shares of Common Stock issuable upon the exercise of Warrants, Warrant
Certificates theretofore or
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thereafter issued may continue to express the Exercise Price and the number of
shares as are stated in the Warrant Certificates issuable initially, or at some
subsequent time, pursuant to this Agreement, and the Exercise Price and such
number of shares specified thereon shall be deemed to have been so adjusted.
(g) Unless the Company shall have exercised its election as provided in
Section 10(h) hereof, upon each adjustment of the Exercise Price as a result of
the calculations made in Section 10(b) or 10(c) hereof, each Warrant outstanding
immediately prior to the making of such adjustment shall thereafter be deemed to
evidence the right to purchase, at the adjusted Exercise Price, that number of
shares (calculated to the nearest one-hundredth) obtained by (i) multiplying the
number of shares covered by a Warrant immediately prior to this adjustment of
the number of shares by the Exercise Price in effect immediately prior to such
adjustment of the Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect immediately after such adjustment of the Exercise
Price.
(h) The Company may elect on or after the date of any adjustment of the
Exercise Price pursuant to this Section 10 to adjust the number of Warrants, in
substitution for any adjustment in the number of shares of Common Stock
purchasable upon the exercise of a Warrant as provided in Section 10(a) or 10(g)
hereof. Each of the Warrants outstanding after such adjustment of the number of
Warrants shall be exercisable for one share of Common Stock. Each Warrant held
of record prior to such adjustment of the number of Warrants shall become that
number of Warrants (calculated to the nearest one-hundredth) obtained by
multiplying the number of Warrants by the result obtained by dividing the
Exercise Price in effect prior to adjustment of the Exercise Price by the
Exercise Price in effect after adjustment of the Exercise Price. The Company
shall, at its election, either (i) make a public announcement and cause the
publication in the Wall Street Journal or another newspaper or newspapers of
general circulation in the New York, Los Angeles and Austin, Texas metropolitan
areas of its election to adjust the number of Warrants or (ii) cause notice of
such election to be mailed to each Holder of Warrants at the time of such
mailing, in either case indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Exercise Price is adjusted or any day thereafter, but
shall be at least ten (10) days later than the date of the public announcement.
Upon each adjustment of the number of Warrants pursuant to this subsection (h),
the Company shall as promptly as practicable cause to be distributed to Holders
of Warrant Certificates on such record date Warrant Certificates evidencing,
subject to Section 13, the additional or substitute Warrants to which such
Holders shall be entitled as a result of such adjustment; or, at the option of
the Company, shall cause to be distributed to such Holders in substitution and
replacement for the Warrant Certificates held by such Holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Warrant Certificates evidencing all the Warrants to which such Holders shall be
entitled after such adjustment. Warrant Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein (and
shall bear the adjusted Exercise Price) and shall be registered in the names of
the Holders of Warrant Certificates on the record date specified in the public
announcement.
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(i) Anything in this Section 10 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Exercise Price, in
addition to those adjustments required by this Section 10, as it in its sole
discretion shall determine to be advisable in order that the following action
shall not be taxable to the holders of Common Stock: (i) any consolidation or
subdivision of the Common Stock, (ii) issuance to such stockholders wholly for
cash of any Common Stock at less than the Current Market Price, (iii) issuance
to such stockholders wholly for cash of Common Stock or securities which by
their terms are convertible into or exchangeable for Common Stock, (iv) any
stock dividend to such stockholders or (v) issuance to such stockholders of
rights, options or warrants referred to hereinabove in this Section 10.
Section 11. Certification of Adjusted Exercise Price and Number of Shares
Issuable. Whenever the Exercise Price and the number of shares of Common Stock
issuable upon the exercise of each Warrant are adjusted as provided in Section
10 above, the Company shall (a) promptly file with the Warrant Agent and with
the transfer agent for the Common Stock a copy of a certificate setting forth
the Exercise Price as so adjusted, the number of shares of Common Stock issuable
upon the exercise of each Warrant as so adjusted, and a brief statement of the
facts accounting for such adjustment, and (b) mail a brief summary thereof to
each Holder of a Warrant Certificate at the time of such mailing. At the
Company's request, the Warrant Agent shall give such notice under paragraph (b)
in the preceding sentence in the Company's name and at its expense. Failure to
give such notice, or any defect therein, shall not affect the legality or
validity of any action referred to in Section 10 hereof.
Section 12. Consolidation, Merger or Sale of Assets. Subject to any
election by the Company pursuant to Section 20 hereof, if (i) the Company shall
at any time consolidate with or merge with or into another corporation and (ii)
the Common Stock is exchanged, cancelled or reclassified in connection with such
transaction, the Holder of any outstanding Warrants will thereafter receive,
upon the exercise thereof in accordance with the terms of this Agreement, the
securities, property or cash to which the holder of the number of shares of
Common Stock deliverable upon the exercise of such Warrants immediately prior to
such transaction would have been entitled upon such consolidation or merger, and
the Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure that the provisions hereof shall thereafter
be applicable, as nearly as reasonably may be, in relation to any securities or
property thereafter deliverable upon the exercise of the Warrants. Prior to or
simultaneously with such transaction, the Company or the successor corporation,
as the case may be, shall execute and deliver to the Warrant Agent a
supplemental agreement so providing. A sale or lease of all or substantially all
of the assets of the Company for a consideration (apart from the assumption of
obligations) consisting primarily of securities shall be deemed a consolidation
or merger for the purpose of clause (i) of the first sentence of this Section
12. The provisions of this Section 12 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 13. Fractional Warrants and Fractional Shares.
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(a) Notwithstanding an adjustment pursuant to Section 10(h) hereof in the
number of Warrants, the Company shall not be required to issue Warrant
Certificates which evidence Warrants to purchase fractional shares. If the
Company so elects, in lieu of such fractional Warrants, there shall be paid to
the Holders of the Warrant Certificates with regard to which such fractional
Warrants would otherwise be issuable, an amount in cash equal to the same
fraction of the current market value of a Warrant to purchase a whole share. For
the purpose of this Section 13(a), the current market value of a Warrant to
purchase a whole share shall be the closing price of the Warrant for the trading
day immediately prior to the date on which such fractional Warrant would have
been otherwise issuable, or if the Warrants are then neither publicly traded on
any established securities market nor quoted on any recognized system, the value
determined in good faith by the Board of Directors of the Company in its
discretion (which determination shall be conclusive). The closing price for any
date shall be determined as provided in the definition of "Current Market Price"
in Section 22 hereof, the references to Common Stock therein being deemed
references to Warrants.
(b) Notwithstanding an adjustment pursuant to Section 10(a) or 10(g)
hereof in the number of shares covered by a Warrant, the Company shall not be
required to issue fractions of shares upon exercise of the Warrants or to
distribute certificates which evidence fractional shares. In lieu of fractional
shares, at the Company's election, there shall be paid to the Holders of
Warrants at the time such Warrants are exercised as herein provided an amount of
cash equal to the same fraction of the current market value of a share of Common
Stock. If more than one Warrant Certificate shall be surrendered for exercise of
the Warrants represented thereby at any one time by the same Holder, the number
of shares of Common Stock which shall be issuable on exercise thereof shall be
computed on the basis of the aggregate number of shares of Common Stock issuable
on such exercise. For purposes of this Section 13(b), the current market value
of a share of Common Stock shall be determined as provided in the definition of
"Current Market Price" in Section 22 hereof) for the trading day immediately
prior to the date of such exercise.
(c) The Holder of a Warrant, by the acceptance of the Warrant, expressly
waives any right to receive any fractional Warrant or any fractional share upon
exercise of a Warrant.
Section 14. Right of Action. All rights of action in respect of this
Agreement are vested in the respective Holders of the Warrant Certificates;
provided, however, that no Holder of any Warrant Certificate shall have the
right to enforce, institute or maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, the Warrants evidenced
by such Warrant Certificate, unless (a) such Holder shall have previously given
written notice to the Company of the substance of such dispute, and Holders of
at least five percent (5%) of the then outstanding Warrants shall have given
written notice to the Company of their support for the institution of such
proceeding to resolve such dispute, (b) written notice of the substance of such
dispute and of the support for the institution of such proceeding by such
Holders shall have been provided by the Company to the Warrant Agent, and (c)
the Warrant Agent shall not have instituted appropriate proceedings with respect
to such dispute within thirty (30) days following the date of such written
notice to the Warrant Agent, it being understood
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and intended that no one or more Holders of Warrant Certificates shall have the
right in any manner whatever by virtue of, or by availing of, any provision of
this Agreement to affect, disturb or prejudice the rights of any other Holders
of Warrant Certificates, or to obtain or to seek to obtain priority in
preference over any other Holders or to enforce any right under this Agreement,
except in the manner herein provided for the equal and ratable benefit of all
Holders of Warrant Certificates. Except as provided in this Section 14, no
Holder of a Warrant Certificate shall have the right to enforce, institute or
maintain any suit, action or proceeding to enforce, or otherwise act in respect
of, the Warrants.
Section 15. Agreement of Warrant Certificate Holders. Every Holder of a
Warrant Certificate by accepting the same consents and agrees with the Company
and the Warrant Agent and with every other Holder of a Warrant Certificate that:
(a) the Warrant Certificates are transferable only on the Warrant register
of the Warrant Agent and if surrendered at the principal office of the Warrant
Agent or at its facility retained for such purpose at Norwest Bank Minnesota,
N.A., Shareowner Services Department, 161 North Concord Exchange, South St.
Paul, Minnesota 55075, duly endorsed or accompanied by an instrument of transfer
in form and substance satisfactory to the Company and the Warrant Agent;
(b) the Company and the Warrant Agent may deem and treat the Person in
whose name each Warrant Certificate is registered as the absolute owner in fact
thereof and of the Warrants evidenced thereby (notwithstanding any notations of
ownership or writing on the Warrant Certificates made by anyone other than the
Company or the Warrant Agent) for all purposes whatsoever, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary;
(c) except as provided in Section 14, no Holder of a Warrant Certificate
shall have the right to enforce, institute or maintain any suit, action or
proceeding to enforce, or otherwise act in respect of, the Warrants; and
(d) the Warrant Agent is solely the agent of the Company hereunder.
Section 16. Concerning the Warrant Agent. The Company agrees to pay to the
Warrant Agent from time to time compensation for all services rendered by it
hereunder as the Company and Warrant Agent may agree from time to time, and,
from time to time, on demand of the Warrant Agent, its reasonable expenses and
counsel fees and other disbursements reasonably incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Warrant Agent for, and to
hold it harmless against, any loss, claim, liability, or expense, incurred
without negligence or bad faith on the part of the Warrant Agent, arising out of
or in connection with the acceptance and administration of this Agreement,
including the costs and expenses of defending against any claim or liability
arising out of or resulting from the acceptance and
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administration of this Agreement or in connection with the exercise or
performance of any of its powers or duties hereunder.
The Warrant Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered, or omitted by it in connection with
its administration of this Agreement in reliance upon any Warrant Certificate or
certificate for Common Stock or for other securities of the Company, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document
in good faith believed by it to be genuine and to be signed, executed and, where
necessary, verified and acknowledged, by the proper Person or Persons.
The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all immediately available
funds received by the Warrant Agent for the purchase of the Common Stock through
the exercise of such Warrants. The Warrant Agent shall, upon request of the
Company from time to time, deliver to the Company such complete reports of
registered ownership of the Warrants and such complete records or transactions
with respect to the Warrants and the shares of Common Stock as the Company may
request. The Warrant Agent shall also make available to the Company for
inspection by the Company's agents or employees, from time to time as the
Company may request, such original books of accounts and records maintained by
the Warrant Agent in connection with the issuance and exercise of Warrants
hereunder, such inspections to occur at the Warrant Agent's principal office.
The Warrant Agent shall keep copies of this Warrant Agreement and any notices
given or received hereunder available for inspection by the Company or the
Holders at the Warrant Agent's principal office.
Section 17. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation into which the Warrant Agent or any successor Warrant Agent may
be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Warrant Agent or any successor
Warrant Agent shall be a party, or any corporation succeeding to the corporate
trust business of Warrant Agent or any successor Warrant Agent, shall be the
successor to the Warrant Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as successor
Warrant Agent under the provisions of Section 19 hereof. In case at the time
such successor Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrant Certificates shall have been countersigned but not
delivered, any such successor Warrant Agent may adopt the countersignature of
the predecessor Warrant Agent and deliver such Warrant Certificates
countersigned; and in case at the time any of the Warrant Certificates shall not
have been countersigned, any successor Warrant Agent may countersign such
Warrant Certificates either in the name of the predecessor Warrant Agent or in
the name of the successor Warrant Agent; and in all such cases such Warrant
Certificates shall have the full force provided in the Warrant Certificates and
in this Agreement.
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In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrant Certificates so countersigned; and in case at that time any
of the Warrant Certificates shall not have been countersigned, the Warrant Agent
may countersign such Warrant Certificates either in its prior name or in its
changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
Section 18. Duties of Warrant Agent. The Warrant Agent undertakes only the
specific duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the Holders of Warrant
Certificates, by their acceptance thereof, shall be bound:
(a) The Warrant Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Warrant Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion,
provided the Warrant Agent shall have exercised reasonable care in the selection
by it of such counsel.
(b) Whenever in the performance of its duties under this Agreement, the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the President
or a Vice President of the Company and delivered to the Warrant Agent; and such
certificate shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Warrant Agent shall be liable hereunder only for its own
negligence, willful misconduct or bad faith.
(d) The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except such as describe the Warrant Agent and its countersignature
thereof) or be required to verify the same, but all such statements and recitals
are and shall be deemed to have been made by the Company only.
(e) The Warrant Agent shall not be under any responsibility in respect of
and makes no representation as to the validity of this Agreement or the
execution and delivery hereof (except the due execution and delivery hereof by
the Warrant Agent) or in respect of the validity or execution of any Warrant
Certificate (except for its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Warrant Certificate; nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common
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Stock to be issued pursuant to this Agreement or any Warrant Certificate or as
to whether any shares of Common Stock will, when issued be validly authorized
and issued, fully paid and nonassessable.
(f) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, or a Vice President of the Company, and to
apply to such officers for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer.
(g) The Warrant Agent and any shareholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Warrant Agent
under this Agreement, so long as such Persons do so in full compliance with all
applicable laws. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents.
(i) The Warrant Agent shall act solely as the agent of the Company
hereunder. The Warrant Agent shall not be liable except for the failure to
perform such duties as are specifically set forth herein, and no implied
covenants or obligations shall be read into this Agreement against the Warrant
Agent, whose duties shall be determined solely by the express provisions hereof.
(j) The Warrant Agent shall not have any duty to calculate or determine
any adjustments with respect either to the Exercise Price or the kind and amount
of shares or other securities or any property receivable by Holders of Warrant
Certificates upon the exercise of Warrants required from time to time, and the
Warrant Agent shall have no duty or responsibility in determining the accuracy
or correctness of such calculations.
(k) The Warrant Agent shall not be responsible for any failure on the part
of the Company to comply with any of its covenants and obligations contained in
this Agreement or in the Warrant Certificates.
(l) The Warrant Agent shall not be under any obligation or duty to
institute, appear in or defend any action, suit or legal proceeding in respect
hereof, unless first indemnified to its satisfaction, but this provision shall
not affect the power of the Warrant Agent to take such action as the Warrant
Agent may consider proper, whether with or without such indemnity. The Warrant
Agent shall promptly notify the Company in writing of any claim made or action,
suit or proceeding instituted against it arising out of or in connection with
this Agreement.
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(m) The Company will perform, execute, acknowledge and deliver or cause to
be performed, executed, acknowledged and delivered all such further acts,
instruments or assurances as may be reasonably required by the Warrant Agent in
order to enable it to carry out or perform its duties under this Agreement.
Section 19. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement upon 30 days' notice in writing
mailed to the Company by registered or certified mail, return receipt requested,
and to the Holders of the Warrant Certificates by first-class mail at the
expense of the Company. The Company may remove the Warrant Agent or any
successor Warrant Agent upon 30 days' notice in writing, mailed to the Warrant
Agent or successor Warrant Agent, as the case may be, and to the transfer agent
of the Common Stock by registered or certified mail, return receipt requested,
and to the Holders of the Warrant Certificates by first-class mail. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall promptly appoint a successor to the Warrant Agent,
which the Company may designate as an interim Warrant Agent. If the Company
appoints an interim Warrant Agent, the Company shall then appoint a permanent
successor to the Warrant Agent, which may be the interim Warrant Agent. If the
Company shall fail to make such appointment of a permanent successor within a
period of 30 days after such removal or within 60 days after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by the Holder of a Warrant Certificate (who
shall, with such notice, submit his Warrant Certificate for inspection by the
Company), then the Warrant Agent or Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a successor
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court, shall be a corporation organized and doing business under the
laws of the United States or of any State of the United States, in good
standing, which is authorized under such laws to exercise corporate trust powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Warrant Agent a combined capital and
surplus of at least $100,000,000. After appointment, the successor Warrant Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Warrant Agent without further act or deed; but
the predecessor Warrant Agent shall deliver and transfer to the successor
Warrant Agent any property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance, act or deed necessary for the
purpose. No later than the effective date of any such appointment, the Company
shall file notice thereof in writing with the predecessor Warrant Agent and the
transfer agent of the Common Stock, and mail a notice thereof in writing to the
Holders of the Warrant Certificates. Failure to give any notice provided for in
this Section 19, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 20. Redemption of Warrants.
(a) Notwithstanding anything in this Warrant Agreement to the contrary,
the Warrants are subject to redemption at the Company's option at any time prior
to the Expiration Date, as
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<PAGE>
a whole or from time to time in part, during the 12-month period beginning on
the effective date of any Subject Transaction, at the Redemption Price.
(b) The Redemption Price shall be paid as follows:
(i) In cash, in the event that the Subject Transaction with
respect to which the Company asserts the right to
exercise its option to redeem the Warrant is a sale of
all or substantially all of the Company's assets or
common stock in an all cash transaction; or
(ii) In publicly traded stock or other securities, in the
event that the Subject Transaction with respect to which
the Company asserts the right to exercise its option to
redeem the Warrant is a non-cash sale of the kind
described in Section 20(b)(i) above or public offering
by the Company or a merger or consolidation by the
Company; or
(iii) In both cash and publicly traded stock or other
securities, in appropriate proportions, in the event
that the Subject Transaction with respect to which the
Company asserts the right to exercise its option to
redeem the Warrant is a transaction involving
consideration to the Company or its stockholders in the
form of both cash and securities.
In the event that a Subject Transaction with respect to which the Company
asserts the right to exercise its option to redeem the Warrant is a transaction
including consideration to the Company or its stockholders other than in the
form of cash, such non-cash consideration shall have the value determined in
good faith by the Board of Directors of the Company in its discretion (which
determination shall be conclusive).
Section 21. Notice of Redemption and Selection.
(a) If the Company elects to redeem Warrants pursuant to Section 20
hereof, it shall notify the Warrant Agent of the Redemption Date and the number
of Warrants to be redeemed. The Company shall give each such notice to the
Warrant Agent at least 60 days (unless a shorter notice shall be satisfactory to
the Warrant Agent) before the Redemption Date.
(b) If fewer than all the Warrants are to be redeemed, the Warrant Agent
shall select any of the Warrants to be redeemed pro rata or by lot. The Warrant
Agent shall make the selection from the Warrants outstanding not previously
called for redemption, as applicable. Provisions of this Agreement that apply to
Warrant Certificates called for redemption also apply to portions of Warrant
Certificates called for redemption.
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(c) At least 30 days but not more than 60 days before a Redemption Date,
the Company shall cause to be mailed a notice of redemption by first class mail
to each Holder of Warrant Certificates to be redeemed, at such Holder's last
address as it appears in the Warrant register. The notice shall identify the
Warrant Certificates to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Warrant Agent;
(4) in the event that any Warrant Certificate is to be redeemed in
part only, the portion thereof to be redeemed and that, on and
after the Redemption Date, upon surrender of such Warrant
Certificate, a new Warrant Certificate or Warrant Certificates
in number equal to the unredeemed portion thereof will be
issued;
(5) that Warrant Certificates called for redemption must be
surrendered to the Warrant Agent to collect the Redemption
Price.
At the Company's request, the Warrant Agent shall give the notice of
redemption in the Company's name and at its expense.
(d) From and after mailing of Notice of Redemption, Warrants or portions
thereof to be redeemed may not be exercised.
(e) Once notice of redemption is mailed, Warrant Certificates called for
redemption become due and payable on the Redemption Date and at the Redemption
Price. Upon surrender to the Warrant Agent, such Warrant Certificates shall be
paid at the Redemption Price.
(f) On or before the Redemption Date, the Company shall deposit with the
Warrant Agent money sufficient to pay the Redemption Price of all Warrant
Certificates to be redeemed on that date.
(g) Upon surrender of a Warrant Certificate that is redeemed in part, the
Warrant Agent shall authenticate for the Holder a new Warrant Certificate equal
in principal amounts to the unredeemed portion of the Warrant surrendered.
Section 22. Definitions. In this Agreement, the following terms shall
have the meanings set forth below:
"Affiliate" of any Person shall mean any Person controlling, controlled by
or under common control with such Person.
"Agreement" shall have the same meaning given it in the first paragraph of
this Agreement.
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"Common Stock" shall mean the Common Stock ($.001 par value) of the
Company, as constituted on the Effective Date.
"Company" shall have the meaning given to such term in the first paragraph
of this Agreement.
"Current Market Price" of a share of Common Stock on any date shall be
deemed to be the average of the daily closing prices per share of Common Stock
for the 20 consecutive trading days immediately preceding such date, or if the
Common Stock is then neither publicly traded on any established securities
market nor quoted in any recognized system, the value determined in good faith
by the Board of Directors of the Company in its discretion (which determination
shall be conclusive). The closing price for each day shall be the last sale
price regular way or, in case no such sale takes place on such day, the average
of the closing bid and asked prices regular way, on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or on the Nasdaq National Market or SmallCap, or if the Common Stock is not
listed or admitted to trading on any national securities exchange or on the
Nasdaq National Market or SmallCap, the average of the highest reported bid and
lowest reported asked prices as furnished by the NASD; provided, that if the
NASD is not engaged at the time in the business of furnishing such prices, as
furnished by any similar firm then engaged in such business, or if there is no
such firm, as furnished by any member of the NASD selected by the Company.
"Effective Date" shall mean October 1, 1998.
"Exercise Deadline" shall mean, with reference to Section 6(g), a time
fixed by the Company at which all unexercised Warrants shall terminate and cease
to be of any further force or effect, and all rights under any Warrant
Certificates evidencing any such Warrants shall become null and void.
"Exercise Deadline Date" shall be the date on which an Exercise Deadline
takes place.
"Exercise Deadline Notice" shall mean notice given by the Company to the
Holders of Warrant Certificates in accordance with Section 6(g) hereof.
"Exercise Price" shall mean at any date the price on such date pursuant to
this Agreement at which the Holder of a Warrant may purchase a share of Common
Stock upon exercise of the Warrant pursuant to this Agreement.
"Expiration Date" shall mean the earlier of (i) the fifth anniversary of
the Effective Date, or (ii) the Exercise Deadline.
"Holder" shall mean the Person in whose name a Warrant is registered in
the Warrant register of the Company maintained by or on behalf of the Company
for such purpose.
"NASD" shall mean the National Association of Securities Dealers, Inc.
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<PAGE>
"Net Exercise Value" of a Warrant on any date shall be the positive
difference, if any, on such date between the Current Market Price per share of
Common Stock and the Exercise Price of the Warrant.
"Permitted Issuances" shall mean (i) the issuance of the Warrants, (ii)
the issuance of warrants, rights or stock options or grants to the Company's
management, directors or other employees, or consultants, for the purchase or
grant of shares of Common Stock pursuant to the Plan or any employee benefit or
stock option plan of the Company, and (iii) the issuance of shares of Common
Stock upon exercise of the warrants and options referred to in clauses (i) and
(ii).
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" shall have the meaning given it in the second paragraph of this
Agreement.
"Redemption Date" when used with respect to redemption of the Warrants
shall mean the date fixed for such redemption by or pursuant to this Agreement
and Warrant Certificates.
"Redemption Price" of a Warrant which the Company has elected to redeem
pursuant to Section 20 hereof shall be $.20 per Warrant unless, on the effective
date of the Subject Transaction with respect to which the Company asserts the
right to exercise its option to redeem the Warrant, the Current Market Price per
share of Common Stock is greater than the Exercise Price of the Warrant, in
which case the Redemption Price of the Warrant shall be the greater of (A) $.20
per Warrant or (B) the Net Exercise Value of the Warrant.
"Subject Transaction" shall mean any one of the following transactions:
(i) the sale of all or substantially all of the Company's assets, (ii) the sale
of all or substantially all of the Company's then outstanding Common Stock,
(iii) a public offering by the Company of Common Stock, or (iv) a merger or
consolidation by the Company with or into another corporation (other than in a
merger or consolidation, directly or indirectly, with a Person or entity that is
controlled by an Affiliate of the Company) in which the Company is not the
surviving corporation.
"Warrant" shall have the meaning given it in the second paragraph of this
Agreement.
"Warrant Agent" shall have the meaning given it in the first paragraph of
this Agreement.
"Warrant Certificate" shall mean any certificate substantially in the form
attached as Exhibit A hereto representing a Warrant, and shall include all
Warrants issued upon transfer, split-up, combination or exchange of any thereof.
20
<PAGE>
Section 23. Notice of Proposed Actions. In case the Company shall propose
(a) to pay any dividend payable in Common Stock to the holders of its Common
Stock or to make any other distribution to the holders of its Common Stock
(other than Permitted Issuances, cash dividends or cash distribution payable out
of consolidated earnings or earned or capital surplus, or (b) to offer to the
holders of the Common Stock rights or warrants to subscribe for or to purchase
any additional shares of Common Stock (or securities convertible into Common
Stock), or (c) to effect any reclassification of its Common Stock (other than
reclassification involving only the subdivision or combination of outstanding
shares of Common Stock), or (d) to effect any consolidation, merger or sale, or
lease of all or substantially all of the property, assets or business of the
Company, or (e) to effect the liquidation, dissolution or winding up of the
Company, then, in each such case, the Company shall give to each Holder of a
Warrant, in accordance with Section 24 hereof, a notice of such proposed action,
which shall specify (i) the record date for the purposes of such stock dividend
or distribution of rights or warrants, or (ii) the date on which such
reclassification, consolidation, merger, sale, lease, liquidation, dissolution,
or winding up is to take place and the date of participation therein by the
holders of Common Stock, if any such date is to be fixed; and such notice shall
be so given in the case of any action covered by clause (a) or (b) above at
least twenty (20) days prior to the record date for determining holders of the
Common Stock for purposes of such action, and in the case of any action covered
by clause (c), (d) or (e) above, at least ten (10) days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier. At the Company's
request, the Warrant Agent shall give such notice in the Company's name and at
its expense. The failure to give notice required by this Section 23 or any
defect therein shall not affect the legality or validity of the action taken by
the Company or the vote upon any such action.
Section 24. Notices. Notices or demands authorized by this Agreement to be
given or made by the Warrant Agent or by the Holder of any Warrant Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, return receipt requested, addressed (until another
address is filed in writing with the Warrant Agent) as follows:
Samuels Jewelers, Inc.
Semicon Park
Building 2
2914 Montopolis Drive
Austin, TX 78741
Subject to the provisions of Section 19, any notice or demand authorized by this
Agreement to be given or made by the Company or by the Holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid,
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<PAGE>
return receipt requested, addressed (until another address is filed in writing
with the Company) as follows:
Norwest Bank Minnesota, N.A.
Shareowner Services Department
161 North Concord Exchange
South St. Paul, Minnesota 55075,
Notices or demands authorized by this Agreement to be given or made by the
Company or the Warrant Agent to the Holder of any Warrant Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such Holder at the address of such Holder as shown on the Warrant
register of the Company maintained by the Warrant Agent pursuant to Section 3
hereof.
Section 25. Supplements and Amendments. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval of
any Holders of Warrant Certificates in order to cure any ambiguity, to correct
or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not adversely
affect the interests of the Holders of Warrant Certificates.
The provisions of this Agreement may otherwise from time to time be
supplemented or amended by written agreement of the parties hereto and the
Holders of the outstanding Warrants, subject to the limitations provided in the
balance of this paragraph and elsewhere in this Agreement. The Holders of at
least a majority of the then outstanding Warrants, excluding Warrants held by
the Company, may, on behalf of all of the Holders of then outstanding Warrants,
act to amend or supplement this Agreement in any respect, which Agreement as so
amended or supplemented shall be binding on and shall inure to the benefit of
all Holders of the then outstanding Warrants, provided that no change in the
number or nature of the shares of Common Stock purchasable on exercise of a
Warrant, or the Exercise Price thereof, or the Expiration Date of any Warrant
shall be made without the consent in writing of each Holder of a Warrant to be
so affected, other than such changes as are permitted by this Warrant Agreement
as originally executed.
The Company shall mail notice to each Holder of a Warrant, in accordance
with Section 24 hereof, of any amendment affecting the rights of the Warrant
Holders effected pursuant to this Section 25, within 60 days of any such
amendment.
Section 26. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
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<PAGE>
Section 27. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any Person or corporation other than the Company, the
Warrant Agent and the Holders of the Warrant Certificates any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the Holders of
the Warrant Certificates.
Section 28. Governing Law. The laws of the State of New York shall govern
this Agreement and each Warrant Certificate without regard to principles of
conflicts of law.
Section 29. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed an
original, and all such counterparts shall together constitute but one and the
same instrument.
Section 30. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed, all
as of the day and year first above written.
Samuels Jewelers, Inc.
By: /s/ E. Peter Healey
-----------------------------------
Its: Executive Vice President,
Chief Financial Officer and
Secretary
Norwest Bank Minnesota, N.A.
By: /s/ Barbara Novak
-----------------------------------
Its: Vice President
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EXHIBIT A
[Form of Warrant Certificate]
No. ____ ______________ Warrants
NOT EXERCISABLE AFTER THE EXPIRATION DATE
THIS CERTIFIES THAT ___________________, or registered assigns, is the
registered owner of the number of Warrants set forth above, each of which
entitles the owner thereof to purchase at any time on or after issuance thereof,
and at or prior to 5:00 p.m. (New York time) on the Expiration Date (hereinafter
defined) at the principal office of Norwest Bank Minnesota, N.A., (the "Warrant
Agent"), or at the Warrant Agent's facility designated for such purpose at
Norwest Bank Minnesota, N.A., Shareowner Services Department, 161 North Concord
Exchange, South St. Paul, Minnesota 55075 or its successor as Warrant Agent, one
fully paid and non-assessable share of the Common Stock, $.001 par value per
share ("Common Stock"), of Samuels Jewelers, Inc. (the "Company"), at a cash
purchase price (the "Exercise Price") equal to:
(1) $19.69 per share during the period from the Effective Date (as
defined below) through and including the first anniversary thereof;
(2) $20.69 per share during the period after the first anniversary
of the Effective Date through and including the second anniversary thereof;
(3) $21.74 per share during the period after the second anniversary
of the Effective Date through and including the third anniversary thereof;
(4) $22.84 per share during the period after the third anniversary
of the Effective Date through and including the fourth anniversary thereof; and
(5) $24.00 per share during the period after the fourth anniversary
of the Effective Date to the Expiration Date.
Valid exercise shall occur upon presentation and surrender of this Warrant
Certificate with the Election to Purchase duly executed and accompanied by
payment of the Exercise Price in the manner specified in the Warrant Agreement
(hereinafter defined). The number of Warrants evidenced by this Warrant
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Exercise Prices per share set forth above, are
the number and Exercise Prices as of October 1, 1998 (the "Effective Date"),
based on the shares of Common Stock of the Company as constituted at such date,
unless this Warrant Certificate is being issued after the Effective Date
pursuant to any provision for such issuance
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<PAGE>
contained in the Warrant Agreement, in which case such figures are based upon
the shares of Common Stock of the Company as constituted at the time of such
issuance.
As provided in the Warrant Agreement, the Exercise Price, the number of
shares of Common Stock which may be purchased upon the exercise of the Warrants
evidenced by this Warrant Certificate and the number of Warrants are, upon the
happening of certain events, subject to modification and adjustment.
The "Expiration Date" is defined in the Warrant Agreement as the earlier
of (a) five (5) years from the Effective Date or (b) the Exercise Deadline.
"Exercise Deadline" is defined in the Warrant Agreement to mean a time fixed by
the Company at which all unexercised Warrants shall terminate and cease to be of
any further force or effect, and all rights under any Warrant Certificates
evidencing any such Warrants shall become null and void. The Company may fix an
Exercise Deadline at any time after the twentieth (20th) consecutive trading day
on which the daily closing price per share of Common Stock as quoted on a
national securities exchange or the Nasdaq National Market or SmallCap has been
twenty percent (20%) or more in excess of the Exercise Price prevailing on each
of such trading days.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of an agreement ("Warrant Agreement") between the Company and the
Warrant Agent, which Warrant Agreement is hereby incorporated herein by
reference and made a part hereof and to which Warrant Agreement reference is
hereby made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Warrant Agent, the Company
and the Holders of the Warrant Certificates. Copies of the Warrant Agreement are
on file at the above-mentioned principal office of the Warrant Agent. To the
extent of any inconsistency between this Warrant Certificate and the Warrant
Agreement, the terms and conditions of the Warrant Agreement shall govern.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Warrant Agent or at its facility
designated for such purpose at Norwest Bank Minnesota N.A., Shareowner Services
Department, 161 North Concord Exchange, South St. Paul, Minnesota 55075 may be
exchanged for another Warrant Certificate or Warrant Certificates of like tenor
and date evidencing Warrants entitling the Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered shall have entitled such Holder
to purchase. If this Warrant Certificate shall be exercised in part, the Holder
shall be entitled to receive upon surrender hereof, another Warrant Certificate
or Warrant Certificates for the number of whole Warrants not exercised.
The Warrants may be redeemed at the election of the Company, as a whole or
from time to time in part, at any time during the 12-month period following any
Subject Transaction, at the Redemption Price. "Subject Transaction" is defined
in the Warrant Agreement as (i) the sale of all or substantially all of the
assets of the Company, (ii) the sale of all or substantially all of the
Company's then-outstanding Common Stock, (iii) a public offering by the Company
of
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Common Stock, or (iv) a merger or consolidation by the Company with or into
another corporation (other than in a merger or consolidation, directly or
indirectly, with a Person or entity that is controlled by an Affiliate of the
Company) in which the Company is not the surviving corporation.
"Redemption Price" is defined in the Warrant Agreement as $.20 per Warrant
unless, on the effective date of the Subject Transaction with respect to which
the Company asserts the right to exercise its option to redeem the Warrant, the
Current Market Price (as defined in the Warrant Agreement) per share of Common
Stock is greater than the Exercise Price of the Warrant, in which case the
Redemption Price of the Warrant shall be the greater of (A) $.20 per Warrant or
(B) the Net Exercise Value of the Warrant. "Net Exercise Value" of a Warrant on
any date is defined in the Warrant Agreement as the positive difference, if any,
on such date between the Current Market Price per share of Common Stock and the
Exercise Price of the Warrant.
The Warrant Agreement provides for payment of the Redemption Price as
follows:
(i) In cash, in the event that the Subject Transaction with respect to
which the Company asserts the right to exercise its option to redeem
the Warrant is a sale of all or substantially all of the Company's
assets or Common Stock in an all cash transaction; or
(ii) In publicly traded stock or other securities, in the event that the
Subject Transaction with respect to which the Company asserts the
right to exercise its option to redeem the Warrant is a non-cash
sale of the kind described in Clause (i) above or a public offering
by the Company or a merger or consolidation by the Company; or
(iii) In both cash and publicly traded stock or other securities, in
appropriate proportions, in the event that the Subject Transaction
with respect to which the Company asserts the right to exercise its
option to redeem the Warrant is a transaction involving
consideration to the Company or its stockholders in the form of both
cash and securities.
At the option of the Company, no fractional shares of Common Stock will be
issued upon the exercise of any Warrant or Warrants evidenced hereby nor will
Warrants to purchase fractional shares be issued, but in lieu thereof a cash
payment will be made, as provided in the Warrant Agreement.
No Holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of Common Stock or of any
other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Warrant Agreement or herein
be construed to confer upon the Holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote upon any matter submitted to
26
<PAGE>
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or, except as provided in the Warrant Agreement, to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise, until the Warrant or Warrants evidenced by this Warrant Certificate
shall have been exercised as provided in the Warrant Agreement.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
Dated: _____________ COMPANY:
Samuels Jewelers, Inc.
By:_________________________
Its:________________________
Attest:
By:_________________________
Its:________________________
WARRANT AGENT:
----------------------------
By:_________________________
Its: Authorized Signature
27
<PAGE>
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise Warrants represented
by this Warrant Certificate and to purchase the shares of Common Stock issuable
upon the exercise of said Warrants, and requests that Certificates for such
shares be issued and delivered as follows:
ISSUE TO: _______________________________________
(Name)
---------------------------------------
(Address, Including Zip Code)
---------------------------------------
(Social Security or Tax ID Number)
DELIVER TO: _______________________________________
(Name)
at _______________________________________
(Address, Including Zip Code)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth below.
DATED: __________________, ____
Name of Warrant Holder or Assignee:
Address:
-----------------------------------
-----------------------------------
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$___________ by certified check or official bank check or money order payable in
United States currency to the order of the Company.
Dated: ___________________
Signature:_______________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant Certificate.)
PLEASE INSERT SECURITY OR TAX IDENTIFICATION
NUMBER OF HOLDER
--------------------------------
28
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ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
___________________________________________________, ______________ Warrant(s)
represented by the within Warrant Certificate and hereby irrevocably constitutes
and appoints ______________________________________ Attorney to transfer said
Warrant(s) on the books of the Company, with full power of substitution in the
premises.
DATED:_____________________
---------------------------------------
Signature of Holder
Note: The above signature must correspond
with the name as written on the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
SIGNATURE(S) GUARANTEED:
By: ____________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
29
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
October 2, 1998, is entered into between Samuels Jewelers, Inc., a Delaware
corporation (the "Company"), and each of the other persons or entities signatory
hereto (each of such other persons, a "Stockholder").
W I T N E S S E T H :
WHEREAS, the Original Disclosure Statement and Plan of
Reorganization, Dated April 30, 1998, Proposed by Barry's Jewelers, Inc. (the
"Plan") was confirmed on September 16, 1998 by order of the United States
Bankruptcy Court for the Central District of California in Case No. LA 97-27988
VZ;
WHEREAS, pursuant to the Plan, each Stockholder will receive at
least 10% of the aggregate shares of Common Stock (as hereinafter defined)
issuable under the Plan (such shares of Common Stock issued to the Stockholders,
collectively the "Shares");
WHEREAS, the Shares will be issued to the Stockholders pursuant to
the Plan without registration under the Securities Act (as hereinafter defined),
in reliance on applicable exemptions from such registration, and the Company and
the Stockholders desire to provide for the registration of the resale by the
Stockholders of Registrable Securities (as hereinafter defined) from time to
time as contemplated by the Plan, upon the terms and subject to conditions
hereinafter set forth; and
WHEREAS, it is intended by the Company and the Stockholders that
this Agreement shall become effective immediately as of the Effective Date.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and affirmed, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS.
All capitalized terms used but not defined in this Agreement have
the respective meanings assigned to such terms in the Plan. As used in this
Agreement,
HOFS04...:\01\21901\0001\2166\AGR4228S.20C
<PAGE>
the following capitalized terms (in their singular and plural forms, as
applicable) have the following meanings:
"Affiliate" has the meaning assigned to such term in Rule 144(a)(1)
of the Securities Act.
"Agreement" has the meaning assigned to such term in the
introductory paragraph to this Agreement.
"Commission" means the United States Securities and Exchange
Commission and any successor United States federal agency or governmental
authority having similar powers.
"Common Stock" means the common stock, par value $0.001 per share,
of the Company, issued as of the Effective Date pursuant to the Plan.
"Company" has the meaning assigned to such term in the introductory
paragraph to this Agreement.
"Demand Registration" has the meaning assigned to such term in
Section 2(b).
"Demand Request" has the meaning assigned to such term in Section
2(b).
"Effective Period" has the meaning assigned to such term in Section
2(a)(ii).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Material Adverse Effect" has the meaning assigned to such term in
Section 2(b)(iv).
"Material Disclosure Event" means, as of any date of determination,
any pending or imminent event relating to the Company, which, in the good faith,
reasonable opinion of the Board of Directors of the Company (i) requires
disclosure of material, non-public information relating to such event in any
registration statement so that such registration statement would not be
materially misleading, (ii) is
2
<PAGE>
otherwise not required to be publicly disclosed at that time (e.g., on Form 8-K
or Form 10-Q) under applicable federal or state securities laws, and (iii) if
publicly disclosed at the time of such event, would have a material adverse
effect on the business, financial condition or prospects of the Company.
"Permitted Assignee" means any person or entity that (i) wholly
owns, is wholly owned by or is under common whole ownership with any Stockholder
and (ii) acquires, in a single transaction from any Stockholder, at least ten
percent of the Company's then-outstanding shares of Common Stock, such
percentage to be calculated immediately after such acquisition.
"Piggyback Registration" has the meaning assigned to such term in
Section 2(c)(i).
The terms "register," "registered" and "registration" means a
registration effected by preparing and filing with the Commission a registration
statement on an appropriate form in compliance with the Securities Act, and the
declaration or order of the Commission of the effectiveness of such registration
statement under the Securities Act.
"Registrable Securities" means the Shares (and any other securities
issued by the Company in respect thereof); provided, however, that as to any
Registrable Securities, such securities shall cease to constitute "Registrable
Securities" for purposes of this Agreement if and when (i) a registration
statement with respect to the sale of such securities shall have been declared
effective by the Commission and such securities shall have been sold pursuant
thereto in accordance with the intended plan and method of distribution therefor
set forth in the final prospectus forming part of such registration statement or
(ii) such securities shall have been sold in satisfaction of all applicable
resale provisions of Rule 144 under the Securities Act or (iii) such securities
have been transferred to any person or entity other than a Permitted Transferee
or (iv) such securities may be freely sold publicly without registration under
the Securities Act or compliance with Rule 144 under the Securities Act.
"Registration Expenses" means all reasonable expenses incurred by
the Company in complying with Section 2 hereof, including, without limitation,
all registration and filing fees (including fees and expenses associated with
filings required to be made with the National Association of Securities Dealers,
Inc. and any national securities exchange or U.S. automated inter-dealer
quotation system of a registered national securities association on which the
class of Registrable Securities is
3
<PAGE>
listed or otherwise admitted to unlisted trading privileges), printing expenses,
if any (including expenses of printing certificates for the Registrable
Securities being registered in a form eligible for deposit with The Depository
Trust Company and of printing registration statements and prospectuses), fees
and disbursements of counsel for the Company, fees and expenses of compliance
with state securities or "blue sky" laws (including reasonable fees and expenses
of one firm of counsel for all underwriters collectively, if any, in connection
with "blue sky" qualifications of the Registrable Securities being registered
and the determination of eligibility for investment under the laws of such
jurisdictions designated by the underwriters, if any), accountants' fees and
expenses (including the expenses of any special audits or "comfort" letters
incident to or required by any such registration), transfer taxes, fees of
transfer agents and registrars, and reasonable fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and broker-dealer concessions,
commissions and allowances and marketing expenses.
"Required Filing Date" has the meaning assigned to such term in
Section 2(b).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Shares" has the meaning assigned to such term in the recitals to
this Agreement.
"Shelf Registration Statement" has the meaning assigned to such term
in Sections 2(a)(i) and 2(d)(vi).
"Stockholder" has the meaning assigned to such term in the
introductory paragraph to this Agreement.
"Suspension Period" has the meaning assigned to such term in Section
2(a)(ii).
4
<PAGE>
2. REGISTRATION UNDER THE SECURITIES ACT, ETC.
(a) Shelf Registration.
(i) General. The Company shall use reasonable commercial
efforts to prepare and file with the Commission, and to cause to become
effective under the Securities Act, not later than the 90th day after the
Effective Date, a registration statement on Form S-3 or other applicable form
relating to the resale, from time to time, of the Registrable Securities by the
Stockholders in accordance with the plan and method of distribution set forth in
the prospectus forming part of such registration statement (a "Shelf
Registration Statement"). The Company shall provide each Stockholder with a
reasonable opportunity to review and comment on such Shelf Registration
Statement prior to the filing thereof with the Commission, and shall make all
changes thereto as any Stockholder may request in writing to the extent such
changes are required, in the judgment of the Company, by the Securities Act, and
shall not unreasonably decline to make such other appropriate changes thereto as
any Stockholder may reasonably request in writing.
(ii) Effective Period. The Company agrees to use reasonable
commercial efforts to keep the Shelf Registration Statement continuously
effective until the 12-month anniversary of the date on which the Shelf
Registration Statement shall have first been declared effective by the
Commission (subject to Suspension Periods (as hereinafter defined) and
extensions coincident with the length of such Suspension Periods), or the date
on which all Registrable Securities covered by the Shelf Registration Statement
have been sold thereunder in accordance with the plan and method of distribution
intended by the Stockholders and as disclosed in the prospectus forming part of
the Shelf Registration Statement (the "Effective Period").
(iii) Suspension Period. For purposes hereof, "Suspension
Period" shall mean a period of time commencing on the date on which the Company
provides notice that the Shelf Registration Statement is no longer effective,
that the prospectus included in the Shelf Registration Statement no longer
complies with the requirements therefor prescribed by Section 10(a) of the
Securities Act, or that there is a Material Disclosure Event and the Company has
elected to require the suspension of the sale by the Stockholders of Registrable
Securities pursuant to the Shelf Registration Statement, and shall end on the
date when the Stockholders either receive copies of the supplemented or amended
prospectus contemplated by Section 2(d)(vi) plus an additional five Business
Days or otherwise are advised in writing by the Company that use of the
prospectus may be resumed. Each of the Stockholders
5
<PAGE>
agrees that it will not sell any Registrable Securities pursuant to the Shelf
Registration Statement during any Suspension Period. The Company agrees to cause
each Suspension Period to end as soon as reasonably practicable. The Company
further agrees that no other holder of the Company's stock will be permitted to
sell shares of the Company's stock pursuant to a registration statement during a
Suspension Period. If one or more Suspension Periods occur, the Effective Period
shall be extended by such number of days equal to the aggregate number of days
included in all Suspension Periods.
(b) Demand Registration.
(i) Request for Registration. Commencing on the 91st day after
the Effective Date and ending on the first anniversary of the Effective Date,
any one or more of the Stockholders may request (collectively, the "Requesting
Stockholders," which term shall include parties deemed "Requesting Stockholders"
pursuant to Section 2(b)(vi) hereof) in writing (a "Demand Request"), that the
Company effect the registration under the Securities Act of that number of
Shares requested and owned by the Requesting Stockholders (a "Demand
Registration"). Notwithstanding anything to the contrary set forth in this
Agreement, the Company shall in no event be required to effect, in the aggregate
with respect to all of the Stockholders, more than one Demand Registration for
each of DDJ Capital Management, LLC and Mitchell Hutchins Asset Management,
Inc.; provided that, if any Registrable Securities requested to be registered
pursuant to a Demand Request under this Section 2(b)(i) are excluded from a
registration pursuant to Section 2(b)(iv) below, the Requesting Stockholders
shall have the right, with respect to each such exclusion, to one additional
Demand Registration under this Section 2(b)(i) with respect to such excluded
Registrable Securities. Subject to Section 2(b)(v), the Company shall file with
the Commission, within 90 days after receiving a Demand Request (the "Required
Filing Date"), a registration statement on an appropriate form under the
Securities Act providing for the sale or distribution of those Registrable
Securities subject to the Demand Registration, and shall thereafter use
reasonable commercial efforts to cause the same to be declared effective by the
Commission as promptly as practicable after such filing. Notwithstanding
anything to the contrary set forth in this Agreement, (1) no Stockholder may
make a Demand Request or participate in a Demand Registration unless, at the
time thereof, (a) such Stockholder owns at least 10% of the then-outstanding
shares of Common Stock or (b) certifies in writing to the Company that such
Stockholder may be deemed to be an affiliate of the Company under the Securities
Act; (2) the Company shall not be required to effect any Demand Registration
pursuant to any registration statement other than the Shelf Registration
6
<PAGE>
Statement at any time when the Shelf Registration Statement is effective and may
be used for such Demand Registration; and (3) the Company shall not be required
to effect any Demand Registration of an offering and sale that can otherwise be
effected in compliance with Rule 144 under the Securities Act.
(ii) Effective Registration and Expenses. A registration will
not count as a Demand Registration until it has become effective (unless the
Requesting Stockholders withdraw from such registration all their Registrable
Securities and the Company has performed its obligations hereunder in all
material respects, in which case such demand will count as a Demand Registration
unless the Requesting Stockholders pay all Registration Expenses in connection
with such withdrawn registration); provided that, if, after it has become
effective, an offering of Registrable Securities pursuant to such registration
is terminated by any stop order, injunction, or other order of the Commission or
other governmental agency or court, such registration will be deemed not to have
been effected and will not count as a Demand Registration.
(iii) Selection of Underwriters. Any offering of Registrable
Securities pursuant to a Demand Registration shall be in the form of a "firm
commitment" underwritten offering or such other lawful form as the Requesting
Stockholders may reasonably specify; provided however, that no such offering may
be in the form of a "best efforts" or similar type offering. With respect to any
offering of Registrable Securities pursuant to a Demand Registration in the form
of a "firm commitment" underwritten offering, the holders of a majority of the
Registrable Securities to be included in such offering and the Company shall
jointly select the investment banking firm or firms to manage the underwritten
offering.
(iv) Priority on Demand Registrations. No securities to be
sold for the account of any person or entity (including the Company) other than
a Requesting Stockholder shall be included in a Demand Registration unless the
managing underwriter or underwriters shall advise the Company or the Requesting
Stockholders in writing that the inclusion of such securities will not
materially and adversely affect the price or success of the offering (a
"Material Adverse Effect"). Furthermore, in the event that the managing
underwriter or underwriters shall advise the Company or the Requesting
Stockholders that even after exclusion of all securities of the other persons or
entities pursuant to the immediately preceding sentence, the amount of
Registrable Securities proposed to be included in such Demand Registration by
Requesting Stockholders is sufficiently large to cause a Material Adverse
Effect, the Registrable Securities of the Requesting Stockholders to be included
in such
7
<PAGE>
Demand Registration shall equal that number of Shares which the Company is so
advised can be sold in such offering without a Material Adverse Effect and such
Shares shall be allocated pro rata among the Requesting Stockholders on the
basis of the number of Shares requested to be included by each such Requesting
Stockholder.
(v) Deferral of Filing. If a Material Disclosure Event exists
as of the time the filing of a registration statement is otherwise required by
Section 2(b), the Company may defer such filing (but not the preparation) of
such registration statement until a date not later than 150 days after the
Required Filing Date. A deferral of the filing of a registration statement
pursuant to this Section 2(b)(v) shall be lifted, and the requested registration
statement shall be filed forthwith, if the Material Disclosure Event ceases. In
order to defer the filing of a registration statement pursuant to this Section
2(b)(v), the Company shall promptly (but in any event within 10 days), upon
determining to seek such deferral, deliver to each Requesting Stockholder a
certificate signed by an executive officer of the Company stating that the
Company is deferring such filing pursuant to this Section 2(b)(v) and a general
statement of the reason for such deferral (which statement need not include any
information which, in the opinion of the Company, constitutes material,
nonpublic information) and an approximation of the anticipated delay. Within 20
days after receiving such certificate, the holders of a majority of the
Registrable Securities beneficially owned by the Requesting Stockholders and for
which registration was previously requested may withdraw such Demand Request by
giving notice to the Company; if withdrawn, the Demand Request shall be deemed
not to have been made for all purposes of this Agreement.
(vi) Rights of Nonrequesting Stockholders. Upon receipt of any
Demand Request, the Company shall promptly, but in any event within 15 days,
give notice of such proposed Demand Registration to all other Stockholders, who
shall have the right, exercisable by written notice to the Company within 20
days of their receipt of the Company's notice, to elect to include in such
Demand Registration, all or any portion of their Registrable Securities (such
notice from any Stockholder shall state the number of shares of Common Stock
requested to be registered). All Stockholders requesting to have any of their
Registrable Securities included in a Demand Registration in accordance with the
preceding sentence shall be deemed to be "Requesting Stockholders" for purposes
of Section 2. The failure of any Stockholder to elect to include any of such
Stockholder's Registrable Securities in such Demand Registration pursuant to
this Section 2(b)(vi) shall not result in such Demand Registration failing to
count as one Demand Registration for all purposes of this Agreement.
8
<PAGE>
(c) Piggyback Registration.
(i) Right to Piggyback. Commencing on the 91st day after the
Effective Date and ending on the second anniversary of the Effective Date, each
time during such period that the Company proposes to register any of its Common
Stock under the Securities Act for sale pursuant to an underwritten public
offering for cash (whether for the account of the Company or the account of any
securityholder of the Company other than under Section 2(b)) and the form of
registration statement to be used permits the registration of Registrable
Securities (without limitation, Forms S-4 and S-8 and successor forms thereto
shall be deemed not to permit such registration), the Company shall give prompt
written notice to each Stockholder (which notice shall be given not less than 30
days prior to the effective date of the Company's registration statement), which
notice shall offer each Stockholder the opportunity to include any or all of
such Registrable Securities of such Stockholder in such registration statement,
subject to the limitations contained in Section 2(c)(ii) (a "Piggyback
Registration"). Each Stockholder that desires to have its Registrable Securities
included in such registration statement shall so advise the Company in writing
(stating the number of shares of Common Stock desired to be registered) within
20 days after the date of receipt of such notice from the Company. Any
Stockholder shall have the right to withdraw such Stockholder's request for
inclusion of such Stockholder's Registrable Securities in any registration
statement pursuant to this Section 2(c) by giving written notice to the Company
of such withdrawal not later than five days prior to the effective date of the
Company's registration statement. Subject to Section 2(c)(ii) below, the Company
shall include in such registration statement all such Registrable Securities so
requested to be included therein; provided, however, that the Company may at any
time withdraw or cease proceeding with any such registration if it shall at the
same time withdraw or cease proceeding with the registration of all the Common
Stock originally proposed to be registered. Notwithstanding anything to the
contrary set forth in this Agreement, no Stockholder may participate in a
registration under this Section 2(c) unless, at the time thereof, (1) such
Stockholder owns at least 5% of the then-outstanding shares of Common Stock or
(2) certifies in writing to the Company that such Stockholder may be deemed to
be an affiliate of the Company under the Securities Act.
(ii) Priority on Piggyback Registrations. If the Registrable
Securities requested to be included in the registration statement by any
Stockholder differ from the type of securities proposed to be registered by the
Company and the managing underwriter advises the Company that due to such
differences the inclusion of such Registrable Securities would cause a Material
Adverse Effect, then (1) the
9
<PAGE>
number of such Stockholder's or Stockholders' Registrable Securities to be
included in the Registration Statement shall be reduced to an amount which, in
the judgment of the managing underwriter, would eliminate such Material Adverse
Effect or (2) if no such reduction would, in the judgment of the managing
underwriter, eliminate such Material Adverse Effect, then the Company shall have
the right to exclude all such Registrable Securities from such registration
statement provided no other securities of such type are included and offered for
the account of any other person or entity in such registration statement. Any
partial reduction in the number of Registrable Securities to be included in the
registration statement pursuant to clause (1) of the immediately preceding
sentence shall be effected pro rata based on the ratio which such Stockholder's
requested securities bears to the total number of Shares requested to be
included in such registration statement by all persons or entities (including
Requesting Stockholders) who have requested (pursuant to contractual
registration rights) that their securities be included in such registration
statement. If the Registrable Securities requested to be included in the
registration statement are of the same type as the securities being registered
by the Company and the managing underwriter advises the Company that the
inclusion of such Registrable Securities would cause a Material Adverse Effect,
the Company will be obligated to include in such registration statement, as to
each Stockholder, only a portion of the Registerable Securities such Stockholder
has requested be registered equal to the ratio which such Stockholder's
requested securities bears to the total number of Shares requested to be
included in such registration statement by all persons or entities (including
Requesting Stockholders) who have requested (pursuant to contractual
registration rights) that their securities be included in such registration
statement. If as a result of the provisions of this Section 2(c)(ii) any
Stockholder shall not be entitled to include all Registrable Securities in a
registration that such Stockholder has requested to be so included, such
Stockholder may withdraw such Stockholder's request to include Registrable
Securities in such registration statement.
(d) Registration Procedures. The Company shall:
(i) provide the Stockholders with a reasonable opportunity
to review and comment on any registration statement to be filed pursuant to
Section 2 of this Agreement prior to the filing thereof with the Commission,
and shall make all changes thereto as any Stockholder may request in writing to
the extent such changes are required, in the judgment of the Company, by the
Securities Act, and shall not unreasonably decline to make such other
appropriate changes thereto as any Stockholder may reasonably request in
writing.
10
<PAGE>
(ii) cause any such registration statement and the related
prospectus and any amendment or supplement thereto, as of the effective date of
such registration statement, amendment or supplement, (A) to comply in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations of the Commission promulgated thereunder and (B) not to
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(iii) use reasonable commercial efforts to prepare and file
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement, and take such other actions, as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement until, with respect to the Shelf
Registration Statement, the earlier of (a) such time as all such Registrable
Securities have been disposed of in accordance with the intended plan and method
of disposition by the Stockholders or (b) the 12-month anniversary of the date
on which such Shelf Registration Statement was first declared effective (subject
to Suspension Periods and extensions coincident with the length of such
suspensions), with respect to any registration statement filed under Section
2(b) of this Agreement, such time as all such Registrable Securities have been
disposed of in accordance with the intended plan and method of disposition by
the Stockholders but in no event more than 180 days after the first anniversary
of the Effective Date, and with respect to any registration statement filed
under Section 2(c) of this Agreement, such time as the Company determines to
withdraw or cease proceeding with any such registration pursuant to the terms
hereof, and will furnish to the Stockholders a copy of any amendment or
supplement to such registration statement or prospectus prior to filing the same
with the Commission and shall not file any such amendment or supplement to which
the Stockholders shall reasonably have objected in writing on the grounds that
such amendment or supplement does not comply in all material respects with the
requirements of the Securities Act or otherwise inaccurately describes
information pertaining to the Stockholders or to the intended plan and method of
disposition of Registrable Securities by the Stockholders;
(iv) furnish to the Stockholders such number of conformed
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits thereto), such number of copies of
the prospectus included in such registration statement (including each
preliminary
11
<PAGE>
prospectus), and such number of the documents, if any, incorporated by reference
in such registration statement or prospectus, as the Stockholders reasonably may
request;
(v) use reasonable commercial efforts to register or
qualify the Registrable Securities covered by such registration statement under
such securities or "blue sky" laws of the states of the United States as the
Stockholders reasonably shall request, to keep such registration or
qualification in effect for so long as such registration statement remains in
effect, and to do any and all other acts and things which may be necessary or
advisable to enable the Stockholders to consummate the disposition in such
jurisdictions of the Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction in
which it is not and would not, but for the requirements of this Section 2(d)(v),
be obligated to be so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(vi) immediately notify the Stockholders, at any time when a
prospectus or prospectus supplement relating thereto is required to be delivered
under the Securities Act, upon discovery that, or upon the occurrence of any
event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, which untrue statement or omission requires amendment of
the registration statement or supplementing of the prospectus, and, at the
request of the Stockholders, prepare and furnish to the Stockholders a
reasonable number of copies of a supplement to such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that with respect to
Registrable Securities registered pursuant to such registration statement, each
Stockholder agrees that it will not sell any Registrable Securities pursuant to
such registration statement during the time after the furnishing of the
Company's notice that the Company is preparing and filing with the Commission a
supplement to or an amendment of such prospectus or registration statement and,
with respect to a Shelf Registration Statement, such period shall be a
Suspension Period for purposes of determining the Effective Period hereunder;
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<PAGE>
(vii) use reasonable commercial efforts to comply with all
applicable rules and regulations of the Commission, and make available to
holders of its securities, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months, but not more than 18
months, beginning with the first month of the first fiscal quarter after the
effective date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(viii) provide and cause to be maintained a transfer agent
and registrar for the Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; it being hereby agreed that the Stockholders shall
furnish to the Company such information regarding the Stockholders and the plan
and method of distribution of Registrable Securities intended by the
Stockholders as the Company may from time to time reasonably request in writing
and as shall be required by law or by the Commission in connection therewith;
(ix) notify the Stockholders and the managing underwriters, if any,
promptly, and (if requested by any such person) confirm such notice in writing,
(A) when a prospectus, prospectus supplement or post-effective amendment related
to such registration statement has been filed, and, with respect to such
registration statement or any post-effective amendment thereto, when the same
has become effective, (B) of any request by the Commission or any other federal
or state governmental authority for amendments or supplements to such
registration statement or related prospectus, (C) of the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of such registration statement or the
initiation of any proceedings for that purpose, and (D) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose;
(x) use reasonable commercial efforts to obtain the
withdrawal of any order suspending the effectiveness of such registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest possible moment;
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(xi) cooperate with the Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which certificates
will not bear any restrictive legends; and enable such Registrable Securities to
be in such authorized denominations and registered in such names as the managing
underwriters, if any, shall reasonably request at least two Business Days prior
to any sale of Registrable Securities to the underwriters; and
(xii) with respect to a "firm commitment" underwritten
offering, enter into an underwriting agreement in such form, scope and substance
as is customary in such underwritten offerings.
(e) Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act as contemplated by this Agreement, the
Company shall give the Stockholders, their underwriters, if any, and the
Stockholders' counsel and accountants, the opportunity to review the Company's
preparation of such registration statement, each prospectus included in such
registration statement or filed with the Commission and each amendment or
supplement thereto, and the Company will give such person or persons such
reasonable access to the Company's books and records and such opportunities to
discuss the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary
for the Stockholders and such other persons to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act. To
minimize disruption and expense to the Company during the course of the
registration process, each Stockholder shall use reasonable commercial efforts
to coordinate its investigation and due diligence efforts and, to the extent
practicable, will act through a single firm of counsel for all Stockholders and
a single firm of accountants for all Stockholders and, if requested by the
Company, will enter into a confidentiality agreement with the Company in a form
reasonably satisfactory to the Company.
(f) Indemnification. (i) Indemnification by the Company. The Company
shall indemnify and hold harmless (x) each Stockholder and its affiliates, with
respect to any registration statement filed pursuant to this Agreement, (y) any
underwriter or selling agent selected by the Stockholders with respect to such
Registrable Securities and (z) each person who controls the Stockholder or
affiliate, including directors and officers of each Stockholder, and any
underwriter or selling agent, within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act, against any losses, claims, damages,
liabilities or expenses (each a
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"Loss" and collectively "Losses"), joint or several, to which the Stockholder or
any such persons may become subject under the Securities Act or otherwise, to
the extent that such Losses (or related actions or proceedings) arise out of or
are based upon (A) any untrue statement or alleged untrue statement of any
material fact contained in an effective registration statement in which such
Registrable Securities were included for registration under the Securities Act,
any preliminary prospectus if used prior to the effective date of the
registration statement (unless such statement is corrected in the final
prospectus and the Company shall have furnished a sufficient number of copies
thereof to the Stockholder in a manner and at a time sufficient to permit
delivery of the same to prospective purchasers concurrently with or prior to the
sale of the related Registrable Securities), final prospectus (as supplemented,
if the Company shall have filed with the Commission any supplement thereto) if
used during the period in which the Company is required to keep the registration
statement to which such prospectus relates current and otherwise in compliance
with Section 10(a) of the Securities Act, or (B) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company shall
have no obligation to provide any indemnification hereunder if any such Losses
(or actions or proceedings in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, preliminary prospectus or final prospectus,
as the case may be, in reliance upon and in conformity with written information
furnished to the Company by the Stockholder or on the Stockholder's behalf for
inclusion in such registration statement; and provided, further, that the
Company shall have no obligation to provide any indemnification hereunder if any
such Losses arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission in the final prospectus, if such
untrue statement or alleged untrue statement or omission or alleged omission
shall have been corrected in a supplement to the final prospectus and the
Stockholder or any such other person shall have failed to deliver such final
prospectus as so supplemented prior to or concurrently with the sale of the
Registrable Securities covered by a registration statement to the individual or
entity asserting such Losses after the Company shall have furnished the
Stockholder or any such other persons with a sufficient number of copies thereof
in a manner and at a time sufficient to permit such delivery of the same. The
indemnity provided in this Section 2(f)(i) shall remain in full force and effect
regardless of any investigation made by or on behalf of the Stockholder or any
such other persons and shall survive the transfer of the Registrable Securities
by the Stockholder or any such other persons.
15
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(ii) Indemnification by the Stockholders. Each Stockholder
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in Section 2(f)(i) hereof) the Company, each director of the Company,
each officer of the Company who shall sign such registration statement and each
other person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, with respect to any
untrue statement in or omission from any registration statement filed by the
Company pursuant to this Agreement, any preliminary prospectus or any final
prospectus included in such registration statement, or any amendment or
supplement to such registration statement or prospectus, as the case may be, of
a material fact if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company or any of its
representatives by the Stockholder or such other persons, if any, who control
the Stockholder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, or on the Stockholder's behalf, for inclusion in
such registration statement, preliminary prospectus or final prospectus, as the
case may be.
(iii) Notice of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding (an
"Action") involving a claim referred to in Sections 2(f)(i) and 2(f)(ii) hereof,
such indemnified party shall, if indemnification is sought against an
indemnifying party, give written notice to the indemnifying party of the
commencement of such action; provided, however, that the failure of any
indemnified party to give said notice shall not relieve the indemnifying party
of its obligations under Sections 2(f)(i) or 2(f)(ii) hereof, except to the
extent that the indemnifying party is actually and materially prejudiced by such
failure. In case an Action is brought against any indemnified party, and such
indemnified party notifies an indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party. Notwithstanding
the foregoing, the indemnified party shall have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party, unless (A) the employment of such counsel
shall have been authorized in writing by the indemnifying party, (B) the
indemnifying party shall not have employed counsel (reasonably satisfactory to
the indemnified party) to take charge of the defense of such Action, within a
reasonable time after notice of the commencement thereof, or (C) such
indemnified party reasonably shall have concluded that there may be defenses
available to it which are different from or
16
<PAGE>
additional to those available to the indemnifying party which, if the
indemnifying party and the indemnified party were to be represented by the same
counsel, could result in a conflict of interest for such counsel or materially
prejudice the prosecution of the defenses available to such indemnified party.
If any of the events specified in clauses (A), (B) or (C) of the preceding
sentence shall have occurred or otherwise shall be applicable, then the fees and
expenses of one counsel (or firm of counsel) for the indemnified party shall be
borne by the indemnifying party. If, in any case, the indemnified party employs
separate counsel, the indemnifying party shall not have the right to direct the
defense of such action on behalf of the indemnified party. Anything in this
Section 2(f)(iii) to the contrary notwithstanding, an indemnifying party shall
not be liable for the settlement of any action effected without its prior
written consent (which consent in the case of an action exclusively seeking
monetary relief shall not unreasonably be withheld or delayed), but if settled
with the prior written consent of the indemnifying party, or if there be a final
judgment adverse to the indemnified party, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. No indemnifying party shall, without the prior
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as a term thereof the unconditional
release of the indemnified party from all liability in respect of such claim or
litigation.
(iv) Contribution. If the indemnification provided for in this
Section 2 is unavailable or insufficient to hold harmless an indemnified party
in respect of any Losses, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such Losses in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the Stockholder, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or mitigate the damage in
respect of or prevent any untrue statement or omission giving rise to such
indemnification obligation. The Company and the Stockholders agree that it would
not be just and equitable if contributions pursuant to this Section 2(f)(iv)
were determined by pro rata allocation or by any other method of allocation
which did not take account of the equitable considerations referred to above. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
(v) Indemnification Payments. Periodic payments of
amounts required to be paid pursuant to this Section 2 shall be made during the
17
<PAGE>
course of the investigation or defense, as and when reasonably itemized bills
therefor are delivered to the indemnifying party in respect of any particular
Loss, damage or liability that is incurred.
(g) Registration Expenses. The Company shall bear all Registration
Expenses incurred in connection with the performance of its obligations under
Section 2 of this Agreement.
(h) Holdback Agreements.
(i) Restrictions on Public Sale by Stockholders. Each
Stockholder agrees not to effect any public sale or distribution of Registrable
Securities or similar securities of the Company, or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and
during the period (not to exceed 90 days) beginning on, the commencement of an
underwritten public distribution of Registrable Securities under any
registration statement pursuant to this Agreement (except as part of such
underwritten public distribution), if and to the extent requested by the Company
or by the managing underwriter or underwriters.
(ii) Restrictions on Public Sale by the Company. The Company
agrees not to effect any public sale or distribution of any securities similar
to those being registered hereunder, or any securities convertible into or
exchangeable or exercisable for such securities, except in any case for any such
sale or distribution of such securities in connection with any merger or
consolidation involving the Company or any subsidiary thereof, the acquisition
by the Company or any subsidiary thereof of the capital stock or substantially
all of the assets of any other person or entity, any shelf registration, or any
employee or director benefit or similar plan or any dividend reinvestment plan),
during the 14 days prior to, and during the period (not to exceed 90 days)
beginning on, the commencement of an underwritten public distribution of
Registrable Securities, if and to the extent requested by the managing
underwriter or underwriters.
(i) Certain Obligations of Stockholders. The Company may require
each Stockholder of Registrable Securities as to which any registration is being
effected to furnish to the Company all such information regarding the
distribution of such Registrable Securities as the Company may from time to time
reasonably request in writing and such other information as may be legally
required in connection with such registration. Each Stockholder agrees that,
upon receipt of any notice from the
18
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Company of the happening of any Material Disclosure Event, such Stockholder will
forthwith discontinue the offering and disposition of Registrable Securities
pursuant to any registration statement covering such Registrable Securities
until such Stockholder's receipt of the copies of any supplemented or amended
prospectus and until it is advised in writing by the Company that the use of the
prospectus may be resumed, and, if so directed by the Company, such Stockholder
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Stockholder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective by the number of days during the period from and including the date of
the giving of such notice to and including the date when each Stockholder of
Registrable Securities covered by such registration statement shall have
received the copies of any supplemented or amended prospectus and such
notification from the Company permitting the resumption of the use of the
prospectus. No Stockholder may participate in any registration under this
Agreement (whether pursuant to the Shelf Registration Statement, a Demand
Registration or a Piggyback Registration) unless such Stockholder (1) agrees to
sell its Registrable Securities on the basis provided in any underwriting
arrangements approved by the Company; and (2) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents reasonably required under the terms of such underwriting
arrangements; provided, however, that no Stockholder shall be required to make
any representations or warranties in connection with any such registration other
than representations and warranties as to (a) its ownership of its Registrable
Securities to be sold or transferred free and clear of all liens, claims, and
encumbrances, (b) its power and authority to effect such transfer, and (c) such
matters pertaining to compliance with securities laws as may be reasonably
requested.
3. RULE 144.
The Company shall comply with the requirements of Rule 144(c) under
the Securities Act, as such Rule may be amended from time to time (or any
similar rule or regulation hereafter adopted by the Commission), regarding the
availability of current public information to the extent required to enable any
Stockholder to sell Registrable Securities without registration under the
Securities Act pursuant to the resale provisions of Rule 144 (or any similar
rule or regulation). Upon the request of any Stockholder, the Company will
deliver to such Stockholder a written statement as to whether it has complied
with such requirements and, upon such Stockholder's compliance with the
applicable provisions of Rule 144, will take such action as may
19
<PAGE>
be required (including, without limitation, causing legal counsel to issue an
appropriate opinion) to cause its transfer agent to effectuate any transfer of
Registrable Securities properly requested by such Stockholder, in accordance
with the terms and conditions of Rule 144.
4. MISCELLANEOUS.
(a) Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall specify the Section of this
Agreement pursuant to which it is given or being made and shall be sufficiently
given or made if in writing and signed by the party making the same, and either
delivered in person with receipt acknowledged or sent by registered or certified
mail, return receipt requested, postage prepaid, or by telecopy and confirmed by
telecopy answerback, addressed as follows:
(i) If to any Stockholder, at the address of such Stockholder as
set forth on the signature pages hereto; and
(ii) If to Company, at
Samuels Jewelers, Inc.
2914 Montopolis Drive, Suite 200
Austin, Texas 78741
Attention: E. Peter Healey
Executive Vice President,
Chief Financial Officer and Secretary
Telecopy Number: (512) 369-1515
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or three Business Days after the same shall have been deposited in
the United States mail (by registered or certified mail, return receipt
requested, postage prepaid), whichever is earlier.
20
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(b) Successors and Assigns. This Agreement (i) may not be assigned
by the Company or any Stockholder (except that this Agreement may be assigned by
any Stockholder to a Permitted Assignee in connection with the transaction
pursuant to which such Permitted Assignee becomes such, whereupon such Permitted
Assignee shall be deemed to be a Stockholder for all purposes of this Agreement)
and (ii) shall be binding on all successors to the Company and the Stockholders.
(c) Amendments. This Agreement may be amended or modified only by a
written agreement signed by each party hereto.
(d) Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(e) Headings. The headings used in this Agreement are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Agreement.
(f) Governing Law. This Agreement shall be governed by the laws of
the State of New York, without regard to the provisions thereof relating to
conflict of laws.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
(h) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the Company and the Stockholders in respect of the
subject matter contained herein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to the subject matter of
this Agreement.
(i) Specific Performance. The parties hereto acknowledge and agree
that they would not have adequate remedies at law and would be irreparably
21
<PAGE>
harmed if any of the provisions of this Agreement were not performed by the
parties hereto in accordance with the specific terms hereof or were otherwise
breached, and that, in such case, it would be impossible to measure in money the
damages to such parties. It is accordingly agreed that the parties hereto shall
be entitled to injunctive relief or the enforcement of other equitable remedies,
without bond or other security, to compel performance and to prevent breaches of
this Agreement and specifically to enforce the terms and provisions hereof, in
addition to any other remedy to which they may be entitled, at law or in equity.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed and delivered as of the date first above
written.
SAMUELS JEWELERS, INC.
By: /s/ E. Peter Healey
-------------------------------------
Name: E. Peter Healey
Title: Executive Vice President,
Chief Financial Officer and
Secretary
THE GALILEO FUND, L.P.
BY: DDJ GALILEO, LLC, ITS GENERAL
PARTNER
BY: DDJ CAPITAL MANAGEMENT, LLC,
MEMBER
By: /s/ David J. Breazzano
-------------------------------------
Name: David J. Breazzano
Title: Member
Address: c/o DDJ Capital Management, LLC
141 Linden Street, Suite 4
Wellesley, MA 02482-7910
B III CAPITAL PARTNERS, L.P.
BY: DDJ CAPITAL III, LLC, ITS GENERAL
PARTNER
BY: DDJ CAPITAL MANAGEMENT, LLC,
MANAGER
By: /s/ David J. Breazzano
-------------------------------------
Name: David J. Breazzano
Title: Member
Address: c/o DDJ Capital Management, LLC
141 Linden Street, Suite 4
Wellesley, MA 02482-7910
23
<PAGE>
DDJ OVERSEAS CORPORATION
BY: DDJ CAPITAL MANAGEMENT, LLC,
ITS ATTORNEY-IN-FACT
By: /s/ David J. Breazzano
-------------------------------------
Name: David J. Breazzano
Title: Member
Address: c/o DDJ Capital Management, LLC
141 Linden Street, Suite 4
Wellesley, MA 02482-7910
24
<PAGE>
PAINEWEBBER HIGH INCOME FUND
By: /s/ Emil Polito
-------------------------------
Name: Emil Polito
Title: Vice President
Address:
MANAGED HIGH YEILD FUND INC.
By: /s/ Emil Polito
-------------------------------
Name: Emil Polito
Title: Vice President
Address:
ALL-AMERICAN TERM TRUST INC.
By: /s/ Emil Polito
-------------------------------
Name: Emil Polito
Title: Vice President
Address:
25
<PAGE>
PAINEWEBBER OFFSHORE FUNDS PLC
THE HIGH INCOME FUND
By: /s/ Emil Polito
-------------------------------
Name: Emil Polito
Title: Vice President
Address:
26
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
(Randy McCullough)
This Employment Agreement (this "Agreement") dated as of October 2,
1998 is made by and between Randy McCullough (the "Executive") and Samuels
Jewelers, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company and the Executive entered into an agreement as of
May 1, 1997 (the Original Employment Agreement") and now wish to supersede the
Original Employment Agreement pursuant to this agreement; 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 hereto
agree as follows:
1. Employment.
Subject to Section 7, the Company hereby employs the Executive, and the
Executive hereby accepts such employment during the Term of Employment, as
President and Chief Executive Officer 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") or its designee. (The definitions of capitalized terms used in this
Agreement are contained in Section 9 of this Agreement.)
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 or its designee. Except
for 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,
may 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.
<PAGE>
3. Term of Employment.
The term of the Executive's employment hereunder shall commence on the
effective date of the Plan of Reorganization of the Company (the "Effective
Date") and shall end on the last day of the third full calendar year following
such date (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 one (1) 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 7.2 or by the
Executive pursuant to Section 7.3, in which event the Term of Employment shall
end on the Date of Termination.
4. Compensation.
During the Term of Employment, the Executive shall be compensated as
follows:
4.1. Base Salary. The Company shall pay the Executive a base salary at
the rate of $325,000 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 on or about May 31, 1999, 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
100% 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; provided, however for the fiscal year ending on or about May 31,
1999 such performance targets shall be established by the Board in its sole
discretion, as soon as practicable following the Effective Date, but in no event
later than 60 days following the Effective Date. 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. If the
Executive is actively employed by the Company on January 1 of each fiscal year
during the Term of Employment, the Company shall advance to the Executive an
amount equal to one-third 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 following payment of
such amount.
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<PAGE>
4.3. Equity Signing Bonus.
4.3.1. On or promptly after the Effective Date, the Company
shall award Executive an initial restricted stock bonus of a number of Company
common shares equal to 2.0 percent of the Company's outstanding equity as of the
Effective Date (the "Initial Grant") which shall be granted and conditioned upon
the Executive executing a restricted stock agreement with terms and conditions
consistent with this section 4.3 (such date of grant referred to hereinafter as
the "Grant Date"). Twenty-five (25) percent of the Initial Grant shall be fully
vested on the date of Grant Date. The remaining shares of the Initial Grant
shall vest ratably on the first through third anniversaries of the Grant Date.
The non-vested portion of the Initial Grant shall become fully vested in the
event the Executive is terminated (i) by the Company without Cause (as defined
below), (ii) by the Executive for "Good Reason" as defined below, (iii) as a
result of the Death or Disability of the Executive, and (iv) in the event of a
Change of Control. In the event the Executive voluntarily terminates his
employment or is terminated for Cause, the non-vested portion of the Initial
Grant shall be forfeited. Such shares shall be restricted so that no share may
be transferred or alienated in any way (except as provided in Section 4.3.2
below and through passage under will or by the laws of descent and distribution
upon the Executive's death) until the shares are vested, at which time the
restriction will lapse with respect to the vested shares.
4.3.2. Within 30 days following the Grant Date the Company
will lend the Executive a single sum equal to the fair market value of the
Initial Grant divided by .6 (the reciprocal of the highest marginal federal
income tax bracket rounded up to the nearest whole percentage point) and reduced
by the fair market value of the Initial Grant ((FMV / .6) - FMV) (the "Loan").
The Loan will be on a full recourse basis and secured in accordance with the
terms of a security agreement (in a form mutually agreed upon by the Company and
the Executive). The Loan will bear interest at the minimum statutory interest
rate necessary for tax purposes. Interest on the Loan will be payable quarterly
in arrears. The Loan will be set forth in twelve (12) equal promissory notes
(the form of which shall be mutually agreed upon by the Company and the
Executive), delivered by the Executive to the Company (collectively, the
"Notes"). In the event the Employee voluntarily terminates his employment or is
terminated for Cause, the unpaid portion of the Loan will be accelerated and all
Notes will become due and payable within ninety (90) days of the Executive's
Date of Termination.
4.3.3. On each of the first twelve quarterly anniversaries of
the Grant Date, the Company shall pay Executive a bonus equal to the principal
(but not interest) amount of one of the twelve outstanding Notes. In the event
the Executive is terminated (i) by the Company without Cause (as defined below),
(ii) by the Executive for "Good Reason" as defined below, or (iii) as a result
of the Death or Disability of the Executive, the Company shall pay the Executive
or the Executive's estate, as the case may be, a one time lump sum bonus equal
to the principal (but not interest) amount of any remaining outstanding Notes.
4.4. Stock Options. On or promptly after the Effective Date (the
"Option Grant Date"), Executive will receive a grant of stock options on 50,000
shares of the Company's common stock representing 1.00 percent of the Company's
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common stock as of the Effective Date (the "Option"). The exercise price of the
Option shall be the fair market value of a share of Company common stock on the
Effective Date. Executive shall vest in one-third (1/3) of the Option on each of
the first through third anniversaries of the Option Grant Date. The Option shall
be an incentive stock option ("ISO") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, with respect to the maximum number of
shares that can be granted under an ISO with the vesting period described above.
The Option shall become fully vested in the event the Executive is terminated
(i) by the Company without Cause (as defined below), (ii) by the Executive for
"Good Reason" as defined below, (iii) as a result of the Death or Disability of
the Executive, and (iv) in the event of a Change of Control. In the event the
Employee voluntarily terminates his employment or is terminated for Cause, the
non-vested portion of the Option shall be forfeited. The Option shall be
evidenced by a Stock Option Agreement between the Company and the Executive (the
form of which shall be mutually agreed upon by the Company and the Executive).
4.5. Other Incentive Compensation. The Executive shall be entitled to
participate at an appropriate level in all other compensation programs adopted
by the Company as determined by 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.
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, $1,000 per month. At the Executive's option, the Company
shall pay the Executive a monthly allowance of $1,000 in lieu of providing him
with an automobile.
6.3. Insurance. In addition, the Company shall be obligated to pay the
premiums on a life insurance policy for the benefit of the Executive with a face
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amount of $1,000,000 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. If the Company has not relocated its
headquarters prior to the Effective Date, 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 Austin, Texas,
at such time as the Executive leases or purchases a residence in the Austin,
Texas area.
6.5. Vacation. In addition, the Executive shall be entitled to four (4)
weeks of paid vacation during each year.
7. Termination of Employment.
7.1. Termination Due to Death or Disability. Subject to the payments
contemplated by Section 7.8, the Executive's employment by the Company shall
terminate upon the death of the Executive or upon the Executive becoming
Disabled.
7.2. Early Termination by the Company. Subject to the payments
contemplated by Sections 7.4 and 7.5, 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:
7.2.1. For Cause; or
7.2.2. 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.
7.3. Early Termination by the Executive. Subject to the payments
contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company
may be terminated by the Executive at any time, as follows:
7.3.1. For Good Reason; or
7.3.2. For any other reason or no reason, it being understood
that no reason is required.
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Such termination by the Executive shall be effected by delivery by the Executive
to the Company of a written notice 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.
7.4. 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:
7.4.1. 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
7.4.2. Pay to the Executive a prorated portion of the Annual
Bonus with respect to the fiscal year of the Company in which the Date of
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.
7.5. 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:
7.5.1. 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);
7.5.2. Pay to the Executive in a lump sum within 5 business
days after the Date of Termination an amount determined by multiplying (A) three
times the Executive's annual base salary as in effect on the Date of Termination
by (B) a fraction, the numerator of which is 36 minus the number of months the
Executive has been in employed by the Company since the Effective date,
provided, however, that the numerator shall in no event be less than 18 and the
denominator of which is 36; provided, however, that if the Executive's
employment is terminated without Cause by the Company within 24 months of a
Change of Control or by the Executive in accordance with clause (v) of the
definition of Good Reason and the consideration paid to the shareholders of the
Company in connection with the event which triggered the Change of Control
exceeds the fair market value per share of the Company's common shares as of the
date of the Initial Grant (as set forth in Section 4.3), the numerator shall be
36; and
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7.5.3. 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).
7.5.4. Excise Tax Limitation.
(a) Notwithstanding anything contained in this
Agreement to the contrary, to the extent that any payment or distribution of any
type to or for the benefit of the Executive by the Company, any affiliate of the
Company, any person who acquires ownership or effective control of the Company
or ownership of a substantial portion of the Company's assets (within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended the
Code, and the regulations thereunder), or any affiliate of such person, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments") is or will be subject to the
excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the
Total Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Executive retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Executive received the entire
amount of such Total Payments. The Company shall reduce or eliminate the Total
Payments, by reducing or eliminating the portion of the Total Payments payable
to the Executive under Section 7.5.2. In no event will the Executive be required
to forfeit any equity (restricted stock or stock options) distributable or
payable under the terms of this Agreement. If after eliminating the portion of
the Total Payments payable to the Executive under Section 7.5.2, the remaining
amount of the Total Payments is or will be subject to the Excise Tax, then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including and Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Total Payments.
(b) The determination of whether the Total
Payments shall be reduced as provided in Section 7.5.4. (a), the amount of such
reduction, whether a Gross-Up Payment is required as provided in Section
7.5.4.(a), and the amount of such Gross-Up Payment shall be made at the
Company's expense by an accounting firm selected by the Company from among the
six largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to the Company and
Executive within ten (10) days of the Termination Date. If the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to the
Total Payments (or the Total Payments as reduced pursuant to Section 7.5.4(a)),
it shall furnish the Executive with an opinion reasonably acceptable to the
Executive that no Excise Tax will be imposed with respect to any such payments
and, absent manifest error, such Determination shall be binding, final and
conclusive upon the Company and the Executive. If a Gross-Up payment is
determined to be payable, it shall be paid to the Executive within five (5) days
after the Determination is delivered to the Company or the Executive. Any
determination by the Accounting Firm as to the amount of the Gross-Up shall be
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binding upon the Company and the Executive, absent manifest error. As a result
of uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments not made by the Company should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the Company
which should not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the amount of such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. In the case of an Overpayment, the Executive shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Company, and otherwise
reasonably cooperate with the Company to correct such Overpayment, provided,
however, that (i) Executive shall not in any event be obligated to return to the
Company an amount greater than net after-tax portion of the Overpayment that he
has retained or has recovered as a refund from the applicable taxing authorities
and (ii) this provision shall be interpreted in a manner consistent with the
intent of Subsection 7.5.4.(a), which is to make the Executive whole, on an
after-tax basis, from the application of the Excise Tax, it being understood
that the correction of an Overpayment may result in the Executive repaying to
the Company an amount which is less than the Overpayment.
7.6. Proration of Annual Bonus. For purposes of Section 7.4, 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.
7.7. Election to Defer. The Company shall implement a deferred
compensation plan which shall entitle the Executive to elect to defer a portion
of his Base Salary and Annual Bonus on terms mutually acceptable to the Company
and the Executive.
7.8. 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:
7.8.1. 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 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);
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7.8.2. 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);
7.8.3. Pay to the Executive an amount equal to 18 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 7.8 shall be in addition to any
life insurance and disability benefits payable to the Executive from the
Company.
7.9. No Additional Severance Payments. Except as provided in Section
4.3., 4.4. and this Section 7, 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 7.
8. Confidential Information.
8.1. 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 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.
8.2. Exceptions to Nondisclosure Obligations. The provisions of Section
8.1 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.
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8.3. Survival of Nondisclosure Obligations. The terms of this Section 8
shall survive the termination of this Agreement regardless of who terminates
this Agreement or the reasons therefor.
9. Definitions. Capitalized terms used in this Agreement shall have the meanings
set forth in this Section 9.
"Accrued Salary and Benefits" means, as of the Date of Termination, 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 not later than thirty days after the day on which
the Company's independent public accountants sign their report with respect to
such year.
"Board" is defined in Section 1.
"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;
(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.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Change of Control" shall mean the occurrence of (i) the dissolution or
liquidation of the Company, (ii) a reorganization, merger or consolidation of
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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 have 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.
"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, 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 7.2, 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 7.3, 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 Randy McCullough or his estate, if deceased.
"Expiration Date" is defined in Section 3.
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"Good Reason" means any of the following:
(i) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents an adverse change from his status,
title position or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his or her status, title,
position or responsibilities; or any removal of the Executive from or failure to
reappoint or reelect him to any of such offices or positions, except in
connection with the termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good Reason.
(ii) A breach by the Company of the compensation and benefit
provisions set forth in Sections 4 through 6;
(iii) A written notice of non-renewal of this Agreement being
given by the Company to the Executive pursuant to Section 3.
(iv) 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.
(v) Any termination by the Executive within twenty-four (24)
months of the occurrence of a Change in Control;
(vi) A material breach by the Company of any other term of
this Agreement;
provided, however that none of the events described in (i) through (vi) above
shall be considered Good Reason, if the Executive consents, in writing, to the
proposed action by the Company which would otherwise constitute Good Reason
prior to the time the event actually occurs; and further provided that no event
described in clauses (i), (ii), (vi) above, shall be considered Good Reason
until the Executive has provided the Company with written notice which (a)
describes the event or occurrences which the Executive believes constitute Good
Reason and (b) provides the Company with a minimum of fifteen (15) days in which
to correct or address such events or occurrences, after which if no such
correction occurs to the reasonable satisfaction of the Executive, such event
shall be deemed to be Good Reason.
"Renewal Date" is defined in Section 3.
"Term of Employment" is defined in Section 3.
10. General.
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10.1 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: Randy McCullough
405 Palos Verdes
Austin, Texas 78734
If to Company: Samuels Jewelers, Inc.
Suite 200
2914 Montopolis Drive
Austin, Texas 78741
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.
10.2. 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.
10.3. 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.
10.4. 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.
10.5. 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
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satisfy such withholding obligations and/or (iii) make other satisfactory
arrangements with the Executive to satisfy such withholding obligations.
10.6. 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.
10.7. Governing Law. This Agreement shall be governed by, construed,
applied and enforced in accordance with the laws of the state of Texas, except
that no doctrine of choice of law shall be used to apply any law other than that
of Texas, and no defense, counterclaim or right of set-off given or allowed by
the laws of any other state or 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.
10.8. 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 8 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.
10.9. 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 10.10, 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 Texas located in the County of
Travis or the United States District Courts located in the County of Travis. 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 10.9 shall not be deemed to preclude the enforcement of any
judgment obtained in such forum or the taking of any action under Agreement to
enforce same in any other jurisdiction.
10.10. 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 10.8 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 Austin,
Texas pursuant to its Labor Arbitration Rules then in effect; provided, that,
that the party seeking to submit a claim or dispute hereunder to arbitration
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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.
10.11. 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.
10.12. 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.
10.13. Further Action. The Executive and the Company agree to perform
any further acts and to execute and deliver any documents which may be
reasonable to carry out the provisions hereof.
10.14. 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.
10.15. 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' 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.
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IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first written above.
EXECUTIVE:
/s/ Randy McCullough
-------------------------
RANDY McCULLOUGH
COMPANY:
SAMUELS JEWELERS, INC.
By: /s/ E. Peter Healy
------------------------
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
AND SECRETARY
16
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
(E. Peter Healey)
This Employment Agreement (this "Agreement") dated as of October 2,
1998 is made by and between E. Peter Healey (the "Executive") and Samuels
Jewelers, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company and the Executive entered into an agreement as of
May 1, 1997 (the Original Employment Agreement) and now wish to supersede the
Original Employment Agreement pursuant to this agreement; 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 hereto
agree as follows:
1. Employment.
Subject to Section 7, the Company hereby employs the Executive, and the
Executive hereby accepts such employment, during the Term of Employment, as
Executive Vice President and Chief Financial Officer 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") or its designee. (The definitions of capitalized
terms used in this Agreement are contained in Section 9 of this Agreement.)
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 or its designee. Except
for 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) may serve on the Board of Naniquah
Corporation and, with the approval of the Board, 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,
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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 of the Plan of Reorganization of the Company (the "Effective
Date") and shall end on the last day of the third full calendar year following
such date (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 one (1) 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 7.2 or by the
Executive pursuant to Section 7.3, in which event the Term of Employment shall
end on the Date of Termination.
4. Compensation.
During the Term of Employment, the Executive shall be compensated as
follows:
4.1. Base Salary. The Company shall pay the Executive a base salary at
the rate of $300,000 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 on or about May 31, 1999, 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
100% 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; provided, however for the fiscal year ending on or about May 31,
1999 such performance targets shall be established by the Board in its sole
discretion, as soon as practicable following the Effective Date, but in no event
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later than 60 days following the Effective Date. 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. If the
Executive is actively employed by the Company on January 1 of each fiscal year
during the Term of Employment, the Company shall advance to the Executive an
amount equal to one-third 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 following payment of
such amount.
4.3. Equity Signing Bonus.
4.3.1. On or promptly after the Effective Date, the Company
shall award Executive an initial restricted stock bonus of a number of Company
common shares equal to 1.5 percent of the Company's outstanding equity as of the
Effective Date (the "Initial Grant") which shall be granted and conditioned upon
the Executive executing a restricted stock agreement with terms and conditions
consistent with this section 4.3 (such date of grant referred to hereinafter as
the "Grant Date"). Twenty-five (25) percent of the Initial Grant shall be fully
vested on the date of Grant Date. The remaining shares of the Initial Grant
shall vest ratably on the first through third anniversaries of the Grant Date.
The non-vested portion of the Initial Grant shall become fully vested in the
event the Executive is terminated (i) by the Company without Cause (as defined
below), (ii) by the Executive for "Good Reason" as defined below, (iii) as a
result of the Death or Disability of the Executive, and (iv) in the event of a
Change of Control. In the event the Executive voluntarily terminates his
employment or is terminated for Cause, the non-vested portion of the Initial
Grant shall be forfeited. Such shares shall be restricted so that no share may
be transferred or alienated in any way (except as provided in Section 4.3.2
below and through passage under will or by the laws of descent and distribution
upon the Executive's death) until the shares are vested, at which time the
restriction will lapse with respect to the vested shares.
4.3.2. Within 30 days following the Grant Date the Company
will lend the Executive a single sum equal to the fair market value of the
Initial Grant divided by .6 (the reciprocal of the highest marginal federal
income tax bracket rounded up to the nearest whole percentage point) and reduced
by the fair market value of the Initial Grant ((FMV / .6) - FMV) (the
"Loan").The Loan will be on a full recourse basis and secured in accordance with
the terms of a security agreement (in a form mutually agreed upon by the Company
and the Executive). The Loan will bear interest at the minimum statutory
interest rate necessary for tax purposes. Interest on the Loan will be payable
quarterly in arrears. The Loan will be set forth in twelve (12) equal promissory
notes (the form of which shall be mutually agreed upon by the Company and the
Executive), delivered by the Executive to the Company (collectively, the
"Notes"). In the event the Employee voluntarily terminates his employment or is
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terminated for Cause, the unpaid portion of the Loan will be accelerated and all
Notes will become due and payable within ninety (90) days of the Executive's
Date of Termination.
4.3.3. On each of the first twelve quarterly anniversaries of
the Grant Date, the Company shall pay Executive a bonus equal to the principal
(but not interest) amount of one of the twelve outstanding Notes. In the event
the Executive is terminated (i) by the Company without Cause (as defined below),
(ii) by the Executive for "Good Reason" as defined below, or (iii) as a result
of the Death or Disability of the Executive, the Company shall pay the Executive
or the Executive's estate, as the case may be, a one time lump sum bonus equal
to the principal (but not interest) amount of any remaining outstanding Notes.
4.4. Stock Options. On or promptly after the Effective Date (the
"Option Grant Date"), Executive will receive a grant of stock options on 37,500
shares of the Company's common stock representing .75 percent of the Company's
common stock as of the Effective Date (the "Option"). The exercise price of the
Option shall be the fair market value of a share of Company common stock on the
Effective Date. Executive shall vest in one-third (1/3) of the Option on each of
the first through third anniversaries of the Option Grant Date. The Option shall
be an incentive stock option ("ISO") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, with respect to the maximum number of
shares that can be granted under an ISO with the vesting period described above.
The Option shall become fully vested in the event the Executive is terminated
(i) by the Company without Cause (as defined below), (ii) by the Executive for
"Good Reason" as defined below, (iii) as a result of the Death or Disability of
the Executive, and (iv) in the event of a Change of Control. In the event the
Employee voluntarily terminates his employment or is terminated for Cause, the
non-vested portion of the Option shall be forfeited. The Option shall be
evidenced by a Stock Option Agreement between the Company and the Executive (the
form of which shall be mutually agreed upon by the Company and the Executive).
4.5. Other Incentive Compensation. The Executive shall be entitled to
participate at an appropriate level in all other compensation programs adopted
by the Company as determined by 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.
6. Benefits.
During the Term of Employment, the Executive shall be entitled to
benefits, as follows:
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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, $750 per month. At the Executive's option, the Company shall
pay the Executive a monthly allowance of $750 in lieu of providing him with an
automobile.
6.3. Insurance. In addition, the Company shall be obligated to pay the
premiums on a life insurance policy for the benefit of the Executive with a face
amount of $750,000 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. If the Company has not relocated its
headquarters office prior to the Effective Date, 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
Austin, Texas, at such time as the Executive leases or purchases a residence in
the Austin, Texas area.
6.5. Vacation. In addition, the Executive shall be entitled to four
(4) weeks of paid vacation during each year.
7. Termination of Employment.
7.1. Termination Due to Death or Disability. Subject to the payments
contemplated by Section 7.8, the Executive's employment by the Company shall
terminate upon the death of the Executive or upon the Executive becoming
Disabled.
7.2. Early Termination by the Company. Subject to the payments
contemplated by Sections 7.4 and 7.5, 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:
7.2.1. For Cause; or
7.2.2. For any other reason or no reason, it being understood
that no reason is required.
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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.
7.3. Early Termination by the Executive. Subject to the payments
contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company
may be terminated by the Executive at any time as follows:
7.3.1. For Good Reason; or
7.3.2. 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 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.
7.4. 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:
7.4.1. 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
7.4.2. Pay to the Executive a prorated portion of the Annual
Bonus with respect to the fiscal year of the Company in which the Date of
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.
7.5. 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:
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7.5.1. 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);
7.5.2. Pay to the Executive in a lump sum within 5 business
days after the Date of Termination an amount determined by multiplying (A) three
times the Executive's annual base salary as in effect on the Date of Termination
by (B) a fraction, the numerator of which is 36 minus the number of months the
Executive has been in employed by the Company since the Effective date,
provided, however, that the numerator shall in no event be less than 18 and the
denominator of which is 36; provided, however, that if the Executive's
employment is terminated without Cause by the Company within 24 months of a
Change of Control or by the Executive in accordance with clause (v) of the
definition of Good Reason and the consideration paid to the shareholders of the
Company in connection with the event which triggered the Change of Control
exceeds the fair market value per share of the Company's common shares as of the
date of the Initial Grant (as set forth in Section 4.3), the numerator shall be
36; and
7.5.3. 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).
7.5.4. Excise Tax Limitation.
(a) Notwithstanding anything contained in this
Agreement to the contrary, to the extent that any payment or distribution of any
type to or for the benefit of the Executive by the Company, any affiliate of the
Company, any person who acquires ownership or effective control of the Company
or ownership of a substantial portion of the Company's assets (within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended the
Code, and the regulations thereunder), or any affiliate of such person, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments") is or will be subject to the
excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the
Total Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Executive retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Executive received the entire
amount of such Total Payments. The Company shall reduce or eliminate the Total
Payments, by reducing or eliminating the portion of the Total Payments payable
to the Executive under Section 7.5.2. In no event will the Executive be required
to forfeit any equity (restricted stock or stock options) distributable or
payable under the terms of this Agreement. If after eliminating the portion of
the Total Payments payable to the Executive under Section 7.5.2, the remaining
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amount of the Total Payments is or will be subject to the Excise Tax, then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including and Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Total Payments.
(b) The determination of whether the Total Payments
shall be reduced as provided in Section 7.5.4. (a), the amount of such
reduction, whether a Gross-Up Payment is required as provided in Section
7.5.4.(a), and the amount of such Gross-Up Payment shall be made at the
Company's expense by an accounting firm selected by the Company from among the
six largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to the Company and
Executive within ten (10) days of the Termination Date. If the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to the
Total Payments (or the Total Payments as reduced pursuant to Section 7.5.4(a)),
it shall furnish the Executive with an opinion reasonably acceptable to the
Executive that no Excise Tax will be imposed with respect to any such payments
and, absent manifest error, such Determination shall be binding, final and
conclusive upon the Company and the Executive. If a Gross-Up payment is
determined to be payable, it shall be paid to the Executive within five (5) days
after the Determination is delivered to the Company or the Executive. Any
determination by the Accounting Firm as to the amount of the Gross-Up shall be
binding upon the Company and the Executive, absent manifest error. As a result
of uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments not made by the Company should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the Company
which should not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the amount of such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. In the case of an Overpayment, the Executive shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Company, and otherwise
reasonably cooperate with the Company to correct such Overpayment, provided,
however, that (i) Executive shall not in any event be obligated to return to the
Company an amount greater than net after-tax portion of the Overpayment that he
has retained or has recovered as a refund from the applicable taxing authorities
and (ii) this provision shall be interpreted in a manner consistent with the
intent of Subsection 7.5.4.(a), which is to make the Executive whole, on an
after-tax basis, from the application of the Excise Tax, it being understood
that the correction of an Overpayment may result in the Executive repaying to
the Company an amount which is less than the Overpayment.
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7.6. Proration of Annual Bonus. For purposes of Section 7.4, 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.
7.7. Election to Defer. The Company shall implement a deferred
compensation plan which shall entitle the Executive to elect to defer a portion
of his Base Salary and Annual Bonus on terms mutually acceptable to the Company
and the Executive.
7.8. 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:
7.8.1. 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 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);
7.8.2. 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);
7.8.3. Pay to the Executive an amount equal to 18 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 7.8 shall be in
addition to any life insurance and disability benefits payable to the Executive
from the Company.
7.9. No Additional Severance Payments. Except as provided in Section
4.3., 4.4. and this Section 7, 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
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employment or self-employment shall not be offset against any of the Company's
payment obligations under this Section 7.
8. Confidential Information.
8.1. 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 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.
8.2. Exceptions to Nondisclosure Obligations. The provisions of Section
8.1 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.
8.3. Survival of Nondisclosure Obligations. The terms of this Section 8
shall survive the termination of this Agreement regardless of who terminates
this Agreement or the reasons therefor.
9. Definitions. Capitalized terms used in this Agreement shall have the meanings
set forth in this Section 9.
"Accrued Salary and Benefits" means, as of the Date of Termination, 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.
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"Annual Bonus Payment Date" means with respect to any fiscal year of
the Company, a date which is not later than thirty days after the day on which
the Company's independent public accountants sign their report with respect to
such year.
"Board" is defined in Section 1.
"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;
(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 have 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.
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"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, 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 7.2, 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 7.3, 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 E. Peter Healey or his estate, if deceased.
"Expiration Date" is defined in Section 3.
"Good Reason" means any of the following:
(i) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents an adverse change from his status,
title position or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his or her status, title,
position or responsibilities; or any removal of the Executive from or failure to
reappoint or reelect him to any of such offices or positions, except in
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connection with the termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good Reason.
(ii) A breach by the Company of the compensation and benefit
provisions set forth in Sections 4 through 6;
(iii) A written notice of non-renewal of this Agreement being
given by the Company to the Executive pursuant to Section 3.
(iv) 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.
(v) Any termination by the Executive within twenty-four (24)
months of the occurrence of a Change in Control;
(vi) A material breach by the Company of any other term of
this Agreement;
provided, however that none of the events described in (i) through (vi) above
shall be considered Good Reason, if the Executive consents, in writing, to the
proposed action by the Company which would otherwise constitute Good Reason
prior to the time the event actually occurs; and further provided that no event
described in clauses (i), (ii), (vi) above, shall be considered Good Reason
until the Executive has provided the Company with written notice which (a)
describes the event or occurrences which the Executive believes constitute Good
Reason and (b) provides the Company with a minimum of fifteen (15) days in which
to correct or address such events or occurrences, after which if no such
correction occurs to the reasonable satisfaction of the Executive, such event
shall be deemed to be Good Reason.
"Renewal Date" is defined in Section 3.
"Term of Employment" is defined in Section 3.
10. General.
10.1. 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: E. Peter Healey
Route 6
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Box 368-A
Tool, TX 75143
If to Company: Samuels Jewelers, Inc.
Suite 200
2914 Montopolis Drive
Austin, Texas 78741
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.
10.2. 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.
10.3. 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.
10.4. 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.
10.5. 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.
10.6. 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
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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.
10.7. Governing Law. This Agreement shall be governed by, construed,
applied and enforced in accordance with the laws of the state of Texas, except
that no doctrine of choice of law shall be used to apply any law other than that
of Texas, and no defense, counterclaim or right of set-off given or allowed by
the laws of any other state or 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.
10.8. 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 8 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.
10.9. 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 10.10, 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 Texas located in the County of
Travis or the United States District Courts located in the County of Travis. 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 10.9 shall not be deemed to preclude the enforcement of any
judgment obtained in such forum or the taking of any action under Agreement to
enforce same in any other jurisdiction.
10.10. 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 10.8 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 Austin,
Texas pursuant to its Labor Arbitration Rules then in effect; provided, that,
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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10.11. 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.
10.12. 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.
10.13. Further Action. The Executive and the Company agree to perform
any further acts and to execute and deliver any documents which may be
reasonable to carry out the provisions hereof.
10.14. 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.
10.15. 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' 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.
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IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first written above.
EXECUTIVE:
/s/ E. Peter Healey
------------------------
E. PETER HEALEY
COMPANY:
SAMUELS JEWELERS, INC.
By: /s/ Randy N. McCullough
-------------------------
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
17
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
(Chad Haggar)
This Employment Agreement (this "Agreement"), dated as of October 2,
1998 is made by and between Chad Haggar (the "Executive") and Samuels Jewelers,
Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company and the Executive entered into an agreement as
approved by the United States Bankruptcy Court located in Los Angeles,
California in or around September 1997 (the "Original Employment Agreement") and
now wish to supersede the Original Employment Agreement pursuant to this
agreement; 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 hereto
agree as follows:
1. Employment.
Subject to Section 7, the Company hereby employs the Executive, and the
Executive hereby accepts such employment during the Term of Employment, as
Senior Vice President, Operations to perform such duties and responsibilities,
consistent with such position, as may be reasonably assigned to the Executive
from time to time by the Chief Executive Officer ("CEO") of the Company or his
designee. (The definitions of capitalized terms used in this Agreement are
contained in Section 9 of this Agreement.)
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 CEO or his designee. Except
for 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 of Directors of
the Company (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, may 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
<PAGE>
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 of the Plan of Reorganization of the Company (the "Effective
Date") and shall end on the last day of the third full calendar year following
such date (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 one (1) 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 7.2 or by the
Executive pursuant to Section 7.3, in which event the Term of Employment shall
end on the Date of Termination.
4. Compensation.
During the Term of Employment, the Executive shall be compensated as
follows:
4.1. Base Salary. The Company shall pay the Executive a base salary at
the rate of $150,000 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 CEO in his sole
discretion or by his designee in his designee's 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 on or about May 31, 1999, 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
50% of his base salary for such year. Such performance targets shall be agreed
upon by the Executive and the CEO or his designee in writing prior to the
beginning of each fiscal year and shall be consistent with the performance
targets established by the Compensation Committee (the "Compensation Committee")
of the Board; provided, however, that for the fiscal year ending on or about May
31, 1999 such performance targets shall be established by the CEO in his sole
discretion or by his designee in his designee's sole discretion, but consistent
with the performance targets established by the Compensation Committee, as soon
as practicable following the Effective Date, but in no event later than 60 days
following the Effective Date. On the Annual Bonus Payment Date for such year,
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the Company shall pay the Executive his Annual Bonus determined based on actual
achievement of the performance targets. If the Executive is actively employed by
the Company on January 1 of each fiscal year during the Term of Employment, the
Company shall advance to the Executive an amount equal to one-third 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 following payment of such amount.
4.3. Equity Signing Bonus.
4.3.1. On or promptly after the Effective Date, the Company
shall award Executive an initial restricted stock bonus of a number of Company
common shares equal to .5 percent of the Company's outstanding equity as of the
Effective Date (the "Initial Grant") which shall be granted and conditioned upon
the Executive executing a restricted stock agreement with terms and conditions
consistent with this section 4.3 (such date of grant referred to hereinafter as
the "Grant Date"). Twenty-five (25) percent of the Initial Grant shall be fully
vested on the date of Grant Date. The remaining shares of the Initial Grant
shall vest ratably on the first through third anniversaries of the Grant Date.
The non-vested portion of the Initial Grant shall become fully vested in the
event the Executive is terminated (i) by the Company without Cause (as defined
below), (ii) by the Executive for "Good Reason" as defined below, (iii) as a
result of the Death or Disability of the Executive, and (iv) in the event of a
Change of Control. In the event the Executive voluntarily terminates his
employment or is terminated for Cause, the non-vested portion of the Initial
Grant shall be forfeited. Such shares shall be restricted so that no share may
be transferred or alienated in any way (except as provided in Section 4.3.2
below and through passage under will or by the laws of descent and distribution
upon the Executive's death) until the shares are vested, at which time the
restriction will lapse with respect to the vested shares.
4.3.2. Within 30 days following the Grant Date, and within 30
days following each of the first and second anniversaries of the Grant Date
unless the Executive's employment with the Company has terminated prior to
either such anniversary, the Company will lend the Executive a single sum equal
to the vesting date fair market value of the portion of the Initial Grant which
vests on such date divided by .6 (the reciprocal of the highest marginal federal
income tax bracket rounded up to the nearest whole percentage point) and reduced
by the vesting date fair market value of the portion of the Initial Grant which
vests on such date ((FMV / .6) - FMV) (respectively, the "First Loan," the
"Second Loan," and the "Third Loan," and collectively, the Loans). The Loans
will be on a full recourse basis and secured in accordance with the terms of a
security agreement (in a form mutually agreed upon by the Company and the
Executive). The Loans will bear interest at the minimum statutory interest rate
necessary for tax purposes on the date each of such Loans is made. Interest on
the Loans will be payable quarterly in arrears. The First Loan will be set forth
in twelve (12) equal promissory notes, the Second Loan will be set forth in
eight (8) equal promissory notes, and the Third Loan will be set forth in four
(4) equal promissory notes. The form of the promissory notes or the Loans shall
be mutually agreed upon by the Company and the Executive, and shall be delivered
by the Executive to the Company (collectively, the "Notes"). In the event the
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Employee voluntarily terminates his employment or is terminated for Cause, the
unpaid portion of the Loans will be accelerated and all Notes will become due
and payable within ninety (90) days of the Executive's Date of Termination.
Within 30 days of the third anniversary of the Grant Date unless the
Executive's employment with the Company has terminated prior to such third
anniversary, the Company will award the Executive a bonus equal to the vesting
date fair market value of the portion of the Initial Grant which vests on such
anniversary date divided by .6 (the reciprocal of the highest marginal federal
income tax bracket rounded up to the nearest whole percentage point) and reduced
by the vesting date fair market value of the portion of the Initial Grant that
has vested on such date ((FMV / .6) - FMV).
4.3.3. On each of the first twelve quarterly anniversaries of
the Grant Date, the Company shall pay Executive a bonus equal to the principal
(but not interest) amount of one of the Note or Notes due and payable on such
date. In the event the Executive is terminated (i) by the Company without Cause
(as defined below), (ii) by the Executive for "Good Reason" as defined below, or
(iii) as a result of the Death or Disability of the Executive, the Company shall
pay the Executive or the Executive's estate, as the case may be, a one time lump
sum bonus equal to the principal (but not interest) amount of any remaining
outstanding Notes.
4.4. Stock Options. Subject to the approval of either the Board or the
shareholders or both, as required by applicable law, Executive will receive a
grant of stock options on 12,500 shares of the Company's common stock
representing .25 percent of the Company's common stock as of the Effective Date
(the "Option") or on such later date as the required approvals are received (the
"Option Grant Date"). The exercise price of the Option shall be the fair market
value of a share of Company common stock on the Option Grant Date. Executive
shall vest in one-third (1/3) of the Option on each of the first through third
anniversaries of the Option Grant Date. The Option shall be an incentive stock
option ("ISO") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, with respect to the maximum number of shares that can be
granted under an ISO with the vesting period described above. The Option shall
become fully vested in the event the Executive is terminated (i) by the Company
without Cause (as defined below), (ii) by the Executive for "Good Reason" as
defined below, (iii) as a result of the Death or Disability of the Executive,
and (iv) in the event of a Change of Control. In the event the Employee
voluntarily terminates his employment or is terminated for Cause, the non-vested
portion of the Option shall be forfeited. The Option shall be evidenced by a
Stock Option Agreement between the Company and the Executive (the form of which
shall be mutually agreed upon by the Company and the Executive).
4.5. Other Incentive Compensation. The Executive shall be entitled to
participate at an appropriate level in all other compensation programs adopted
by the Company as determined by the Board.
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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.
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. Vacation. In addition, the Executive shall be entitled to three
(3) weeks of paid vacation during each year.
7. Termination of Employment.
7.1. Termination Due to Death or Disability. Subject to the payments
contemplated by Section 7.8, the Executive's employment by the Company shall
terminate upon the death of the Executive or upon the Executive becoming
Disabled.
7.2. Early Termination by the Company. Subject to the payments
contemplated by Sections 7.4 and 7.5, 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:
7.2.1. For Cause; or
7.2.2. 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.
7.3. Early Termination by the Executive. Subject to the payments
contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company
may be terminated by the Executive at any time, as follows:
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7.3.1. For Good Reason; or
7.3.2. 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 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.
7.4. 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:
7.4.1. 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
7.4.2. Pay to the Executive a prorated portion of the Annual
Bonus with respect to the fiscal year of the Company in which the Date of
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.
7.5. 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:
7.5.1. 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);
7.5.2. Pay to the Executive in a lump sum within 5 business
days after the Date of Termination an amount determined by multiplying (A) two
times the Executive's annual base salary as in effect on the Date of Termination
by (B) a fraction, the numerator of which is 36 minus the number of months the
Executive has been in employed by the Company since the Effective Date,
provided, however, that the numerator shall in no event be less than 18 and the
denominator of which is 36; provided, however, that if the Executive's
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employment is terminated without Cause by the Company within 24 months of a
Change of Control or by the Executive in accordance with clause (v) of the
definition of Good Reason and the consideration paid to the shareholders of the
Company in connection with the event which triggered the Change of Control
exceeds the fair market value per share of the Company's common shares as of the
date of the Initial Grant (as set forth in Section 4.3), the numerator shall be
36; and
7.5.3. 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).
7.5.4. Excise Tax Limitation.
(a) Notwithstanding anything contained in this
Agreement to the contrary, to the extent that any payment or distribution of any
type to or for the benefit of the Executive by the Company, any affiliate of the
Company, any person who acquires ownership or effective control of the Company
or ownership of a substantial portion of the Company's assets (within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended the
Code, and the regulations thereunder), or any affiliate of such person, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments") is or will be subject to the
excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the
Total Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Executive retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Executive received the entire
amount of such Total Payments. The Company shall reduce or eliminate the Total
Payments, by reducing or eliminating the portion of the Total Payments payable
to the Executive under Section 7.5.2. In no event will the Executive be required
to forfeit any equity (restricted stock or stock options) distributable or
payable under the terms of this Agreement. If after eliminating the portion of
the Total Payments payable to the Executive under Section 7.5.2, the remaining
amount of the Total Payments is or will be subject to the Excise Tax, then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including and Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Total Payments.
(b) The determination of whether the Total Payments
shall be reduced as provided in Section 7.5.4. (a), the amount of such
reduction, whether a Gross-Up Payment is required as provided in Section
7.5.4.(a), and the amount of such Gross-Up Payment shall be made at the
Company's expense by an accounting firm selected by the Company from among the
six largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to the Company and
Executive within ten (10) days of the Termination Date. If the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to the
Total Payments (or the Total Payments as reduced pursuant to Section 7.5.4(a)),
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it shall furnish the Executive with an opinion reasonably acceptable to the
Executive that no Excise Tax will be imposed with respect to any such payments
and, absent manifest error, such Determination shall be binding, final and
conclusive upon the Company and the Executive. If a Gross-Up payment is
determined to be payable, it shall be paid to the Executive within five (5) days
after the Determination is delivered to the Company or the Executive. Any
determination by the Accounting Firm as to the amount of the Gross-Up shall be
binding upon the Company and the Executive, absent manifest error. As a result
of uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments not made by the Company should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the Company
which should not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the amount of such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. In the case of an Overpayment, the Executive shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Company, and otherwise
reasonably cooperate with the Company to correct such Overpayment, provided,
however, that (i) Executive shall not in any event be obligated to return to the
Company an amount greater than net after-tax portion of the Overpayment that he
has retained or has recovered as a refund from the applicable taxing authorities
and (ii) this provision shall be interpreted in a manner consistent with the
intent of Subsection 7.5.4.(a), which is to make the Executive whole, on an
after-tax basis, from the application of the Excise Tax, it being understood
that the correction of an Overpayment may result in the Executive repaying to
the Company an amount which is less than the Overpayment.
7.6. Proration of Annual Bonus. For purposes of Section 7.4, 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.
7.7. Election to Defer. The Company shall implement a deferred
compensation plan which shall entitle the Executive to elect to defer a portion
of his Base Salary and Annual Bonus on terms mutually acceptable to the Company
and the Executive.
7.8. 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:
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7.8.1. 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 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);
7.8.2. 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);
7.8.3. Pay to the Executive an amount equal to 18 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 7.8 shall be in addition to any
life insurance and disability benefits payable to the Executive from the
Company.
7.9. No Additional Severance Payments. Except as provided in Section
4.3., 4.4. and this Section 7, 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 7.
8. Confidential Information.
8.1. 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 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.
8.2. Exceptions to Nondisclosure Obligations. The provisions of Section
8.1 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
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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.
8.3. Survival of Nondisclosure Obligations. The terms of this Section 8
shall survive the termination of this Agreement regardless of who terminates
this Agreement or the reasons therefor.
9. Definitions. Capitalized terms used in this Agreement shall have the meanings
set forth in this Section 9.
"Accrued Salary and Benefits" means, as of the Date of Termination, 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 not later than thirty days after the day on which
the Company's independent public accountants sign their report with respect to
such year.
"Board" is defined in Section 2.
"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;
(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 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.
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"CEO" is defined in Section 1.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"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 have 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.
"Company" is defined in the introduction.
"Compensation Committee" is defined in Section 4.2.
"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, 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 7.2, 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 7.3, 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
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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 Chad Haggar or his estate, if deceased.
"Expiration Date" is defined in Section 3.
"Good Reason" means any of the following:
(i) A change in the Executive's status, title, position or
responsibilities (except for reporting responsibilities) which, in the
Executive's reasonable judgment, represents an adverse change from his status,
title position or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his or her status, title,
position or responsibilities; or any removal of the Executive from or failure to
reappoint or reelect him to any of such offices or positions, except in
connection with the termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good Reason.
(ii) A breach by the Company of the compensation and benefit
provisions set forth in Sections 4 through 6;
(iii) A written notice of non-renewal of this Agreement being
given by the Company to the Executive pursuant to Section 3.
(iv) 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.
(v) Any termination by the Executive within twenty-four (24)
months of the occurrence of a Change in Control;
(vi) A material breach by the Company of any other term of
this Agreement;
provided, however that none of the events described in (i) through (vi) above
shall be considered Good Reason, if the Executive consents, in writing, to the
proposed action by the Company which would otherwise constitute Good Reason
prior to the time the event actually occurs; and further provided that no event
described in clauses (i), (ii), (vi) above, shall be considered Good Reason
until the Executive has provided the Company with written notice which (a)
describes the event or occurrences which the Executive believes constitute Good
Reason and (b) provides the Company with a minimum of fifteen (15) days in which
to correct or address such events or occurrences, after which if no such
correction occurs to the reasonable satisfaction of the Executive, such event
shall be deemed to be Good Reason.
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"Renewal Date" is defined in Section 3.
"Term of Employment" is defined in Section 3.
10. General.
10.1 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:
Chad Haggar
#2 World of Tennis, Unit 139
Austin, TX 78734
If to Company: Samuels Jewelers, Inc.
Suite 200
2914 Montopolis Drive
Austin, Texas 78741
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.
10.2. 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.
10.3. 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.
10.4. 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.
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10.5. 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.
10.6. 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.
10.7. Governing Law. This Agreement shall be governed by, construed,
applied and enforced in accordance with the laws of the state of Texas, except
that no doctrine of choice of law shall be used to apply any law other than that
of Texas, and no defense, counterclaim or right of set-off given or allowed by
the laws of any other state or 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.
10.8. 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 8 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.
10.9. 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 10.10, 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 Texas located in the County of
Travis or the United States District Courts located in the County of Travis. 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 10.9 shall not be deemed to preclude the enforcement of any
judgment obtained in such forum or the taking of any action under Agreement to
enforce same in any other jurisdiction.
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10.10. 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 10.8 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 Austin,
Texas pursuant to its Labor Arbitration Rules then in effect; provided, that,
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.
10.11. 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.
10.12. 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
CEO. 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.
10.13. Further Action. The Executive and the Company agree to perform
any further acts and to execute and deliver any documents which may be
reasonable to carry out the provisions hereof.
10.14. 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.
10.15. 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' fees)
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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.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first written above.
EXECUTIVE:
/s/ Chad Hagger
-------------------------
Chad Haggar
COMPANY:
SAMUELS JEWELERS, INC.
By: /s/ E. Peter Healy
------------------------
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
AND SECRETARY
16
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
(William Edgel)
This Employment Agreement (this "Agreement"), dated as of October 2,
1998 is made by and between William Edgel (the "Executive") and Samuels
Jewelers, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company and the Executive entered into an agreement as
approved by the United States Bankruptcy Court located in Los Angeles,
California in or around September 1997 (the "Original Employment Agreement") and
now wish to supersede the Original Employment Agreement pursuant to this
agreement; 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 hereto
agree as follows:
1. Employment.
Subject to Section 7, the Company hereby employs the Executive, and the
Executive hereby accepts such employment during the Term of Employment, as
Senior Vice President, Merchandise and Marketing to perform such duties and
responsibilities, consistent with such position, as may be reasonably assigned
to the Executive from time to time by the Chief Executive Officer ("CEO") of the
Company or his designee. (The definitions of capitalized terms used in this
Agreement are contained in Section 9 of this Agreement.)
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 CEO or his designee. Except
for 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 of Directors of
the Company (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, may 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
<PAGE>
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 of the Plan of Reorganization of the Company (the "Effective
Date") and shall end on the last day of the third full calendar year following
such date (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 one (1) 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 7.2 or by the
Executive pursuant to Section 7.3, in which event the Term of Employment shall
end on the Date of Termination.
4. Compensation.
During the Term of Employment, the Executive shall be compensated as
follows:
4.1. Base Salary. The Company shall pay the Executive a base salary at
the rate of $150,000 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 CEO in his sole
discretion or by his designee in his designee's 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 on or about May 31, 1999, 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
50% of his base salary for such year. Such performance targets shall be agreed
upon by the Executive and the CEO or his designee in writing prior to the
beginning of each fiscal year and shall be consistent with the performance
targets established by the Compensation Committee (the "Compensation Committee")
of the Board; provided, however, that for the fiscal year ending on or about May
31, 1999 such performance targets shall be established by the CEO in his sole
discretion or by his designee in his designee's sole discretion, but consistent
with the performance targets established by the Compensation Committee, as soon
as practicable following the Effective Date, but in no event later than 60 days
following the Effective Date. On the Annual Bonus Payment Date for such year,
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the Company shall pay the Executive his Annual Bonus determined based on actual
achievement of the performance targets. If the Executive is actively employed by
the Company on January 1 of each fiscal year during the Term of Employment, the
Company shall advance to the Executive an amount equal to one-third 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 following payment of such amount.
4.3. Equity Signing Bonus.
4.3.1. On or promptly after the Effective Date, the Company
shall award Executive an initial restricted stock bonus of a number of Company
common shares equal to .5 percent of the Company's outstanding equity as of the
Effective Date (the "Initial Grant") which shall be granted and conditioned upon
the Executive executing a restricted stock agreement with terms and conditions
consistent with this section 4.3 (such date of grant referred to hereinafter as
the "Grant Date"). Twenty-five (25) percent of the Initial Grant shall be fully
vested on the date of Grant Date. The remaining shares of the Initial Grant
shall vest ratably on the first through third anniversaries of the Grant Date.
The non-vested portion of the Initial Grant shall become fully vested in the
event the Executive is terminated (i) by the Company without Cause (as defined
below), (ii) by the Executive for "Good Reason" as defined below, (iii) as a
result of the Death or Disability of the Executive, and (iv) in the event of a
Change of Control. In the event the Executive voluntarily terminates his
employment or is terminated for Cause, the non-vested portion of the Initial
Grant shall be forfeited. Such shares shall be restricted so that no share may
be transferred or alienated in any way (except as provided in Section 4.3.2
below and through passage under will or by the laws of descent and distribution
upon the Executive's death) until the shares are vested, at which time the
restriction will lapse with respect to the vested shares.
4.3.2. Within 30 days following the Grant Date, and within 30
days following each of the first and second anniversaries of the Grant Date
unless the Executive's employment with the Company has terminated prior to
either such anniversary, the Company will lend the Executive a single sum equal
to the vesting date fair market value of the portion of the Initial Grant which
vests on such date divided by .6 (the reciprocal of the highest marginal federal
income tax bracket rounded up to the nearest whole percentage point) and reduced
by the vesting date fair market value of the portion of the Initial Grant which
vests on such date ((FMV / .6) - FMV) (respectively, the "First Loan," the
"Second Loan," and the "Third Loan," and collectively, the Loans). The Loans
will be on a full recourse basis and secured in accordance with the terms of a
security agreement (in a form mutually agreed upon by the Company and the
Executive). The Loans will bear interest at the minimum statutory interest rate
necessary for tax purposes on the date each of such Loans is made. Interest on
the Loans will be payable quarterly in arrears. The First Loan will be set forth
in twelve (12) equal promissory notes, the Second Loan will be set forth in
eight (8) equal promissory notes, and the Third Loan will be set forth in four
(4) equal promissory notes. The form of the promissory notes or the Loans shall
be mutually agreed upon by the Company and the Executive, and shall be delivered
by the Executive to the Company (collectively, the "Notes"). In the event the
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Employee voluntarily terminates his employment or is terminated for Cause, the
unpaid portion of the Loans will be accelerated and all Notes will become due
and payable within ninety (90) days of the Executive's Date of Termination.
Within 30 days of the third anniversary of the Grant Date unless the
Executive's employment with the Company has terminated prior to such third
anniversary, the Company will award the Executive a bonus equal to the vesting
date fair market value of the portion of the Initial Grant which vests on such
anniversary date divided by .6 (the reciprocal of the highest marginal federal
income tax bracket rounded up to the nearest whole percentage point) and reduced
by the vesting date fair market value of the portion of the Initial Grant that
has vested on such date ((FMV / .6) - FMV).
4.3.3. On each of the first twelve quarterly anniversaries of
the Grant Date, the Company shall pay Executive a bonus equal to the principal
(but not interest) amount of one of the Note or Notes due and payable on such
date. In the event the Executive is terminated (i) by the Company without Cause
(as defined below), (ii) by the Executive for "Good Reason" as defined below, or
(iii) as a result of the Death or Disability of the Executive, the Company shall
pay the Executive or the Executive's estate, as the case may be, a one time lump
sum bonus equal to the principal (but not interest) amount of any remaining
outstanding Notes.
4.4. Stock Options. Subject to the approval of either the Board or the
shareholders or both, as required by applicable law, Executive will receive a
grant of stock options on 12,500 shares of the Company's common stock
representing .25 percent of the Company's common stock as of the Effective Date
(the "Option") or on such later date as the required approvals are received (the
"Option Grant Date"). The exercise price of the Option shall be the fair market
value of a share of Company common stock on the Option Grant Date. Executive
shall vest in one-third (1/3) of the Option on each of the first through third
anniversaries of the Option Grant Date. The Option shall be an incentive stock
option ("ISO") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, with respect to the maximum number of shares that can be
granted under an ISO with the vesting period described above. The Option shall
become fully vested in the event the Executive is terminated (i) by the Company
without Cause (as defined below), (ii) by the Executive for "Good Reason" as
defined below, (iii) as a result of the Death or Disability of the Executive,
and (iv) in the event of a Change of Control. In the event the Employee
voluntarily terminates his employment or is terminated for Cause, the non-vested
portion of the Option shall be forfeited. The Option shall be evidenced by a
Stock Option Agreement between the Company and the Executive (the form of which
shall be mutually agreed upon by the Company and the Executive).
4.5. Other Incentive Compensation. The Executive shall be entitled to
participate at an appropriate level in all other compensation programs adopted
by the Company as determined by the Board.
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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.
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. Vacation. In addition, the Executive shall be entitled to three
(3) weeks of paid vacation during each year.
7. Termination of Employment.
7.1. Termination Due to Death or Disability. Subject to the payments
contemplated by Section 7.8, the Executive's employment by the Company shall
terminate upon the death of the Executive or upon the Executive becoming
Disabled.
7.2. Early Termination by the Company. Subject to the payments
contemplated by Sections 7.4 and 7.5, 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:
7.2.1. For Cause; or
7.2.2. 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.
7.3. Early Termination by the Executive. Subject to the payments
contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company
may be terminated by the Executive at any time, as follows:
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7.3.1. For Good Reason; or
7.3.2. 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 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.
7.4. 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:
7.4.1. 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
7.4.2. Pay to the Executive a prorated portion of the Annual
Bonus with respect to the fiscal year of the Company in which the Date of
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.
7.5. 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:
7.5.1. 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);
7.5.2. Pay to the Executive in a lump sum within 5 business
days after the Date of Termination an amount determined by multiplying (A) two
times the Executive's annual base salary as in effect on the Date of Termination
by (B) a fraction, the numerator of which is 36 minus the number of months the
Executive has been in employed by the Company since the Effective Date,
provided, however, that the numerator shall in no event be less than 18 and the
denominator of which is 36; provided, however, that if the Executive's
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employment is terminated without Cause by the Company within 24 months of a
Change of Control or by the Executive in accordance with clause (v) of the
definition of Good Reason and the consideration paid to the shareholders of the
Company in connection with the event which triggered the Change of Control
exceeds the fair market value per share of the Company's common shares as of the
date of the Initial Grant (as set forth in Section 4.3), the numerator shall be
36; and
7.5.3. 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).
7.5.4. Excise Tax Limitation.
(a) Notwithstanding anything contained in this
Agreement to the contrary, to the extent that any payment or distribution of any
type to or for the benefit of the Executive by the Company, any affiliate of the
Company, any person who acquires ownership or effective control of the Company
or ownership of a substantial portion of the Company's assets (within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended the
Code, and the regulations thereunder), or any affiliate of such person, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments") is or will be subject to the
excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the
Total Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Executive retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Executive received the entire
amount of such Total Payments. The Company shall reduce or eliminate the Total
Payments, by reducing or eliminating the portion of the Total Payments payable
to the Executive under Section 7.5.2. In no event will the Executive be required
to forfeit any equity (restricted stock or stock options) distributable or
payable under the terms of this Agreement. If after eliminating the portion of
the Total Payments payable to the Executive under Section 7.5.2, the remaining
amount of the Total Payments is or will be subject to the Excise Tax, then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including and Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Total Payments.
(b) The determination of whether the Total Payments
shall be reduced as provided in Section 7.5.4. (a), the amount of such
reduction, whether a Gross-Up Payment is required as provided in Section
7.5.4.(a), and the amount of such Gross-Up Payment shall be made at the
Company's expense by an accounting firm selected by the Company from among the
six largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to the Company and
Executive within ten (10) days of the Termination Date. If the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to the
Total Payments (or the Total Payments as reduced pursuant to Section 7.5.4(a)),
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it shall furnish the Executive with an opinion reasonably acceptable to the
Executive that no Excise Tax will be imposed with respect to any such payments
and, absent manifest error, such Determination shall be binding, final and
conclusive upon the Company and the Executive. If a Gross-Up payment is
determined to be payable, it shall be paid to the Executive within five (5) days
after the Determination is delivered to the Company or the Executive. Any
determination by the Accounting Firm as to the amount of the Gross-Up shall be
binding upon the Company and the Executive, absent manifest error. As a result
of uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments not made by the Company should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the Company
which should not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the amount of such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. In the case of an Overpayment, the Executive shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Company, and otherwise
reasonably cooperate with the Company to correct such Overpayment, provided,
however, that (i) Executive shall not in any event be obligated to return to the
Company an amount greater than net after-tax portion of the Overpayment that he
has retained or has recovered as a refund from the applicable taxing authorities
and (ii) this provision shall be interpreted in a manner consistent with the
intent of Subsection 7.5.4.(a), which is to make the Executive whole, on an
after-tax basis, from the application of the Excise Tax, it being understood
that the correction of an Overpayment may result in the Executive repaying to
the Company an amount which is less than the Overpayment.
7.6. Proration of Annual Bonus. For purposes of Section 7.4, 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.
7.7. Election to Defer. The Company shall implement a deferred
compensation plan which shall entitle the Executive to elect to defer a portion
of his Base Salary and Annual Bonus on terms mutually acceptable to the Company
and the Executive.
7.8. 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:
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7.8.1. 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 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);
7.8.2. 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);
7.8.3. Pay to the Executive an amount equal to 18 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 7.8 shall be in addition to any
life insurance and disability benefits payable to the Executive from the
Company.
7.9. No Additional Severance Payments. Except as provided in Section
4.3., 4.4. and this Section 7, 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 7.
8. Confidential Information.
8.1. 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 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.
8.2. Exceptions to Nondisclosure Obligations. The provisions of Section
8.1 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
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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.
8.3. Survival of Nondisclosure Obligations. The terms of this Section 8
shall survive the termination of this Agreement regardless of who terminates
this Agreement or the reasons therefor.
9. Definitions. Capitalized terms used in this Agreement shall have the meanings
set forth in this Section 9.
"Accrued Salary and Benefits" means, as of the Date of Termination, 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 not later than thirty days after the day on which
the Company's independent public accountants sign their report with respect to
such year.
"Board" is defined in Section 2.
"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;
(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 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.
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"CEO" is defined in Section 1.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"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 have 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.
"Company" is defined in the introduction.
"Compensation Committee" is defined in Section 4.2.
"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, 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 7.2, 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 7.3, 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
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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 William Edgel or his estate, if deceased.
"Expiration Date" is defined in Section 3.
"Good Reason" means any of the following:
(i) A change in the Executive's status, title, position or
responsibilities (except for reporting responsibilities) which, in the
Executive's reasonable judgment, represents an adverse change from his status,
title position or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his or her status, title,
position or responsibilities; or any removal of the Executive from or failure to
reappoint or reelect him to any of such offices or positions, except in
connection with the termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good Reason.
(ii) A breach by the Company of the compensation and benefit
provisions set forth in Sections 4 through 6;
(iii) A written notice of non-renewal of this Agreement being
given by the Company to the Executive pursuant to Section 3.
(iv) 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.
(v) Any termination by the Executive within twenty-four (24)
months of the occurrence of a Change in Control;
(vi) A material breach by the Company of any other term of
this Agreement;
provided, however that none of the events described in (i) through (vi) above
shall be considered Good Reason, if the Executive consents, in writing, to the
proposed action by the Company which would otherwise constitute Good Reason
prior to the time the event actually occurs; and further provided that no event
described in clauses (i), (ii), (vi) above, shall be considered Good Reason
until the Executive has provided the Company with written notice which (a)
describes the event or occurrences which the Executive believes constitute Good
Reason and (b) provides the Company with a minimum of fifteen (15) days in which
to correct or address such events or occurrences, after which if no such
correction occurs to the reasonable satisfaction of the Executive, such event
shall be deemed to be Good Reason.
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"Renewal Date" is defined in Section 3.
"Term of Employment" is defined in Section 3.
10. General.
10.1 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:
William Edgel
10200 Banks Court
Austin, TX 78739
If to Company: Samuels Jewelers, Inc.
Suite 200
2914 Montopolis Drive
Austin, Texas 78741
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.
10.2. 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.
10.3. 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.
10.4. 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.
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10.5. 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.
10.6. 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.
10.7. Governing Law. This Agreement shall be governed by, construed,
applied and enforced in accordance with the laws of the state of Texas, except
that no doctrine of choice of law shall be used to apply any law other than that
of Texas, and no defense, counterclaim or right of set-off given or allowed by
the laws of any other state or 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.
10.8. 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 8 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.
10.9. 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 10.10, 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 Texas located in the County of
Travis or the United States District Courts located in the County of Travis. 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 10.9 shall not be deemed to preclude the enforcement of any
judgment obtained in such forum or the taking of any action under Agreement to
enforce same in any other jurisdiction.
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10.10. 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 10.8 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 Austin,
Texas pursuant to its Labor Arbitration Rules then in effect; provided, that,
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.
10.11. 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.
10.12. 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
CEO. 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.
10.13. Further Action. The Executive and the Company agree to perform
any further acts and to execute and deliver any documents which may be
reasonable to carry out the provisions hereof.
10.14. 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.
10.15. 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' fees)
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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.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first written above.
EXECUTIVE:
/s/ William Edgel
-------------------------
William Edgel
COMPANY:
SAMUELS JEWELERS, INC.
By: /s/ E. Peter Healy
------------------------
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
AND SECRETARY
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
(Paul Hart)
This Employment Agreement (this "Agreement"), dated as of October 2,
1998 is made by and between Paul Hart (the "Executive") and Samuels Jewelers,
Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company and the Executive entered into an agreement as
approved by the United States Bankruptcy Court located in Los Angeles,
California in or around September 1997 (the "Original Employment Agreement") and
now wish to supersede the Original Employment Agreement pursuant to this
agreement; 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 hereto
agree as follows:
1. Employment.
Subject to Section 7, the Company hereby employs the Executive, and the
Executive hereby accepts such employment during the Term of Employment, as
Senior Vice President, MIS to perform such duties and responsibilities,
consistent with such position, as may be reasonably assigned to the Executive
from time to time by the Chief Financial Officer ("CFO") of the Company or his
designee. (The definitions of capitalized terms used in this Agreement are
contained in Section 9 of this Agreement.)
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 CFO or his designee. Except
for 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 of Directors of
the Company (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, may 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
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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 of the Plan of Reorganization of the Company (the "Effective
Date") and shall end on the last day of the third full calendar year following
such date (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 one (1) 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 7.2 or by the
Executive pursuant to Section 7.3, in which event the Term of Employment shall
end on the Date of Termination.
4. Compensation.
During the Term of Employment, the Executive shall be compensated as
follows:
4.1. Base Salary. The Company shall pay the Executive a base salary at
the rate of $135,000 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 CFO in his sole
discretion or by his designee in his designee's 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 on or about May 31, 1999, 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
50% of his base salary for such year. Such performance targets shall be agreed
upon by the Executive and the CFO or his designee in writing prior to the
beginning of each fiscal year and shall be consistent with the performance
targets established by the Compensation Committee (the "Compensation Committee")
of the Board; provided, however, that for the fiscal year ending on or about May
31, 1999 such performance targets shall be established by the CFO in his sole
discretion or by his designee in his designee's sole discretion, but consistent
with the performance targets established by the Compensation Committee, as soon
as practicable following the Effective Date, but in no event later than 60 days
following the Effective Date. On the Annual Bonus Payment Date for such year,
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the Company shall pay the Executive his Annual Bonus determined based on actual
achievement of the performance targets. If the Executive is actively employed by
the Company on January 1 of each fiscal year during the Term of Employment, the
Company shall advance to the Executive an amount equal to one-third 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 following payment of such amount.
4.3. Equity Signing Bonus.
4.3.1. On or promptly after the Effective Date, the Company
shall award Executive an initial restricted stock bonus of a number of Company
common shares equal to .5 percent of the Company's outstanding equity as of the
Effective Date (the "Initial Grant") which shall be granted and conditioned upon
the Executive executing a restricted stock agreement with terms and conditions
consistent with this section 4.3 (such date of grant referred to hereinafter as
the "Grant Date"). Twenty-five (25) percent of the Initial Grant shall be fully
vested on the date of Grant Date. The remaining shares of the Initial Grant
shall vest ratably on the first through third anniversaries of the Grant Date.
The non-vested portion of the Initial Grant shall become fully vested in the
event the Executive is terminated (i) by the Company without Cause (as defined
below), (ii) by the Executive for "Good Reason" as defined below, (iii) as a
result of the Death or Disability of the Executive, and (iv) in the event of a
Change of Control. In the event the Executive voluntarily terminates his
employment or is terminated for Cause, the non-vested portion of the Initial
Grant shall be forfeited. Such shares shall be restricted so that no share may
be transferred or alienated in any way (except as provided in Section 4.3.2
below and through passage under will or by the laws of descent and distribution
upon the Executive's death) until the shares are vested, at which time the
restriction will lapse with respect to the vested shares.
4.3.2. Within 30 days following the Grant Date, and within 30
days following each of the first and second anniversaries of the Grant Date
unless the Executive's employment with the Company has terminated prior to
either such anniversary, the Company will lend the Executive a single sum equal
to the vesting date fair market value of the portion of the Initial Grant which
vests on such date divided by .6 (the reciprocal of the highest marginal federal
income tax bracket rounded up to the nearest whole percentage point) and reduced
by the vesting date fair market value of the portion of the Initial Grant which
vests on such date ((FMV / .6) - FMV) (respectively, the "First Loan," the
"Second Loan," and the "Third Loan," and collectively, the Loans). The Loans
will be on a full recourse basis and secured in accordance with the terms of a
security agreement (in a form mutually agreed upon by the Company and the
Executive). The Loans will bear interest at the minimum statutory interest rate
necessary for tax purposes on the date each of such Loans is made. Interest on
the Loans will be payable quarterly in arrears. The First Loan will be set forth
in twelve (12) equal promissory notes, the Second Loan will be set forth in
eight (8) equal promissory notes, and the Third Loan will be set forth in four
(4) equal promissory notes. The form of the promissory notes or the Loans shall
be mutually agreed upon by the Company and the Executive, and shall be delivered
by the Executive to the Company (collectively, the "Notes"). In the event the
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Employee voluntarily terminates his employment or is terminated for Cause, the
unpaid portion of the Loans will be accelerated and all Notes will become due
and payable within ninety (90) days of the Executive's Date of Termination.
Within 30 days of the third anniversary of the Grant Date unless the
Executive's employment with the Company has terminated prior to such third
anniversary, the Company will award the Executive a bonus equal to the vesting
date fair market value of the portion of the Initial Grant which vests on such
anniversary date divided by .6 (the reciprocal of the highest marginal federal
income tax bracket rounded up to the nearest whole percentage point) and reduced
by the vesting date fair market value of the portion of the Initial Grant that
has vested on such date ((FMV / .6) - FMV).
4.3.3. On each of the first twelve quarterly anniversaries of
the Grant Date, the Company shall pay Executive a bonus equal to the principal
(but not interest) amount of one of the Note or Notes due and payable on such
date. In the event the Executive is terminated (i) by the Company without Cause
(as defined below), (ii) by the Executive for "Good Reason" as defined below, or
(iii) as a result of the Death or Disability of the Executive, the Company shall
pay the Executive or the Executive's estate, as the case may be, a one time lump
sum bonus equal to the principal (but not interest) amount of any remaining
outstanding Notes.
4.4. Stock Options. Subject to the approval of either the Board or the
shareholders or both, as required by applicable law, Executive will receive a
grant of stock options on 12,500 shares of the Company's common stock
representing .25 percent of the Company's common stock as of the Effective Date
(the "Option") or on such later date as the required approvals are received (the
"Option Grant Date"). The exercise price of the Option shall be the fair market
value of a share of Company common stock on the Option Grant Date. Executive
shall vest in one-third (1/3) of the Option on each of the first through third
anniversaries of the Option Grant Date. The Option shall be an incentive stock
option ("ISO") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, with respect to the maximum number of shares that can be
granted under an ISO with the vesting period described above. The Option shall
become fully vested in the event the Executive is terminated (i) by the Company
without Cause (as defined below), (ii) by the Executive for "Good Reason" as
defined below, (iii) as a result of the Death or Disability of the Executive,
and (iv) in the event of a Change of Control. In the event the Employee
voluntarily terminates his employment or is terminated for Cause, the non-vested
portion of the Option shall be forfeited. The Option shall be evidenced by a
Stock Option Agreement between the Company and the Executive (the form of which
shall be mutually agreed upon by the Company and the Executive).
4.5. Other Incentive Compensation. The Executive shall be entitled to
participate at an appropriate level in all other compensation programs adopted
by the Company as determined by the Board.
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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.
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. Vacation. In addition, the Executive shall be entitled to three
(3) weeks of paid vacation during each year.
7. Termination of Employment.
7.1. Termination Due to Death or Disability. Subject to the payments
contemplated by Section 7.8, the Executive's employment by the Company shall
terminate upon the death of the Executive or upon the Executive becoming
Disabled.
7.2. Early Termination by the Company. Subject to the payments
contemplated by Sections 7.4 and 7.5, 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:
7.2.1. For Cause; or
7.2.2. 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.
7.3. Early Termination by the Executive. Subject to the payments
contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company
may be terminated by the Executive at any time, as follows:
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7.3.1. For Good Reason; or
7.3.2. 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 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.
7.4. 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:
7.4.1. 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
7.4.2. Pay to the Executive a prorated portion of the Annual
Bonus with respect to the fiscal year of the Company in which the Date of
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.
7.5. 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:
7.5.1. 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);
7.5.2. Pay to the Executive in a lump sum within 5 business
days after the Date of Termination an amount determined by multiplying (A) two
times the Executive's annual base salary as in effect on the Date of Termination
by (B) a fraction, the numerator of which is 36 minus the number of months the
Executive has been in employed by the Company since the Effective Date,
provided, however, that the numerator shall in no event be less than 18 and the
denominator of which is 36; provided, however, that if the Executive's
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employment is terminated without Cause by the Company within 24 months of a
Change of Control or by the Executive in accordance with clause (v) of the
definition of Good Reason and the consideration paid to the shareholders of the
Company in connection with the event which triggered the Change of Control
exceeds the fair market value per share of the Company's common shares as of the
date of the Initial Grant (as set forth in Section 4.3), the numerator shall be
36; and
7.5.3. 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).
7.5.4. Excise Tax Limitation.
(a) Notwithstanding anything contained in this
Agreement to the contrary, to the extent that any payment or distribution of any
type to or for the benefit of the Executive by the Company, any affiliate of the
Company, any person who acquires ownership or effective control of the Company
or ownership of a substantial portion of the Company's assets (within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended the
Code, and the regulations thereunder), or any affiliate of such person, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (the "Total Payments") is or will be subject to the
excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then the
Total Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Executive retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Executive received the entire
amount of such Total Payments. The Company shall reduce or eliminate the Total
Payments, by reducing or eliminating the portion of the Total Payments payable
to the Executive under Section 7.5.2. In no event will the Executive be required
to forfeit any equity (restricted stock or stock options) distributable or
payable under the terms of this Agreement. If after eliminating the portion of
the Total Payments payable to the Executive under Section 7.5.2, the remaining
amount of the Total Payments is or will be subject to the Excise Tax, then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including and Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Total Payments.
(b) The determination of whether the Total Payments
shall be reduced as provided in Section 7.5.4. (a), the amount of such
reduction, whether a Gross-Up Payment is required as provided in Section
7.5.4.(a), and the amount of such Gross-Up Payment shall be made at the
Company's expense by an accounting firm selected by the Company from among the
six largest accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations and documentation to the Company and
Executive within ten (10) days of the Termination Date. If the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to the
Total Payments (or the Total Payments as reduced pursuant to Section 7.5.4(a)),
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it shall furnish the Executive with an opinion reasonably acceptable to the
Executive that no Excise Tax will be imposed with respect to any such payments
and, absent manifest error, such Determination shall be binding, final and
conclusive upon the Company and the Executive. If a Gross-Up payment is
determined to be payable, it shall be paid to the Executive within five (5) days
after the Determination is delivered to the Company or the Executive. Any
determination by the Accounting Firm as to the amount of the Gross-Up shall be
binding upon the Company and the Executive, absent manifest error. As a result
of uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments not made by the Company should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the Company
which should not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the amount of such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. In the case of an Overpayment, the Executive shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Company, and otherwise
reasonably cooperate with the Company to correct such Overpayment, provided,
however, that (i) Executive shall not in any event be obligated to return to the
Company an amount greater than net after-tax portion of the Overpayment that he
has retained or has recovered as a refund from the applicable taxing authorities
and (ii) this provision shall be interpreted in a manner consistent with the
intent of Subsection 7.5.4.(a), which is to make the Executive whole, on an
after-tax basis, from the application of the Excise Tax, it being understood
that the correction of an Overpayment may result in the Executive repaying to
the Company an amount which is less than the Overpayment.
7.6. Proration of Annual Bonus. For purposes of Section 7.4, 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.
7.7. Election to Defer. The Company shall implement a deferred
compensation plan which shall entitle the Executive to elect to defer a portion
of his Base Salary and Annual Bonus on terms mutually acceptable to the Company
and the Executive.
7.8. 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:
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7.8.1. 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 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);
7.8.2. 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);
7.8.3. Pay to the Executive an amount equal to 18 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 7.8 shall be in addition to any
life insurance and disability benefits payable to the Executive from the
Company.
7.9. No Additional Severance Payments. Except as provided in Section
4.3., 4.4. and this Section 7, 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 7.
8. Confidential Information.
8.1. 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 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.
8.2. Exceptions to Nondisclosure Obligations. The provisions of Section
8.1 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
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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.
8.3. Survival of Nondisclosure Obligations. The terms of this Section 8
shall survive the termination of this Agreement regardless of who terminates
this Agreement or the reasons therefor.
9. Definitions. Capitalized terms used in this Agreement shall have the meanings
set forth in this Section 9.
"Accrued Salary and Benefits" means, as of the Date of Termination, 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 not later than thirty days after the day on which
the Company's independent public accountants sign their report with respect to
such year.
"Board" is defined in Section 2.
"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;
(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 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.
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"CFO" is defined in Section 1.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"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 have 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.
"Company" is defined in the introduction.
"Compensation Committee" is defined in Section 4.2.
"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, 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 7.2, 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 7.3, 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
11
<PAGE>
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 Paul Hart or his estate, if deceased.
"Expiration Date" is defined in Section 3.
"Good Reason" means any of the following:
(i) A change in the Executive's status, title, position or
responsibilities (except for reporting responsibilities) which, in the
Executive's reasonable judgment, represents an adverse change from his status,
title position or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his or her status, title,
position or responsibilities; or any removal of the Executive from or failure to
reappoint or reelect him to any of such offices or positions, except in
connection with the termination of his employment for Disability, Cause, as a
result of his death or by the Executive other than for Good Reason.
(ii) A breach by the Company of the compensation and benefit
provisions set forth in Sections 4 through 6;
(iii) A written notice of non-renewal of this Agreement being
given by the Company to the Executive pursuant to Section 3.
(iv) 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.
(v) Any termination by the Executive within twenty-four (24)
months of the occurrence of a Change in Control;
(vi) A material breach by the Company of any other term of
this Agreement;
provided, however that none of the events described in (i) through (vi) above
shall be considered Good Reason, if the Executive consents, in writing, to the
proposed action by the Company which would otherwise constitute Good Reason
prior to the time the event actually occurs; and further provided that no event
described in clauses (i), (ii), (vi) above, shall be considered Good Reason
until the Executive has provided the Company with written notice which (a)
describes the event or occurrences which the Executive believes constitute Good
Reason and (b) provides the Company with a minimum of fifteen (15) days in which
to correct or address such events or occurrences, after which if no such
correction occurs to the reasonable satisfaction of the Executive, such event
shall be deemed to be Good Reason.
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<PAGE>
"Renewal Date" is defined in Section 3.
"Term of Employment" is defined in Section 3.
10. General.
10.1 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:
Paul Hart
8411 La Plata Loop
Austin, TX 78737
If to Company: Samuels Jewelers, Inc.
Suite 200
2914 Montopolis Drive
Austin, Texas 78741
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.
10.2. 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.
10.3. 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.
10.4. 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.
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<PAGE>
10.5. 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.
10.6. 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.
10.7. Governing Law. This Agreement shall be governed by, construed,
applied and enforced in accordance with the laws of the state of Texas, except
that no doctrine of choice of law shall be used to apply any law other than that
of Texas, and no defense, counterclaim or right of set-off given or allowed by
the laws of any other state or 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.
10.8. 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 8 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.
10.9. 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 10.10, 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 Texas located in the County of
Travis or the United States District Courts located in the County of Travis. 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 10.9 shall not be deemed to preclude the enforcement of any
judgment obtained in such forum or the taking of any action under Agreement to
enforce same in any other jurisdiction.
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10.10. 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 10.8 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 Austin,
Texas pursuant to its Labor Arbitration Rules then in effect; provided, that,
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.
10.11. 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.
10.12. 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
CFO. 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.
10.13. Further Action. The Executive and the Company agree to perform
any further acts and to execute and deliver any documents which may be
reasonable to carry out the provisions hereof.
10.14. 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.
10.15. 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' fees)
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<PAGE>
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.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first written above.
EXECUTIVE:
/s/ Paul Hart
-------------------------
Paul Hart
COMPANY:
SAMUELS JEWELERS, INC.
By: /s/ E. Peter Healy
------------------------
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
AND SECRETARY
16
EXHIBIT 99.1
SAMUELS JEWELERS, INC.
2914 MONTOPOLIS DRIVE, SUITE 200
AUSTIN, TEXAS 78741
PHONE: 512-369-1400
FAX: 512-369-1500
CONTACT
E. Peter Healey
Executive Vice President and
Chief Financial Officer
Phone: 512-369-1415
Fax: 512-369-1515
FOR IMMEDIATE RELEASE
SAMUELS JEWELERS, INC. ANNOUNCES MERGER
WITH BARRY'S JEWELERS, INC.
Austin, Texas - October 2, 1998 -- Samuels Jewelers, Inc. ("Samuels") said today
that it has completed its merger with Barry's Jewelers, Inc. (Barry's). The
transaction consummates Barry's Plan of Reorganization which was confirmed by
the U.S. Bankruptcy Court, Central District of California (Los Angeles Division)
on September 16, 1998.
Samuels, which was initially capitalized on October 2, with $15,000,000 in new
equity, acquired all the assets of Barry's pursuant to the transaction. The
former Bondholders of Barry's exchanged their bonds for equity in Samuels, the
former unsecured creditors of Barry's will receive $0.15 on the dollar for the
balance of their claims and Barry's former secured financing facility was paid
approximately $57.9 million in full satisfaction of their notes. The proceeds
for these payments came primarily from the proceeds from the new equity, cash on
hand and a draw of approximately $32 million under Samuels $50 million working
capital facility which also closed on October 2.
Samuels, Barry's strongest, most well respected division, will continue
implementing the strategies and direction established by the management team
which was assembled to develop Barry's Plan of Reorganization.
-more-
<PAGE>
Randy N. McCullough, Samuels' president and chief executive officer stated that,
"Our new company name communicates a major focus of our strategy for leveraging
brand awareness and increasing customer loyalty; converting our five trade names
to operate under a single banner--Samuels Jewelers. With the underlying
confidence of all our constituents and our strong and experienced management
team, our new company is well positioned to compete successfully in the
mainstream jewelry industry with a considerable national presence. This truly
marks the beginning of a new era for a company that has a diamond tradition of
over 100 years."
"Today marks the completion of our metamorphosis", continued McCullough. "We
have changed all aspects of the company in the last several months. We have a
new assortment of higher quality merchandise designed to provide better values
to our customers. We have relocated our headquarters to Austin Texas, to be more
responsive to our customers and operate much more efficiently. We have recently
unveiled our new store design that presents a more open, friendly and inviting
environment for our customers. Today we have the capital structure which we
believe will allow us to continue to improve on these objectives and expand with
the tremendous tradition of Samuels Jewelers."
Samuels Jewelers, Inc. sells fine jewelry and watches in 116 stores in 19 states
under the trade names Samuels, Schubach, Mission, A. Hirsh & Son, and Hatfield
Jewelers.
Forward-looking statements in this press release and all other statements that
are not historical fact are subject to risks and uncertainties, which may cause
the company's performance to vary. Specific risks include, but are not limited
to, industry competition factors and other risks identified in the company's
filings with the Securities and Exchange Commission.
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