<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SAMUELS JEWELERS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
SAMUELS JEWELERS, INC.
2914 MONTOPOLIS DRIVE, SUITE 200
AUSTIN, TEXAS 78741
__________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 3, 1998
__________________________________
TO THE STOCKHOLDERS OF SAMUELS JEWELERS, INC.:
The 1998 Annual Meeting of Stockholders of Samuels Jewelers, Inc., a
Delaware corporation (the "Company"), will be held at the offices of DDJ
Capital Management, LLC, located at 141 Linden Street, Suite S-4, Wellesley,
Massachusetts 02482 on Tuesday, November 3, 1998, at 10:00 a.m. local time, to
consider and vote on the following matters:
1. To elect a Board of Directors to serve until the next annual meeting of
stockholders and until their successors are elected and qualified;
2. To approve the Samuels Jewelers, Inc. 1998 Stock Option Plan;
3. To approve the Samuels Jewelers, Inc. 1998 Stock Option Plan for
Non-Employee Directors;
4. To approve the Samuels Jewelers, Inc. Employee Stock Purchase Plan; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof (the "Meeting").
October 9, 1998 has been fixed as the record date for stockholders entitled
to notice of and to vote at the Meeting, and only holders of record of shares
of the Company's Common Stock at the close of business on that day will be
entitled to receive notice of and to vote at the Meeting.
All stockholders are cordially invited to attend the Meeting. To ensure
your representation at the Meeting, whether or not you plan to attend, you are
urged to complete and promptly return the enclosed proxy, which is solicited by
the Board of Directors, in the return envelope provided. Returning your proxy
does not deprive you of your right to attend the Meeting and to vote your
shares in person, should you desire to do so.
By Order of the Board of Directors
October 21, 1998
Austin, Texas
PLEASE DATE AND SIGN THE ACCOMPANYING PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
<PAGE> 3
SAMUELS JEWELERS, INC.
2914 MONTOPOLIS DRIVE, SUITE 200
AUSTIN, TEXAS 78741
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 3, 1998
INTRODUCTION
This Proxy Statement (the "Proxy Statement") is furnished to the holders of
common stock (the "Common Stock") of Samuels Jewelers, Inc., a Delaware
corporation (the "Company"), in connection with the solicitation of proxies for
use at the Annual Meeting of Stockholders to be held at the offices of DDJ
Capital Management, LLC, located at 141 Linden Street, Suite S-4, Wellesley,
Massachusetts on Tuesday, November 3, 1998, beginning at 10:00 a.m. local time,
and at any adjournment or postponement thereof (the "Meeting"), for the
purposes set forth in the preceding notice. A form of proxy for use at the
Meeting is also enclosed. The Company anticipates first mailing this Proxy
Statement to its Stockholders on or about October 21, 1998.
Only stockholders of record of the Company's Common Stock at the close of
business on October 9, 1998 (the "Record Date") will be entitled to notice of
and to vote at the Meeting. On the Record Date there were 5,001,800 shares of
Common Stock outstanding.
On May 11, 1997, the Company's predecessor-in-interest filed a voluntary
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court (the
"Bankruptcy Court") for the Central District of California (In re Barry's
Jewelers, Inc., Case No. CA 97-27988-VZ). The Company's predecessor-in-interest
("Barry's") successfully emerged from the bankruptcy proceedings on October 2,
1998 and, through a merger (the "Merger"), was reincorporated in Delaware as the
Company immediately thereafter.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Each stockholder is entitled to one vote, in person or by proxy, for each
share of Common Stock held by such stockholder on the Record Date on all
matters that properly come before the Meeting. The presence at the Meeting, in
person or by proxy, of the holders of a majority of the outstanding shares of
the Company's Common Stock entitled to vote is necessary to constitute a quorum
for the transaction of business at the Meeting.
A proxy may be revoked by filing with the Secretary of the Company a written
notice of revocation or a duly executed proxy bearing a later date, or by
attending the Meeting and voting in person. Attendance in person at the
Meeting does not itself revoke an otherwise valid proxy; however, any
stockholder who attends the Meeting may orally revoke his proxy at the Meeting
and vote in person. All properly executed proxies received prior to or at the
Meeting and not
<PAGE> 4
revoked will be voted at the Meeting in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted FOR the election of the Board of Directors' nominees as directors, FOR
the Company's 1998 Stock Option Plan, FOR the Company's 1998 Stock Option Plan
for Non-Employee Directors and FOR the Company's Employee Stock Purchase Plan.
In addition, the proxy holders will vote in their sole discretion upon such
other business as may properly come before the Meeting.
This solicitation of proxies is being made by the Board of Directors of the
Company (the "Board"), and the cost of the solicitation will be borne by the
Company. The principal solicitation of proxies is being made by mail, except
that, if necessary, directors, officers and regular employees of the Company
may make solicitations of proxies personally or by telephone or telegraph, but
such persons will not be specially compensated for such services. The Company
may reimburse brokers, banks, custodians, nominees and fiduciaries for their
reasonable charges and expenses in forwarding proxies and proxy materials to
the beneficial owners of such shares.
ELECTION OF DIRECTORS
The number of directors constituting the Board of Directors is presently set
at seven, and currently there are seven members of the Board. All seven of the
Company's directors to be elected at the Meeting will hold office until the
next Annual Meeting of Stockholders, or until their respective successors are
elected and qualified. Each of the Board nominees set forth below has
consented to being named in this Proxy Statement and to serve if elected. The
holders of proxies may not vote such proxies for a greater number of persons
than seven.
It is the intention of the holders of proxies, unless authorization to do so
is withheld, to vote FOR the election of the Board nominees listed below.
However, the persons authorized to vote shares represented by executed proxies
in the enclosed form (if authority to vote for the election of directors is not
withheld) will have full discretion and authority to vote cumulatively and to
allocate votes among any or all of such nominees as they may determine or, if
authority to vote for a specified candidate or candidates has been withheld,
among those candidates for whom authority to vote has not been withheld. If
prior to the Meeting any such nominee should become unavailable for election,
an event which is not now anticipated by the Board, the proxies will be voted
for the election of such person or persons as shall be determined by the
holders of proxies in accordance with their judgment.
Under Delaware law and the Company's By-laws, the nominees receiving a
majority of the shares voted, shall be elected directors. Abstentions and
broker non-votes will have the same effect as the failure of shares to be
represented at the Meeting, except that the shares subject to such abstentions
or non-votes will be counted in determining whether there is a quorum for
taking stockholder action.
2
<PAGE> 5
BOARD OF DIRECTORS' NOMINEES
Set forth below is biographical information for each of the Board nominees.
David Barr, 35, has been a director of the Company since September 22, 1998.
Mr. Barr has been Chief Executive Officer and a Member of PMTD Restaurants, LLC
since September 1998. He served in the offices of Chief Executive Officer,
President, Vice President of Finance and Treasurer of Great-American Cookie
Company, Inc. ("GACC") from May 1996 to September 1998. Mr. Barr was Executive
Vice President of Operations, Chief Financial Officer and Treasurer of GACC
from July 1995 to May 1996. Prior to that, Mr. Barr served as Chief Financial
Officer, Vice President of Finance and Treasurer of GACC from May 1994. Mr.
Barr served as Finance Manager of Pizza Hut, Inc. from March 1991 to May 1994.
David J. Breazzano, 42, has been a director of the Company since September
22, 1998. Mr. Breazzano co-founded DDJ Capital Management, LLC in March 1996
and has been a member since such time. From October 1990 to February 1996, Mr.
Breazzano was Vice President and Portfolio Manager of Fidelity Management &
Research Company. Mr. Breazzano currently serves as a director of Key Energy
Group, Inc. and Waste Systems International, Inc.
Ken D'Amato, 37, has been a director of the Company since September 22,
1998. Mr. D'Amato has served as a Senior Analyst for DDJ Capital Management,
LLC since April 1998. From June 1989 to March 1998, Mr. D'Amato served as
President of Hord Cilstal Corporation, a manufacturer of costume jewelry.
David H. Eisenberg, 62, has been a director of the Company since September
22, 1998. Mr. Eisenberg has been the Chairman of the Board, President and
Chief Executive Officer of Eisenberg and Associates since 1995. Mr. Eisenberg
has served as Chairman of the Board, President and Chief Executive Officer of
Chief Auto Parts since November 1992. Mr. Eisenberg currently serves as a
director of Helmac, Inc. and nominated to serve as a director of Earl Scheib,
Inc.
E. Peter Healey, 45, has been a director of the Company since September 22,
1998. Mr. Healey has served as the Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of the Company since its inception and of
Barry's since February 1997. From 1994 to 1996, Mr. Healey was the Vice
President, Chief Financial Officer, Secretary and Treasurer of MS Financial,
Inc. From 1985 to 1993, Mr. Healey was with Zale Corporation, serving as Vice
President and Treasurer from 1987 to 1993.
Randy N. McCullough, 46, has been a director of the Company since August 20,
1998. Mr. McCullough has been the President and Chief Executive Officer of the
Company and Barry's since March 31, 1998. Mr. McCullough served as the
Company's Executive Vice President and Chief Operating Officer from January to
March 1998. Mr. McCullough joined Barry's in April 1997 and was its Senior
Vice President-Merchandise from April 1997 to March 1998. Prior to joining
Barry's, Mr. McCullough served as President of Silverman's Factory
3
<PAGE> 6
Jewelers from 1991 to March 1997. Prior to that time, Mr. McCullough was a
senior manager with a leading national retail jewelry chain for over 18 years.
Jerry Winston, 74, has been a director of the Company since September 22,
1998. Mr. Winston has been President of Jerry Winston Enterprises, Ltd., a
wholesale diamond business, for more than the past five years.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
Since the Company's inception on August 20, 1998, the Board has held two
special meetings. All of the directors were present at both meetings.
The Audit Committee of the Board was created at the September 22, 1998 Board
meeting and consists of David Barr and Ken D'Amato. The Audit Committee has
not yet held its first meeting. The functions of the Audit Committee are,
among other things, to recommend to the Board selection of the Company's
independent accountants, to review the scope and results of the year-end audit
with the independent accountants, and to review the Company's internal
accounting and financial controls and reporting systems and practices.
The Compensation Committee of the Board was created at the September 22,
1998 Board meeting and consists of David J. Breazzano, David H. Eisenberg and
Jerry Winston. The Compensation Committee has not yet held its first meeting.
The functions of the Compensation Committee are, among other things, to make
recommendations to the Board concerning compensation plans and salaries of the
Company's officers and other key personnel and to administer the Company's
stock option, incentive stock, employee stock purchase and bonus plans.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE ABOVE
NOMINEES.
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, information as to the
beneficial ownership of the Company's Common Stock by (i) each person who is
known by the Company to own beneficially more than 5% of its outstanding shares
of Common Stock, (ii) each of the Company's directors and director nominees,
(iii) each of the officers named in the Summary Compensation Table under the
caption "Compensation of Directors and Executive Officers -- Executive
Compensation," and (iv) all executive officers and directors of the Company as
a group. In each instance, information as to the number of shares owned and
the nature of ownership has been provided by the person or entity identified or
described and is not within the direct knowledge of the Company.
<TABLE>
<CAPTION>
AMOUNT PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS
- ------------------------------------ ------------------ --------
<S> <C> <C>
Randy N. McCullough*(2) . . . . . . . . . . 100,000 2.0%
E. Peter Healey* . . . . . . . . . . . . . 75,000 1.5%
Chad C. Haggar* . . . . . . . . . . . . . . 25,000 **
Bill R. Edgel* . . . . . . . . . . . . . . 25,000 **
Paul Hart*. . . . . . . . . . . . . . . . . 25,000 **
David Barr* . . . . . . . . . . . . . . . . -- **
David J. Breazzano* . . . . . . . . . . . . 1,792,439(3) 35.8%
Ken D'Amato* . . . . . . . . . . . . . . . -- **
David H. Eisenberg* . . . . . . . . . . . . -- **
Jerry Winston* . . . . . . . . . . . . . . -- **
DDJ Capital Management, LLC(4) . . . . . . 1,792,439 35.8%
141 Linden Street, Suite S-4
Wellesley, Massachusetts 02482
Mitchell Hutchins Asset Management,
Inc.(5) . . . . . . . . . . . . . . . . 998,511 20.0%
1285 Avenue of the Americas, 15th Floor
New York, New York 10019
All executive officers and directors as a 2,042,439 40.8%
group (11 persons) . . . . . . . . . . . .
</TABLE>
- ------------
(1) To the Company's knowledge, except as otherwise set forth in this table,
the persons and entities in this table have sole voting, investment and
dispositive power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.
5
<PAGE> 8
(2) Mr. McCullough became President and Chief Executive Officer on March 31,
1998.
(3) With respect to all of such shares, Mr. Breazzano shares voting and
dispositive power as a member of DDJ Capital Management, LLC, who owns all
of such shares, but as to which he disclaims beneficial ownership.
(4) DDJ Capital Management, LLC owns all of such shares through three funds
controlled by it.
(5) Mitchell Hutchins Asset Management, Inc. owns all of such shares through
four funds controlled by it.
* Address is c/o Samuels Jewelers, Inc., 2914 Montopolis Drive, Suite 200,
Austin, Texas 78741.
** Less than one percent.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The Company pays each of its non-employee directors (including any
non-employee director holding an officer's title with the Company but who is
not separately compensated for serving in such position) an annual retainer fee
of $15,000, plus, for attendance at meetings of the Board or committee
meetings, an additional $500 per meeting. In addition to such retainer and
attendance fees, each non-employee director was granted an option to purchase
5,000 shares of the Common Stock upon their initial election as director under
the Company's 1998 Stock Option Plan. All such options have an exercise price
equal to the market price of the Common Stock on the date of grant. Directors
are also reimbursed for reasonable expenses incurred in connection with
attending meetings of the Board and its committees.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The Company was formed on August 20, 1998 and no executive officers received
compensation from the Company until October 2, 1998, the effective date of the
Merger. Prior to the Merger, the Company was a wholly owned subsidiary of
Barry's. Therefore, no executive officers received compensation during the
preceding fiscal year. Compensation paid to such officers by Barry's during
the fiscal year ended May 30, 1998 is disclosed in an amendment to Barry's
annual report on Form 10-K/A for the fiscal year ended May 30, 1998 (the
"Barry's 1998 Form 10-K/A"). For a description of the compensation to be paid
to the executive officers during the current fiscal year, see "Compensation
Committee Report - Certain Terms of Employment Agreements." Randy N.
McCullough currently serves as the Company's Chief Executive Officer and will
be paid a salary commensurate with the terms of his Employment Agreement as
described in "Compensation Committee Report - Certain Terms of Employment
Agreements."
OPTION/SAR GRANTS IN FISCAL 1998
None of those persons serving as chief executive officer of the Company or
any other executive officer of the Company was issued any option to acquire the
Company's Common Stock. See "Approval of 1998 Stock Option Plan" for proposed
grants to such executive officers for the current fiscal year.
AGGREGATED 1998 OPTION/SAR EXERCISES
AND YEAR-END OPTION VALUES
No stock options have been exercised or are held by the chief executive
officer of the Company or any other executive officer of the Company.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Barry's retained Randy N. McCullough as its President and Chief Executive
Officer on March 31, 1998. Upon the occurrence of Barry's emergence from
bankruptcy proceedings and the Merger, the Company entered into employment
agreements dated October 2, 1998 (the "Employment Agreements") with each of
Messrs. McCullough, Healey, Hagger, Edgel and Hart (each, an "Executive"), a
summary description of certain terms of which is set forth under the caption
"Compensation Committee Report -- Implementation of Philosophy."
7
<PAGE> 10
COMPENSATION COMMITTEE REPORT
COMPENSATION PHILOSOPHY
The Compensation Committee of the Board is responsible for developing and
implementing the Company's executive compensation policies. The Compensation
Committee's philosophy of executive compensation is to enhance the
profitability of the Company, and thus stockholder value, by closely aligning
the financial interests of the executive officers with those of the
Stockholders.
IMPLEMENTATION OF PHILOSOPHY
Generally, the Compensation Committee seeks to realize this objective by the
use of short term incentives in the form of salary and cash bonuses, and long
term incentives in the form of stock option and restricted stock grants.
Salaries initially are set based on the executive officer's experience and
competitive conditions. Thereafter, salaries may be adjusted based on various
factors, including the executive's performance. In setting and making
adjustments to salaries, the Compensation Committee also considers salaries
paid to similarly situated executive officers in comparable companies.
Upon the occurrence of the reorganization and Merger, the Company entered
into the Employment Agreements with each Executive. Set forth below is a
summary of certain other terms of such Employment Agreements.
CERTAIN TERMS OF EMPLOYMENT AGREEMENTS
<TABLE>
<CAPTION>
MAXIMUM ANNUAL
CASH BONUS (AS A
PERCENTAGE OF
ANNUAL BASE ANNUAL GRANT OF RESTRICTED SHARES UNDERLYING STOCK
EXECUTIVE/TITLE SALARY BASE SALARY) STOCK(1) OPTIONS(2)
------------------------ ------------ ------------------ ------------------- -----------------------
<S> <C> <C> <C> <C>
Randy N. McCullough .... $325,000 100% 100,000 shares 50,000 shares
President and Chief
Executive Officer
E. Peter Healey ........ $300,000 100% 75,000 shares 37,500 shares
Executive Vice
President, Chief
Financial Officer,
Secretary and
Treasurer
Chad C. Haggar ......... $150,000 50% 25,000 shares 12,500 shares
Vice President -
Operations
Bill R. Edgel .......... $150,000 50% 25,000 shares 12,500 shares
Vice President -
Marketing
Paul Hart .............. $135,000 50% 25,000 shares 12,500 shares
Vice President -
MIS
</TABLE>
- ------------
(1) Shares granted on October 2, 1998 upon effectiveness of Barry's
reorganization plan and the Merger.
(2) Options subject to approval of the Company's 1998 Stock Option Plan by the
stockholders at the Meeting.
8
<PAGE> 11
Under the Employment Agreements, if an Executive's employment is terminated
due to an Executive's death or disability, such Executive is entitled to
receive (i) accrued annual base salary and benefits, (ii) his full annual cash
bonus and (iii) an amount equal to 18 months of his base salary. If the
employment of Messrs. McCullough or Healey is terminated by the Company without
cause or by the Executive with good reason, such Executive is entitled to
receive (i) accrued annual base salary and benefits, (ii) an amount equal to
three times the Executive's annual base salary multiplied by a fraction, the
numerator of which is (A) 36 minus (B) the number of months the Executive has
been in the Company's employ since October 2, 1998, but in no event shall it be
less than 18; and the denominator of which is 36; provided, however, that in
the event of a change of control, the numerator shall be 36. If the employment
of Messrs. Haggar, Edgel and Hart is terminated by the Company without cause
or by the Executive with good reason, such Executive is entitled to receive (i)
accrued annual base salary and benefits, (ii) an amount equal to two times the
Executive's annual base salary multiplied by a fraction, the numerator of which
is (A) 36 minus (B) the number of months the Executive has been in the
Company's employ since October 2, 1998, but in no event shall it be less than
18; and the denominator of which is 36; provided, however, that in the event of
a change of control, the numerator shall be 36. If the Executive's employment
is terminated by the Company for cause or by the Executive without good reason,
such Executive is entitled to receive accrued annual base salary and benefits
and his prorated annual cash bonus.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting Mr. McCullough's annual salary and incentive compensation, the
Compensation Committee considered numerous factors, including Mr. McCullough's
extensive experience in the jewelry industry, his prior success in turning
around troubled companies and the market rate for presidents and chief
executive officers with knowledge and experience commensurate to that of Mr.
McCullough. Based on these factors, and after negotiations between the
Compensation Committee and Mr. McCullough, the Compensation Committee
established Mr. McCullough's compensation terms.
9
<PAGE> 12
THE COMPENSATION COMMITTEE
David J. Breazzano
David H. Eisenberg
Jerry Winston
PERFORMANCE GRAPH
The Company's common stock, par value $.001 per share ("Common Stock"), will
begin trading after the effective date of the plan of reorganization. As a
result, no trading history of the Common Stock is available. A graphical
comparison of Barry's Common Stock against the market and Barry's industry
prior to the effective date is available in the Barry's 1998 Form 10-K/A.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP has examined the financial statements of the Company
for the fiscal year ended May 30, 1998. The Board has not yet made a
determination regarding the selection of the independent certified public
accountants for fiscal 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the 1934 Act, the officers and directors of the
Company and certain Stockholders beneficially owning more than 10% of the
Company's Common Stock ("Ten Percent Stockholders") are required to file with
the Securities and Exchange Commission and the Company reports of ownership,
and changes in ownership, of Company Common Stock. The Company's officers,
directors and Ten Percent Stockholders failed to timely file the Initial
Statement of Beneficial Ownership of Securities on Form 3, but such officers,
directors and Ten Percent Stockholders have since filed such Forms 3.
OTHER
The Company does not know of any other business to be presented at the
Meeting and does not intend to bring any other matters before the Meeting.
However, if any other matters properly come before the Meeting, the persons
named in the accompanying proxy are empowered, in the absence of contrary
instructions, to vote according to their best judgment.
10
<PAGE> 13
STOCKHOLDER PROPOSALS
If a stockholder wishes to present a proposal at the next Annual Meeting of
Stockholders, such a proposal must be received by the Company at its principal
executive offices prior to June 12, 1999.
ANNUAL REPORT
The Company is delivering with this Proxy Statement a copy of its Annual
Report to Stockholders for Fiscal 1998. However, it is not intended that the
Annual Report to Stockholders be a part of this Proxy Statement or a
solicitation of proxies.
APPROVAL OF 1998 STOCK OPTION PLAN
The Board of Directors unanimously proposes that the stockholders approve
the 1998 Stock Option Plan (the "Stock Option Plan"), which is summarized
below. The summary is qualified in its entirety by reference to the text of
the Stock Option Plan, which is attached to this Proxy Statement as Annex A.
REASONS FOR THE PROPOSAL
The Company's Board of Directors believes that the growth of the Company
depends significantly upon the efforts of its officers and key employees and
that they are best motivated to put forth maximum effort on behalf of the
Company if they own an equity interest in the Company. In order that the
Company may continue to motivate and reward its key personnel with stock-based
awards at an appropriate level, the Board of Directors believes that it is
important that a new equity-based plan be adopted at this time.
SUMMARY OF THE STOCK PLAN
Grants under the Stock Option Plan are generally made by the Compensation
Committee (the "Committee"), which currently consists of three members of the
Board, each of whom qualifies as an "outside director" under Section 162(m)
("Section 162(m)") of the Internal Revenue Code (the "Code"). The Committee
has full power and authority to designate participants, set the terms of grants
and to make any determinations necessary or desirable for the administration of
the Stock Option Plan.
Key employees and officers (but not any officer who is not also an employee)
of the Company and any existing or future parent or subsidiaries who are
regularly employed on a salaried basis and who are so employed on the date of
grant are eligible to participate in the Stock Option Plan.
The maximum number of shares of Common Stock with respect to which options
underlying Common Stock may be granted under the Stock Option Plan is 500,000.
Shares
11
<PAGE> 14
subject to awards that are forfeited or canceled will again be available for
award. In addition, to the extent that shares are delivered to pay the
exercise price of options or are delivered or withheld by the Company in
payment of the withholding taxes relating to an award under the Stock Option
Plan, the number of shares withheld or delivered will again be available for
grant under the Stock Option Plan. The shares to be delivered under the Stock
Option Plan will be made available from the authorized but unissued shares of
Common Stock or from treasury shares.
Stock options may be granted under the Stock Option Plan in the discretion
of the Committee. Options granted under the Stock Option Plan may be either
non-qualified or incentive stock options. Only employees of the Company and
its subsidiaries will be eligible to receive incentive stock options. The
Committee has discretion to fix the exercise price of options at a price not
less than 100% of the fair market value of the underlying Common Stock at the
time of grant (except for certain grants of incentive stock options that
require a price not less than 110% of the fair market value). The Committee
has broad discretion as to the terms and conditions upon which options are
exercisable, but under no circumstances will an option have a term exceeding
ten years.
The option exercise price may be satisfied in cash, or in the discretion of
the Committee, by exchanging Common Stock owned by the optionee or by a
combination of cash and Common Stock. The ability to pay the option exercise
price in Common Stock would permit an optionee to engage in a series of
successive stock-for-stock exercises of an option and thereby fully exercise an
option with little or no cash investment.
No award granted under the Stock Option Plan may be transferred, pledged,
assigned, or encumbered except by will or by the laws of descent and
distribution.
If the Committee determines that any stock split, stock dividend or other
distribution (whether in the form of cash, securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of
shares, issuance of warrants or other rights to purchase shares or other
securities of the Company, or other similar corporate event affects the Common
Stock such that an adjustment is appropriate in order to preserve or prevent
enlargement of the benefits intended under the Stock Option Plan, then the
Committee shall make appropriate adjustments in (a) the number and kind of
shares that may be the subject of future awards under the Stock Option Plan and
(b) the number and kind of shares (or other securities or property) subject to
outstanding awards and the respective grant or exercise prices thereof.
The Stock Option Plan may be amended or terminated at any time by the Board
of Directors, except that no amendment may be made without stockholder approval
if such approval is necessary to comply with any tax or regulatory requirement,
including any approval that is necessary to qualify awards as
"performance-based" compensation under Section 422 of the Code.
12
<PAGE> 15
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS
Generally, the grant of a stock option under the Stock Option Plan will not
result in any tax consequence to the participant or the Company. When an
optionee exercises a non-qualified option, the difference between the exercise
price and any higher fair market value of the Common Stock on the date of
exercise will be ordinary income to the optionee (subject to withholding) and,
subject to Section 162(m) of the Code, will generally be allowed as a deduction
at that time for federal income tax purposes to the Company.
Any gain or loss realized by an optionee on disposition of the Common Stock
acquired upon exercise of a non-qualified option will generally be capital gain
or loss to the optionee, long-term or short-term depending on the holding
period, and will not result in any additional federal income tax consequences
to the Company. The optionee's basis in the Common Stock for determining gain
or loss on the disposition will be the fair market value of the Common Stock
determined generally at the time of exercise.
When an optionee exercises an incentive stock option while employed by the
Company or a subsidiary or within three months (one year for disability) after
termination of employment, no ordinary income will be recognized by the
optionee at that time, but the excess (if any) of the fair market value of the
Common Stock acquired upon such exercise over the option price will be an
adjustment to taxable income for purposes of the federal alternative minimum
tax applicable to individuals. If the Common Stock acquired upon exercise of
the incentive stock option is not disposed of prior to the expiration of one
year after the date of acquisition and two years after the date of grant of the
option, the excess (if any) of the sale proceeds over the aggregate option
exercise price of the Common Stock will be long-term capital gain, but the
Company will not be entitled to any tax deduction with respect to the gain.
Generally, if the Common Stock is disposed of prior to the expiration of those
periods (a "Disqualifying Disposition"), the excess of the fair market value of
the Common Stock at the time of exercise over the aggregate option exercise
price (but not more than the gain on the disposition if the disposition is a
transaction on which a loss, if realized, would be recognized) will be ordinary
income at the time of such Disqualifying Disposition (and the Company will
generally be entitled to a federal income tax deduction in a like amount). Any
gain realized by the optionee as the result of a Disqualifying Disposition that
exceeds the amount treated as ordinary income will be capital in nature,
long-term or short-term depending on the holding period. If an incentive stock
option is exercised more than three months (one year for disability) after
termination of employment, the federal income tax consequences are the same as
described above for non-qualified stock options.
If the exercise price of an option is paid by the surrender of previously
owned shares, the basis of the previously owned shares carries over to the
shares received in replacement. If the option is a non-qualified option, the
income recognized on exercise is added to the basis. If the option is an
incentive stock option, the optionee will recognize gain if the shares
surrendered were acquired through the exercise of an incentive stock option and
have not been held for the applicable holding period. This gain will be added
to the basis of the shares received in replacement of the previously owned
shares.
13
<PAGE> 16
If the Stock Option Plan is approved by the stockholders at the Meeting, the
Company believes that taxable compensation arising in connection with all stock
options granted under the Stock Option Plan should be fully deductible to the
Company for purposes of Section 162(m) of the Code. Section 162(m) may limit
the deductibility of an executive's compensation in excess of $1,000,000 per
year.
Awards under the Stock Option Plan that are granted, accelerated or enhanced
upon the occurrence of a change of control may give rise, in whole or in part,
to excess parachute payments within the meaning of Section 280G of the Code to
the extent that such payments, when aggregated with other payments subject to
Section 280G, exceed the limitations contained therein. Excess parachute
payments will be nondeductible to the Company and subject the recipient of the
payments to a 20% excise tax.
At any time that a participant is required to pay to the Company the amount
required to be withheld under applicable tax laws in connection with the
exercise of a stock option, the participant is deemed to have elected to have
the Company withhold from the shares that the participant would otherwise
receive shares of Common Stock having a value equal to the amount to be
withheld.
The foregoing discussion summarizes the federal income tax consequences
applicable to stock options granted under the Stock Option Plan based on
current provisions of the Code, which are subject to change. This summary does
not cover any foreign, state or local tax consequences or participation in the
Stock Option Plan.
AWARDS TO BE GRANTED
The grant of awards under the Stock Option Plan is entirely in the
discretion of the Committee. The Committee has not yet made a determination as
to the awards to be granted under the Stock Option Plan, if it is approved by
the stockholders.
GRANTS OF OPTIONS
The following table sets forth information with respect to benefits under
the Stock Option Plan, as proposed during 1998, subject to stockholder approval
of the Stock Option Plan, by (i) each of the Executives and (ii) all Executives
as a group.
NEW PLAN BENEFITS
1998 STOCK OPTION PLAN
<TABLE>
<CAPTION>
Number of Shares
Name and Position Underlying Options
----------------------------------------- ------------------
<S> <C>
Randy N. McCullough - President and Chief 50,000
Executive Officer
E. Peter Healey - Executive Vice 37,500
President, Chief Financial Officer,
Secretary and Treasurer
</TABLE>
14
<PAGE> 17
<TABLE>
<S> <C>
Chad C. Haggar - Senior Vice 12,500
President - Operations
Bill R. Edgel - Senior Vice President - 12,500
Marketing
Paul Hart - Senior Vice President - MIS 12,500
--------------------------------------- -------
Executives as a Group 125,000
</TABLE>
VOTE REQUIRED FOR APPROVAL OF THE STOCK OPTION PLAN
Approval of the Stock Option Plan requires the affirmative vote of a
majority of the shares of Common Stock present and entitled to vote at the
Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE 1998
STOCK OPTION PLAN.
APPROVAL OF 1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Company seeks stockholder approval of the Samuels Jewelers, Inc. 1998
Stock Option Plan for Non-Employee Directors (the "Director Plan"). The
following summary of such plan is qualified in its entirety by reference to the
complete text thereof, which is attached hereto as Annex B.
The purpose of the Director Plan is to align more closely the interests of
the Company's non-employee directors with those of the Company's stockholders
by allowing for the grant of stock options to such directors in accordance with
the terms of the Director Plan.
The maximum number of shares of Common Stock in respect of which options may
be granted under the Director Plan is 250,000. The shares of Common Stock to
be delivered under the Director Plan will be made available from the authorized
but unissued shares of Common Stock or from treasury shares.
The Director Plan will be administered by the Board of Directors; however,
the Board will have no discretion to determine the timing or exercise price of
options granted under the Director Plan.
All directors of the Company who are not employees of the Company or any of
its subsidiaries or employees of an entity with which the Company has
contracted to receive management services will be "Eligible Directors" under
the Director Plan. There will initially be five Eligible Directors. Under the
Director Plan each Eligible Director was granted on September 22, 1998 an
option to purchase 5,000 shares of Common Stock, subject to stockholder
approval of the Director Plan at the Meeting.
15
<PAGE> 18
Options granted under the Director Plan will be non-qualified options. The
exercise price of options granted under the Director Plan will be 100% of the
fair market value of the underlying shares of Common Stock on the date of
grant. Each option becomes exercisable in 25% annual increments beginning on
the first anniversary of the date of grant, and will have a term of 10 years.
Upon retirement from service as a director, a retiring director's options that
were exercisable on the date of retirement will remain exercisable until the
earlier of (i) three months after the date of such retirement or (ii) the
expiration date of the option.
The option exercise price may be satisfied in cash or by delivering shares
of Common Stock owned by the optionee.
In the event of the payment of any dividend payable in shares of Common
Stock, or any subdivision or combination of such shares of Common Stock, and
any merger, consolidation or other similar corporate combination, the number of
shares that may be purchased under the Director Plan may the number of shares
subject to each option granted under the Director Plan may be increased or
decreased proportionately, as the case may be, and the number of shares
deliverable upon the exercise thereafter of any outstanding option (whether or
not then exercisable) may be increased or decreased proportionately, as the
case may be, without change in the aggregate exercise price.
The Director Plan may be amended or terminated at any time by the Board of
Directors, except that no amendment may be made without stockholder approval if
such approval is required by Rule 166-3 under the Securities Exchange Act of
1934, as amended.
FEDERAL INCOME TAX CONSEQUENCES
When an optionee exercises an option, the difference between the option
price and any higher fair market value of the shares of Common Stock, generally
on the date of exercise, will be ordinary income to the optionee and generally
will be allowed as a deduction for federal income tax purposes to the Company.
Any gain or loss realized by an optionee on disposition of the Common Stock
acquired upon exercise of an option generally will be capital gain or loss to
such optionee, long-term or short-term depending on the holding period, and
will not result in any additional tax consequences to the Company. The
optionee's basis in the shares of Common Stock for determining gain or loss on
the disposition will be the fair market value of such shares of Common Stock
determined generally at the time of exercise.
Except as noted below, when an optionee receives payment with respect to an
option under the Director Plan other than as described in the preceding
paragraphs, the amount of cash and the fair market value of the securities
received, net of any amount paid by the optionee, will be ordinary income to
such optionee and generally will be allowed as a deduction for federal income
tax purposes to the Company. Certain special rules apply if the exercise price
for an option is paid in shares of Common Stock previously owned by the
optionee rather than in cash.
16
<PAGE> 19
GRANTS OF OPTIONS
The following table sets forth information with respect to the benefits
under the Director Plan, as proposed to be approved, that were received during
1998, subject to stockholder approval of the Director Plan, by (i) each of the
directors who is not an executive officer and (ii) all directors who are not
executive officers as a group. None of the Named Executive Officers,
non-executive officers or employees of the Company nor any associate of any
director or executive officer is anticipated to be eligible to participate in
the Director Plan. Other than the persons identified in the following table,
no person is anticipated to receive more than 5% of the awards that may be
granted under the Director Plan.
NEW PLAN BENEFITS
1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
Number of Securities
Name Underlying Options
---- --------------------
<S> <C>
David Barr 5,000
David J. Breazzano 5,000
Ken D'Amato 5,000
David H. Eisenberg 5,000
Jerry Winston 5,000
------------------------------------ ------
Non-Executive Officer Director Group 25,000
</TABLE>
This proposal requires the approval of a majority of the shares of Common
Stock present and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
DIRECTOR PLAN.
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
The Company seeks stockholder approval of the Company's Employee Stock
Purchase Plan (the "Stock Purchase Plan"). The following summary of such plan
is qualified by reference to the form of Stock Purchase Plan thereof, which is
attached hereto as Annex C.
The Stock Purchase Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). The Committee may adopt its own rules of
procedure, and action of a majority of the members of the Committee taken at a
meeting, or action taken without the meeting by unanimous written consent, shall
constitute action by the Committee. The Committee shall have the power and
authority to administer, construe and interpret the Stock Purchase Plan, to make
rules for carrying it out and to make changes in such rules. Any such
interpretations, rules, and administration shall be consistent with the basic
purposes of the Stock Purchase Plan.
The Stock Purchase Plan currently authorizes the issuance of 200,000 shares
of Common Stock.
17
<PAGE> 20
Unless restricted by applicable law, shares related to grants that are
forfeited, terminated, canceled or expire unexercised, shall immediately become
available for new issuances under the Stock Purchase Plan.
ELIGIBILITY
Pursuant to the Stock Purchase Plan, eligible employees have the right to
purchase shares of the Common Stock at a discount of 15% below the fair market
value of the Common Stock.
PURCHASE STOCK
Purchase Stock refers to shares of Common Stock offered to a participant at
a price equal to 85% of the market value of the stock.
PAYMENT OF PURCHASE PRICE FOR PURCHASE STOCK
The payment of the price for all shares of Purchase Stock purchased shall be
by payroll deduction.
AMENDMENT AND TERMINATION
The Committee shall have the authority to make amendments to the terms and
conditions applicable to outstanding shares of Purchase Stock to the extent
consistent with the Stock Purchase Plan; provided that, no such action shall
modify a grant in a manner adverse to the participant.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences with
respect to grants of Stock Options under the Stock Purchase Plan is not
comprehensive and is based upon laws and regulations currently in effect. Such
laws and regulations are subject to change.
SECTION 162(m)
At all times when the Committee determines that it is desirable to satisfy
the conditions of Section 162(m) of the Code, all awards granted under the
Stock Purchase Plan will comply with such conditions. The Committee is
nevertheless empowered to grant awards that would not constitute "performance
based" compensation under Section 162(m), which may vest based solely on
continued employment rather than any performance based criteria. If changes
are made to Section 162(m) to permit greater flexibility with respect to any
awards available under the Stock Purchase Plan, the Committee may, subject to
the restrictions described above regarding amendments to the Stock Purchase
Plan, make any adjustments it deems appropriate.
18
<PAGE> 21
VOTING REQUIREMENTS
Approval of the Stock Purchase Plan will require the affirmative vote of a
majority of the shares of Common Stock present, in person or represented by
proxy, and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
STOCK PURCHASE PLAN.
By Order of the Board of Directors
Austin, Texas
October 21, 1998
PLEASE PROMPTLY VOTE, DATE, SIGN AND RETURN THE ENCLOSED PROXY, WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING. A RETURN ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED. AT ANY
TIME BEFORE A VOTE YOU MAY REVOKE YOUR PROXY BY (1) A LATER PROXY OR A WRITTEN
NOTICE OF REVOCATION DELIVERED TO THE INSPECTOR OF ELECTIONS OR (2) ADVISING
THE INSPECTOR OF ELECTIONS AT THE MEETING THAT YOU ELECT TO VOTE IN PERSON.
ATTENDANCE AT THE MEETING WILL NOT IN AND OF ITSELF REVOKE A PROXY.
THE ANNUAL MEETING IS ON NOVEMBER 3, 1998. PLEASE RETURN YOUR PROXY IN
TIME.
19
<PAGE> 22
ANNEX A
SAMUELS JEWELERS, INC.
1998 STOCK OPTION PLAN
1. PURPOSE
Samuels Jewelers, Inc., a Delaware corporation (the "Company"), by means of
this Stock Option Plan (the "Plan"), desires to afford certain of its officers
and key employees, and the officers and key employees of any parent corporation
or subsidiary corporation thereof now existing or hereafter formed or acquired,
an opportunity to acquire a proprietary interest in the Company, and thus to
create in such persons an increased interest in and a greater concern for the
welfare of the Company and any parent corporation or subsidiary corporation
thereof. As used in the Plan, the terms "parent corporation" and "subsidiary
corporation" shall mean, respectively, a corporation within the definition of
such terms contained in Sections 424(e) and 424(f), respectively, of the
Internal Revenue Code of 1986, as amended (the "Code").
The stock options described in Section 6 (the "Options"), and the shares of
common stock of the Company acquired pursuant to the exercise of such Options
are a matter of separate inducement and are not in lieu of any salary or other
compensation for services.
The Options granted under the Plan are intended to be either incentive stock
options ("Incentive Options") within the meaning of Section 422 of the Code, or
options that do not meet the requirements for Incentive Options ("Non-qualified
Options"), but the Company makes no warranty as to the qualification of any
Option as an Incentive Option.
2. ADMINISTRATION
The Plan shall be administered by such committee as determined by the Board
of Directors (the "Committee"). The Committee shall consist of not less than
two members of the Board of Directors of the Company, each of whom shall
qualify as an "outside director" to administer the Plan within the meaning of
Section 162(m) of the Code, as amended, or other applicable rules under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Committee shall administer the Plan so as to conform at all times with the
provisions of Section 16(b) of the Exchange Act and Rule 16b-3 promulgated
thereunder. A majority of the Committee shall constitute a quorum, and subject
to the provisions of Section 5, the acts of a majority of the members present
at any meeting at which a quorum is present, or acts approved in writing by a
majority of the Committee, shall be the acts of the Committee.
A-1
<PAGE> 23
The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any person to whom it has delegated duties as aforesaid may employ one or
more persons to render advice with respect to any responsibility the Committee
or such person may have under the Plan; provided, however, that the Committee
may not delegate any duties to a member of the Board of Directors of the
Company who, if elected to serve on the Committee, would not qualify as a
"disinterested person" to administer the Plan as contemplated by Rule 16b-3, as
amended, or other applicable rules under the Exchange Act. The Committee may
employ attorneys, consultants, accountants or other persons and the Committee,
the Company, and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all persons who have received grants under the Plan, the
Company and all other interested persons. No member or agent of the Committee
shall be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan and all members and agents of the
Committee shall be fully protected by the Company in respect of any such
action, determination or interpretation.
3. SHARES AVAILABLE
Subject to the adjustments provided in Section 8, the maximum aggregate
number of shares of common stock, $.001 par value per share, of the Company
(the "Common Stock"), which may be purchased pursuant to the exercise of
Options granted under the Plan shall not exceed 500,000 shares of the currently
authorized Common Stock. If, for any reason, any shares as to which Options
have been granted cease to be subject to purchase thereunder, including,
without limitation, the expiration of such Options, the termination of such
Options prior to exercise, or the forfeiture of such Options, such shares shall
thereafter be available for grants to such individual or other individuals
under the Plan, unless such shares, if so made available, would not be exempt
under Section 16(b) of the Exchange Act pursuant to Rule 16b-3. Options
granted under the Plan may be fulfilled in accordance with the terms of the
Plan with either authorized and unissued shares of Common Stock, issued shares
of such Common Stock held in the Company's treasury or both, at the discretion
of the Company.
4. ELIGIBILITY AND BASES OF PARTICIPATION
Grants under the Plan may be made, subject to and in accordance with Section
6, to key employees and officers (but not to any officer who is not also an
employee) of the Company, or any parent corporation or subsidiary corporation
thereof, who are regularly employed on a salaried basis and who are so employed
on the date of such grant (the "Officer and Key Employee Participants").
5. AUTHORITY OF COMMITTEE
Subject to and not inconsistent with the express provisions of the Plan and
the Code, the Committee shall have plenary authority, in its sole discretion,
to:
A-2
<PAGE> 24
a. determine the persons to whom Options shall be granted, the time when
such Options shall be granted, the number of Options, the purchase price
or exercise price of each Option, the restrictions to be applicable to
Options and the other terms and provisions thereof (which need not be
identical);
b. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Federal Reserve
Board, for the purpose of assisting the optionee in the exercise of an
Option, such authority to include the payment by the Company of the
commissions, fees and charges of the broker-dealer;
c. provide the establishment of procedures for an optionee to exercise an
Option in whole or in part by delivering that number of shares owned by
such optionee for at least six (6) months prior thereto having a Fair
Market Value on the date preceding the date of exercise which shall
equal the Option exercise price for the number of shares of Common Stock
as to which the optionee desires to exercise the Option;
d. establish procedures for the collection of any taxes required by any
government to be withheld or otherwise deducted and paid by the Company,
or any parent corporation or subsidiary corporation thereof, in respect
of the issuance or disposition of Common Stock acquired pursuant to the
exercise of an Option granted hereunder;
e. prescribe, amend, modify, and rescind rules and regulations relating to
the Plan;
f. make all determinations specified in or permitted by the Plan or deemed
necessary or desirable for its administration or for the conduct of the
Committee's business; and
g. establish any procedures determined to be appropriate in discharging its
responsibilities under the Plan.
The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any Person to whom it has delegated duties as aforesaid may employ one or
more Persons to render advice with respect to any responsibility the Committee
or such Person may have under the Plan; provided, however, that any such
delegation shall be in writing; and provided, however, that, any determination
of Incentive Stock Options (as hereinafter defined) applicable to Officers and
Key Employee Participants who constitute "covered employees" within the meaning
of Section 162(m) of the Code may not be delegated to a member of the Board of
Directors who, if elected to serve on the Committee, would not qualify as an
"outside director" within the meaning of Section 162(m) of the Code. The
Committee may employ attorneys, consultants, accountants, or other Persons and
the Committee, the Company, and its officers and directors shall be entitled to
rely upon the advice, opinions, or valuations of any such Persons. No member
or agent of the Committee shall be personally liable
A-3
<PAGE> 25
for any action, determination or interpretation made in good faith with respect
to the Plan and all members and agents of the Committee shall be fully
protected by the Company in respect of any such action, determination or
interpretation.
6. STOCK OPTIONS FOR OFFICERS AND KEY EMPLOYEE PARTICIPANTS
The Committee shall have the authority, in its sole discretion, to grant
Incentive Options, Non-qualified Options or a combination thereof
(collectively, the "Employee Options") to certain Officer and Key Employee
Participants during the period beginning on the Effective Date ("Effective
Date") of the Plan of Reorganization for the Company under Chapter 11 of the
Bankruptcy Code dated April 30, 1998, as modified, and confirmed by order,
entered September 16, 1998, of the United States Bankruptcy Code for the
Central District of California ("Bankruptcy Plan") and ending on the tenth
anniversary of the Effective Date of the Bankruptcy Plan (the "Termination
Date"). The terms and conditions of the Employee Options shall be determined
from time to time by the Committee; provided, however, that the Employee
Options granted under the Plan shall be subject to the following:
a. Option Price. The option price for each share purchasable under any
Employee Option granted hereunder shall be such amount as the Committee
shall, in its best judgment, determine to be not less than one hundred
percent (100%) of the Fair Market Value per share at the date the
Employee Option is granted; provided, however, that in the case of an
Incentive Option granted to a person who, at the time such Incentive
Option is granted, owns shares of the Company, or any parent corporation
or subsidiary corporation thereof, which possess more than ten percent
(10%) of the total combined voting power of all classes of shares of
capital stock of the Company, or of any subsidiary corporation or parent
corporation of the Company, the purchase price for each share shall be
such amount as the Committee, in its best judgment, shall determine to
be not less than one hundred ten percent (110%) of the Fair Market Value
per share at the date the Incentive Option is granted. In determining
the stock ownership of a person for purposes of this Section 6, the
rules of Section 424(d) of the Code shall be applied and the Committee
may rely on representations of fact made to it by such person and
believed by it to be true. The exercise price of the Employee Options
will be subject to adjustment in accordance with the provisions of
Section 8 of the Plan.
b. Payment. The price per share of Common Stock with respect to each
Employee Option shall be payable at the time the Employee Option is
exercised. Such price shall be payable in cash, which may be paid by
wire transfer in immediately available funds, by check, by a commitment
by a broker-dealer to pay to the Company that portion of any sale
proceeds receivable by the optionee upon exercise of an Employee Option
in the manner permitted under Section 5.b. hereof, or by any other
instrument acceptable to the Company or, in the discretion of the
Committee, by delivery to the Company of shares of Common Stock owned by
the optionee. Shares delivered to the Company in payment of the option
price shall be
A-4
<PAGE> 26
valued at the Fair Market Value of the Common Stock on the day preceding
the date of the exercise of the Employee Option.
c. Exercisability of Employee Options. Subject to this Section 6 and
Section 7, each Employee Option shall become exercisable on the dates
and in the amounts set forth on the following schedule:
<TABLE>
<CAPTION>
Percentage of Original
Date Vested Option Vested
----------- ----------------------
<S> <C>
1st Anniversary of Grant 25%
2nd Anniversary of Grant 25%
3rd Anniversary of Grant 25%
4th Anniversary of Grant 25%
</TABLE>
provided, however, that an Employee Option shall not be exercisable
after the expiration of ten (10) years from the date such Option is
granted; provided, further, that in the case of an Incentive Option
granted to a person who, at the time such Incentive Option is granted,
owns stock of the Company, or any parent corporation or subsidiary
corporation thereof, possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, or any
parent corporation or subsidiary corporation thereof, such Incentive
Option shall not be exercisable after the expiration of five (5) years
from the date such Incentive Option is granted. The right to purchase
shares shall be cumulative so that when the right to purchase any shares
has accrued such shares or any part thereof may be purchased at any time
thereafter until the expiration or termination of the Employee Option.
d. Death. In the event of the death of any optionee, all Employee Options
held by such optionee on the date of such death shall vest in full and
become immediately exercisable. Upon such death, the legal
representative of such optionee, or such person who acquired such
Employee Option by bequest or inheritance or by reason of the death of
the optionee, shall have the right, within one (1) year after the date
of death (but not after the expiration or termination of the Employee
Option), to exercise such optionee's Employee Option with respect to all
or any part of the shares of Common Stock subject to such Employee
Option.
e. Disability. If the employment of any optionee is terminated because of
Disability (as defined in Section 10), all Employee Options held by such
optionee on the date of such termination shall vest in full and become
immediately exercisable. Such optionee shall have the right within one
(1) year after the date of such termination (but not after the
expiration or termination of the Employee Option), to exercise the
Employee Option with respect to all or any part of the shares of Common
Stock subject to such Employee Option.
A-5
<PAGE> 27
f. Retirement. In the event the employment of any optionee is terminated
by reason of the Retirement of the optionee, all Employee Options held
by such optionee on the date of such termination shall vest in full and
become immediately exercisable. Such optionee shall have the right,
within three (3) months after the date of such termination (but not
after the expiration or termination of the Employee Option), to exercise
his Employee Option with respect to all or any part of the shares of
Common Stock subject to such Employee Option.
g. Other Termination or For Cause. If the employment of an optionee is
terminated for any reason other than those specified in subsections e.,
f. and g. of this Section 6, such optionee shall have the right, within
three (3) months after the date of such termination (but not after the
expiration or termination of the Employee Option), to exercise his
Employee Option with respect to all or any part of the shares of Common
Stock which such optionee was entitled to purchase immediately prior to
the time of such termination, except that, if such optionee's employment
was terminated by the Company, or any parent corporation or subsidiary
corporation thereof, for good cause, such optionee shall immediately
forfeit all rights under his Employee Option except as to the shares of
Common Stock already purchased. For the purposes of the Plan, the term
"for good cause" shall mean (a) with respect to an optionee who is a
party to a written employment agreement with the Company, or any parent
corporation or subsidiary corporation thereof, which agreement contains
a definition of "for good cause" or "for cause" (or words of like
import) for purposes of termination of employment thereunder by the
Company, or such parent corporation or subsidiary corporation of the
Company, "for good cause" or "for cause" as defined therein; or (b) in
all other cases, as determined by the Committee or the Board of
Directors, in its sole discretion, (i) the wanton or willful commission
by an optionee of an act, or the wanton or willful omission or failure
to act, that causes substantial damage (by reason, without limitation,
of financial exposure or loss, or damage to reputation or goodwill) to
the Company, or any parent corporation or subsidiary corporation
thereof; (ii) the commission by an optionee of an act of fraud,
intentional misrepresentation, embezzlement, misappropriation or
conversion in the performance of such optionee's duties on behalf of the
Company, or any parent corporation or subsidiary corporation thereof;
(iii) conviction of the optionee for commission of a felony, or (iv) the
continuing failure of an optionee to perform the material duties of such
optionee to the Company, or any parent corporation or subsidiary
corporation thereof.
h. Maximum Exercise. The aggregate Fair Market Value of Common Stock
(determined at the time of the grant) with respect to which Incentive
Options are exercisable for the first time by an optionee during any
calendar year under all plans of the Company, or any parent corporation
or subsidiary corporation thereof, shall not exceed $100,000, or such
other amount as may be prescribed under Section 422 of the Code or
applicable regulations or rulings from time to time.
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7. CHANGE OF CONTROL
Notwithstanding any provision herein to the contrary, upon the occurrence of
an event constituting a Change of Control (as defined in Section 10), all
Options granted under the Plan and held by an optionee shall become immediately
fully exercisable.
8. ADJUSTMENT OF SHARES
In the event there is any change in the Common Stock by reason of any
consolidation, combination, liquidation, reorganization, recapitalization,
stock dividend, stock split, split-up, split-off, spin-off, combination of
shares, exchange of shares, or other like change in capital structure of the
Company, the number or kind of shares or interests subject to an Option and the
per share price or value thereof shall be appropriately adjusted by the
Committee at the time of such event, provided that each optionee's position
with respect to the Option and the per share price or value thereof shall not,
as a result of such adjustment, be worse than it had been immediately prior to
such event. Any fractional shares or interests resulting from such adjustment
shall be eliminated. Notwithstanding the foregoing, (i) each such adjustment
with respect to an Incentive Option shall comply with the rules of Section
424(a) of the Code, and (ii) in no event shall any adjustment be made which
would render any Incentive Option granted hereunder other than an "incentive
stock option" for purposes of Section 422 of the Code.
9. MISCELLANEOUS PROVISIONS
a. Assignment or Transfer. No grant of any "derivative security" (as
defined by Rule 16a-1(c) under the Exchange Act) made under the Plan or
any rights or interests therein shall be assignable or transferable by
an optionee except by will or the laws of descent and distribution.
During the lifetime of an optionee, Options granted hereunder shall be
exercisable only by the optionee.
b. Investment Representation. If a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect
to the Common Stock issuable upon exercise of an Option, is not in
effect at the time such Option is exercised, the Company may require,
for the sole purpose of complying with the Securities Act, that prior to
delivering such Common Stock to the exercising optionee, such optionee
must deliver to the Secretary of the Company a written statement (i)
representing and warranting that such Common Stock is being acquired for
investment only and not with a view to the resale or distribution
thereof, (ii) acknowledging and confirming that such Common Stock may
not be sold unless registered for sale under the Securities Act or
pursuant to an exemption from such registration, and (iii) agreeing that
the certificates representing such Common Stock shall bear a legend to
the effect of the foregoing. If, subsequent to the delivery by an
optionee of the written statement described in the preceding
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<PAGE> 29
sentence, the Common Stock issuable upon exercise of an Option is
registered under the Securities Act, such written statement shall be
rendered null and void.
c. Costs and Expenses. The costs and expenses of administering the Plan
shall be borne by the Company and shall not be charged against any
Option nor to any employee receiving an Option.
d. Funding of Plan. The Plan shall be unfunded. The Company shall not be
required to make any segregation of assets to assure the satisfaction of
any Option under the Plan.
e. Other Incentive Plans. The adoption of the Plan does not preclude the
adoption by appropriate means of any other incentive plan for employees.
f. Effect on Employment. Nothing contained in the Plan or any agreement
related hereto or referred to herein shall affect, or be construed as
affecting, the terms of employment of any Officer and Key Employee
Participants except to the extent specifically provided herein or
therein. Nothing contained in the Plan or any agreement related hereto
or referred to herein shall impose, or be construed as imposing, an
obligation on (i) the Company, or any parent corporation or subsidiary
corporation thereof, to continue the employment of any Officer and Key
Employee Participant, and (ii) any Officer and Key Employee Participant
to remain in the employ of the Company, or any parent corporation or
subsidiary corporation thereof.
g. Termination or Suspension of the Plan. The Board of Directors may at
any time suspend or terminate the Plan. The Plan, unless sooner
terminated under Section 12 or by action of the Board of Directors,
shall terminate at the close of business on the Termination Date.
Options may not be granted while the Plan is suspended or after it is
terminated. Rights and obligations under any Option granted while the
Plan is in effect shall not be altered or impaired by suspension or
termination of the Plan, except upon the consent of the person to whom
the Option was granted. The power of the Committee to construe and
administer any Options granted prior to the termination or suspension of
the Plan nevertheless shall continue after such termination or during
such suspension.
h. Savings Provision. With respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law.
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i. Governing Law. The Plan, such Options as may be granted hereunder and
all related matters shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware.
j. Partial Invalidity. The invalidity or illegality of any provision
herein shall not be deemed to affect the validity of any other
provision.
10. DEFINITIONS
a. "Fair Market Value" shall mean, as it relates to the Common Stock of
the Company, the average of the high and low sale prices of such Common
Stock for the 10 trading days preceding the date such determination is
required herein, or if there were no sales during such 10-day period,
the average closing bid and asked prices, as reported on the national
securities exchange on which the Company's Common Stock is listed or in
the absence of such listing on the NASDAQ National Market System or if
such Common Stock is not at the time listed on a national securities
exchange or traded on the NASDAQ National Market System, the value of
such Common Stock on such date as determined by the Committee in good
faith.
b. "Disability" shall have the meaning set forth in Section 22(c)(3) of
the Code.
c. "Change of Control" shall be deemed to have occurred if, subsequent to
the Effective Date of this Plan, (A) any "person" (as such term is
defined in Section 13(d) of the Exchange Act) becomes the beneficial
owner, directly or indirectly, of either (x) a majority of the
Company's outstanding Common Stock or (y) securities of the Company
representing a majority of the combined voting power of the Company's
then outstanding voting securities, or (B) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease, at any time
after the beginning of such period, for any reason to constitute a
majority of the Board of Directors of the Company unless the election
of each new director was nominated or ratified by at least two-thirds
of the directors still in office who were directors at the beginning of
such two-year period.
d. "Retirement" shall mean the date upon which an Officer and Key Employee
Participant, having attained an age of not less than 62, or such other
age as may be determined by the Committee in its sole discretion,
terminates his employment with the Company, or any parent corporation
or subsidiary corporation thereof, provided that such Officer and Key
Employee Participant has been employed by the Company, or any parent
corporation or subsidiary corporation thereof, for a period of not less
than five (5) years prior to such termination.
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11. AMENDMENT OF PLAN
The Board of Directors of the Company shall have the right to amend, modify,
suspend or terminate the Plan at any time, provided that no amendment shall be
made without shareholder approval which shall (i) increase the total number of
shares of the Common Stock of the Company which may be issued and sold pursuant
to Options granted under the Plan, (ii) materially increase the benefits
accruing to participants under the Plan, (iii) decrease the minimum exercise
price in the case of an Incentive Option, (iv) materially modify the provisions
of the Plan relating to eligibility with respect to Options, unless in any such
event such amendment is made by or with the approval of the stockholders, or
(v) retroactively impair the Committee's discretion. The Board of Directors
shall be authorized to amend the Plan and the Options granted thereunder (A) to
qualify such Options as "incentive stock options" within the meaning of Section
422 of the Code or (B) to comply with Rule 16b-3 (or any successor rule) under
the Exchange Act. No amendment, modification, suspension or termination of the
Plan shall adversely alter or impair any Options previously granted under the
Plan, without the consent of the holder thereof.
12. EFFECTIVE DATE
The Plan shall become effective at 10:00 A.M., Los Angeles, California time,
on the Effective Date, subject to a vote of the stockholders of the Company
held at a meeting of the stockholders duly held within 12 months from the
Effective Date. Subject to the preceding sentence and the right of the Board
of Directors to terminate the Plan at any time pursuant to Section 11 hereof,
the Plan shall remain in effect until the earlier of (i) the date that Options
covering all shares of Common Stock issuable under the Plan have been granted
or (ii) the Termination Date.
13. WITHHOLDING TAXES
By acceptance of the Option, the optionee will be deemed to (i) agree to
reimburse the company or parent corporation or subsidiary corporation by which
the optionee is employed for any federal, state, or local taxes required by any
government to be withheld or otherwise deducted by such corporation in respect
of the optionee's exercise of all or a portion of the Option; (ii) authorize
the Company or any parent corporation or subsidiary corporation by which the
optionee is employed to withhold from any cash compensation paid to the
optionee or in the optionee's behalf, an amount sufficient to discharge any
federal, state, and local taxes imposed on the Company, or the parent
corporation or subsidiary corporation by which the optionee is employed, and
which otherwise has not been reimbursed by the optionee, in respect of the
optionee's exercise of all or a portion of the Option; and (iii) agree that the
Company may, in its discretion, hold the stock certificate to which the
optionee is entitled upon exercise of the Option as security for the payment of
the aforementioned withholding tax liability, until cash sufficient to pay that
liability has been accumulated, and may, in its discretion, effect such
withholding by retaining shares issuable upon the exercise of the Option having
a Fair Market Value on the date of exercise which is equal to the amount to be
withheld.
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<PAGE> 32
ANNEX B
SAMUELS JEWELERS, INC.
1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSES
Samuels Jewelers, Inc., a Delaware corporation (the "Company"), desires to
attract and retain the services of outstanding non-employee directors by
affording them an opportunity to acquire a proprietary interest in the Company
through automatic, non-discretionary awards of options ("Options") exercisable
to purchase shares of Common Stock (as defined below), and thus to create in
such directors an increased interest in and a greater concern for the welfare
of the Company and its subsidiaries.
The Options offered pursuant to this Samuels Jewelers, Inc. 1998 Stock
Option Plan for Non-Employee Directors (the "Plan") are a matter of separate
inducement and are not in lieu of any other compensation for the services of
any director.
The Options granted under the Plan are intended to be options that do not
meet the requirements for incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
As used in the Plan, the term "subsidiary corporation" shall mean a
corporation coming within the definition of such term contained in Section
424(f) of the Code.
2. STOCK SUBJECT TO THE PLAN
Options granted under the Plan shall be exercisable for shares of the
Company's common stock, par value $.001 per share ("Common Stock").
The total number of shares of Common Stock authorized for issuance under
the Plan upon the exercise of Options (the "Shares"), shall not exceed, in the
aggregate, 250,000 of the currently authorized shares of Common Stock of the
Company, such number to be subject to adjustment in accordance with Section 13
of the Plan.
Shares available for issuance under the Plan may be either authorized but
unissued Shares, Shares of issued stock held in the Company's treasury, or
both, at the discretion of the Company. If and to the extent that Options
granted under the Plan expire or terminate without having been exercised, the
Shares covered by such expired or terminated Options may again be subject to an
Option under the Plan.
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<PAGE> 33
3. EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective at 10:00 a.m., Austin, time, on September
30, 1998 (the "Effective Date"). The Plan shall terminate at the close of
business on September 30, 2008 (the "Termination Date"), unless sooner
terminated in accordance with its terms.
4. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors"), which may designate from among its members a
committee to exercise all power and authority of the Board of Directors at any
time and from time to time to administer the Plan. (References herein to the
Board of Directors shall be deemed to include references to any such committee,
except as the context otherwise requires.) Subject to the express provisions
of the Plan, the Board of Directors shall have authority to construe the Plan
and the Options granted hereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan and to make all other ministerial
determinations necessary or advisable for administering the Plan. However, the
timing of grants of Options under the Plan and the determination of the amounts
and prices of such Options shall be effected automatically in accordance with
the terms and provisions of the Plan without further action by the Board of
Directors.
The determination of the Board of Directors on matters referred to in this
Section 4 shall be conclusive.
5. ELIGIBILITY
Each member of the Board of Directors who is not an employee of the
Company or any subsidiary corporation of the Company shall be eligible to be
granted Options under the Plan ("Eligible Directors").
6. OPTION GRANTS
On the Effective Date, the Committee shall have the authority, in its sole
discretion, to grant Options to Eligible Directors. Each Option granted to an
Eligible Director pursuant to the Plan shall be evidenced by a written
agreement between the Company and such Eligible Director substantially in the
form of Exhibit A attached hereto (each such agreement, a "Grant Agreement").
Any Eligible Director entitled to receive an Option grant pursuant to the Plan
may elect to decline the Option.
7. OPTION PRICE AND PAYMENT
The price for each Share purchasable upon exercise of any Option granted
hereunder shall be an amount equal to the fair market value per Share on the
date of grant. For purposes of the Plan, fair market value per share with
respect to any date of determination, means:
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<PAGE> 34
(i) if the Shares are listed or admitted to trading on a national
securities exchange in the United States or reported through the National
Association of Securities Dealers Automated Quotation System-National
Market System ("NASDAQ-NMS"), then the closing sale price on such exchange
or NASDAQ-NMS on such date or, if no trading occurred or quotations were
available on such date, then on the closest preceding date on which the
Shares were traded or quoted; or
(ii) if not so listed or reported but a regular, active public market
for the Shares exists (as determined in the sole discretion of the Board
of Directors, whose decision shall be conclusive and binding), then the
average of the closing bid and ask quotations per Share in the
over-the-counter market for such Shares in the United States on such date
or, if no such quotations are available on such date, then on the closest
date preceding such date. For purposes of the foregoing, a market in
which trading is sporadic and the ask quotations generally exceed the bid
quotations by more than 15% shall not be deemed to be a "regular, active
public market."
If the Board of Directors determines that a regular, active public market
does not exist for the Shares, the Board of Directors shall determine the fair
market value of the Shares in its good faith judgment based on the total number
of shares of Common Stock then outstanding, taking into account all outstanding
options, warrants, rights or other securities exercisable or exchangeable for,
or convertible into, shares of Common Stock.
The payment of the option price for all Shares purchased pursuant to the
exercise of an Option shall be (w) by cash or check in full on the date of
exercise (such cash or check may be delivered on behalf of a holder of an
option by a stock broker designated by the Company to whom such holder has
submitted an irrevocable notice of election, on forms approved by the Company,
to sell shares of Common Stock deliverable upon exercise of an Option), (x)
through the delivery of shares of Common Stock having a fair market value equal
to the full amount of the exercise price, (y) by the withholding by the Company
from the Shares issuable upon any exercise of the Option that number of Shares
having a fair market value equal to such exercise price pursuant to a written
election delivered to the Board of Directors prior to the date of exercise, or
(z) by a combination of such methods. The Board of Directors shall determine
acceptable methods for tendering Common Stock and may impose such limitations
and prohibitions on the use of Common Stock to exercise an Option as it deems
appropriate. The fair market value per share of shares of Common Stock so
delivered or withheld shall be determined as of the date immediately preceding
the date on which the Option is exercised, or as may be required in order to
comply with or conform to the requirements of any applicable laws or
regulations.
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<PAGE> 35
8. TERMS OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
Any Option granted to an Eligible Director shall be exercisable, on a
cumulative basis, for a period commencing on the date of grant and ending ten
(10) years after the date of grant of such Option as follows:
<TABLE>
<CAPTION>
Percentage of
Date vested Original Option Vested
----------- ----------------------
<S> <C>
1st Anniversary of Grant 25%
2nd Anniversary of Grant 25%
3rd Anniversary of Grant 25%
4th Anniversary of Grant 25%
</TABLE>
To the extent that an Option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part.
In no event shall an Option granted hereunder be exercised for a fraction
of a Share or for less than one hundred (100) Shares (unless the number
purchased is the total balance for which the Option is then exercisable).
A person entitled to receive Shares upon the exercise of an Option shall
not have the rights of a stockholder with respect to such Shares until the date
of issuance of a stock certificate to him or her for such Shares; provided,
however, that until such stock certificate is issued, any holder of an Option
using previously acquired shares of Common Stock in payment of an option
exercise price shall continue to have the rights of a stockholder with respect
to such previously acquired shares of Common Stock.
9. TERMINATION OF DIRECTORSHIP
If an Eligible Director's service as a director of the Company is
terminated, any Option previously granted to such Eligible Director shall, to
the extent such Option has vested and become exercisable, remain exercisable
for a period of three months following such Eligible Director's termination, at
which time such exercisable portion shall terminate and become null and void,
and the portion of such Option that has not vested and become exercisable on
the date of termination shall terminate and become null and void on the date of
such termination; provided, however, that:
(a) in the event of the death of any Eligible Director, all Options
held by such Eligible Director on the date of such death shall vest in full
and become immediately exercisable. Upon such death, the legal
representative of such Eligible Director, or such person who acquired such
Options by bequest or inheritance or by reason of the death of the Eligible
Director, shall have the right, within one (1) year after the date of death
(but not after the expiration or termination of the Option), to exercise
such Eligible Director's
B-4
<PAGE> 36
Option with respect to all or any part of the shares of Common Stock subject
to such Option; and
(b) if the directorship of any Eligible Director is terminated by (i)
such Eligible Director's disability (as described in Section 22(e)(3) of the
Code), (ii) voluntary retirement from service as a director of the Company
or (iii) failure of the Company to nominate for re-election such Eligible
Director who is otherwise eligible, except if such failure to nominate for
re-election is due to any act of (A) fraud or intentional misrepresentation
or (B) embezzlement, misappropriation or conversion of assets or
opportunities of the Company or any subsidiary corporation or parent
corporation of the Company (in which case, such Option shall terminate and
no longer be exercisable), all Options held by such Eligible Director shall
vest in full and become immediately exercisable. Such Eligible Director
shall have the right within one year after the date of such termination (but
not after the expiration or termination of such Option), to exercise the
Option with respect to all or any part of the shares of Common Stock subject
to such Eligible Director's Options.
None of the events described above shall extend the period of exercisability
of an Option beyond the expiration date thereof. If an Option granted hereunder
shall be exercised by the legal representative of a deceased Eligible Director
or former Eligible Director, or by a person who acquired an Option granted
hereunder by bequest or inheritance or by reason of the death of any Eligible
Director or former Eligible Director, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof of
the right of such legal representative or other person to exercise such Option.
10. EXERCISE OF OPTIONS
Options granted under the Plan, or any exercisable portion thereof, may be
exercised solely by delivering to the Secretary of the Company all of the
following prior to the time when the Option or such portion becomes
unexercisable under Sections 8 or 9:
(a) Notice in writing signed by the optionee or the other person then
entitled to exercise the Option or portion thereof, stating that the Option
or portion thereof is thereby exercised, such notice complying with all
applicable rules established by the Board of Directors;
(b) Payment for the shares with respect to which such Option or
portion thereof is exercised (i) by cash or check on the date of exercise
(such cash or check may be delivered on behalf of a optionee by a stock
broker designated by the Company to whom the optionee has submitted an
irrevocable notice of election, on forms approved by the Company, to sell
shares of Common Stock deliverable upon exercise of an Option), (ii) through
the delivery of shares of Common Stock having a fair market value equal to
the full amount of the exercise price, (iii) by the withholding by the
Company from the shares of Common Stock issuable upon any exercise of the
Option that number of shares having a fair market value
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<PAGE> 37
equal to such exercise price pursuant to a written election delivered to the
Board of Directors prior to the date of exercise, or (iv) by a combination
of such methods;
(c) A written representation and agreement (which may be included
within the applicable Grant Agreement), in a form satisfactory to the Board
of Directors, signed by the optionee or other person then entitled to
exercise such Option or portion thereof, stating that the shares of stock
are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them
except as may be permitted under the Securities Act of 1933, as amended (the
"Act"), and the applicable rules and regulations thereunder, and that the
optionee or other person then entitled to exercise such Option or portion
thereof will indemnify the Company against and hold it free and harmless
from any loss, damage, expense or liability resulting to the Company if any
sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above; provided, however, that the
Board of Directors may, in its absolute discretion, take whatever additional
actions it deems appropriate to ensure the observance and performance of
such representation and agreement and to effect compliance with the Act and
any other federal or state securities laws or regulations;
(d) Full payment to the Company of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Option,
which payment shall be (i) by cash or check or (ii) by electing, pursuant to
a written notice delivered to the Board of Directors prior to the date of
exercise, to have shares of Common Stock (having an aggregate fair market
value on the date of exercise sufficient to satisfy the applicable tax
withholding requirements) withheld from the shares deliverable upon such
exercise; and
(e) In the event the Option or portion thereof shall be exercised
pursuant to Section 9 by any person or persons other than the optionee,
appropriate proof of the right of such person or persons to exercise the
Option.
Without limiting the generality of the foregoing, the Board of Directors may
require an opinion of counsel acceptable to it to the effect that any
subsequent transfer of shares acquired on exercise of an Option does not
violate the Act, and may issue stop-transfer orders covering such shares.
Share certificates evidencing stock issued on exercise of this Option shall
bear an appropriate legend referring to the provisions of subsection (c) above
and the agreements herein. The written representation and agreement referred
to in subsection (c) above shall, however, not be required if the shares to be
issued pursuant to such exercise have been registered under the Act, and such
registration is then effective in respect of such shares.
11. USE OF PROCEEDS
The cash proceeds of the sale of Shares subject to the Options granted
hereunder are to be added to the general funds of the Company and used for its
general corporate purposes as the Board of Directors shall determine.
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<PAGE> 38
12. NON-TRANSFERABILITY OF OPTIONS
An Option granted hereunder shall not be transferable, whether by operation
of law or otherwise, other than by will or the laws of descent and distribution,
and any Option granted hereunder shall be exercisable, during the lifetime of
such holder, only by such holder. Except to the extent provided above, Options
may not be assigned, transferred, pledged, hypothecated or disposed of in any
way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process.
13. ADJUSTMENTS
In the event of any change in the outstanding Common Stock by reason of a
stock split, spin-off, stock dividend, stock combination or reclassification,
recapitalization or merger, Change of Control (as defined below) or similar
event, or as required under any Grant Agreement, the Board of Directors may
adjust appropriately the number of Shares subject to the Plan and available for
or covered by each outstanding Option and make such other revisions to
outstanding Options as it deems are equitably required.
14. CHANGE OF CONTROL
Notwithstanding any provision herein to the contrary, upon the occurrence
of an event constituting a Change of Control (as defined below), all Options
granted under the Plan and held by an Eligible Director shall become
immediately fully exercisable.
"Change of Control" shall mean the occurrence of either (x) the purchase
or other acquisition by any person, entity or group (within the meaning of
section 13(d) of 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any comparable successor provisions) of persons or entities
(a "Group") of (i) ownership of fifty percent (50%) or more of the combined
voting power of the Company's then outstanding voting securities entitled to
vote generally or (ii) all or substantially all of the direct and indirect
assets of the Company and its subsidiaries or (y) any merger, consolidation,
reorganization or other business combination of the Company with or into any
other entity which results in a person, entity or Group owning fifty percent
(50%) or more of the combined voting power of the surviving or resulting
corporation's then outstanding voting securities entitled to vote generally.
15. RIGHT TO TERMINATE SERVICE
The Plan shall not impose any obligation on the Company or on any
subsidiary corporation or parent corporation thereof to continue the service of
any Eligible Director holding Options and shall not impose any obligation on
the part of any Eligible Director holding Options to remain in the service of
the Company or of any subsidiary corporation or parent corporation thereof.
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<PAGE> 39
16. ISSUANCE OF STOCK CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
Upon any exercise of an Option granted hereunder and payment of the
purchase price therefor, a certificate or certificates representing the Shares
shall be issued by the Company in the name of the person exercising the Option
and shall be delivered to or upon the order of such person.
The Company may endorse such legend or legends upon the certificates for
Shares issued pursuant to the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such Shares as the Board of
Directors, in its sole discretion, determines to be necessary or appropriate to
(a) prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act or (b) implement the provisions of the Plan
and any agreement between the Company and the optionee with respect to such
Shares.
The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares. All Shares issued as provided herein shall be
fully paid and nonassessable to the extent permitted by law.
17. WITHHOLDING TAXES
The Company may require an Eligible Director exercising an Option to pay
to the Company, upon its demand, such amount as may be requested by the Company
for the purpose of satisfying any liability to withhold federal, state, local
or foreign income or other taxes. If the amount requested is not paid, the
Company shall have no obligation to issue, and the Eligible Director shall have
no right to receive, the Shares subject to such Option.
18. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board of Directors shall determine that the listing,
registration or qualification of the Shares subject to such Option on any
securities exchange or under any applicable law, or the consent or approval of
any governmental regulatory authority, is necessary or desirable as a condition
of, or in connection with, the granting of an Option, or the issuance of Shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors.
19. AMENDMENT OF THE PLAN
The Board of Directors may, from time to time, amend the Plan; provided,
however, that (i) no amendment shall become effective without the approval of
the stockholders of the Company to the extent that stockholder approval is
required in order to comply with Rule 16b-3 (or any successor provision) under
the Exchange Act and (ii) if required in order to comply with Rule 16b-3 under
the Exchange Act, no provision of the Plan addressing eligibility to
participate in the Plan or the amount, price or timing of Options to be granted
under the Plan may be amended
B-8
<PAGE> 40
more than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules promulgated thereunder. The rights and obligations under any Option
granted before amendment of the Plan or any unexercised portion of such Option
shall not be adversely affected by amendment of the Plan or the Option without
the consent of the holder of such Option.
20. TERMINATION OR SUSPENSION OF THE PLAN
The Board of Directors may at any time suspend or terminate the Plan.
Options may not be granted while the Plan is suspended or after it is
terminated. Rights and obligations under any Option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except upon the consent of the person to whom the Option was granted.
The ministerial power of the Board of Directors to construe and administer any
Options under Section 4 that are granted prior to the termination or suspension
of the Plan shall continue after such termination or during such suspension.
21. PARTIAL INVALIDITY
The invalidity or illegality of any provision herein shall not be deemed
to affect the validity of any other provision.
B-9
<PAGE> 41
ANNEX C
FORM OF SAMUELS JEWELERS, INC.
EMPLOYEE STOCK PURCHASE PLAN
To Our Employees:
We are pleased to provide you with information regarding our Employee Stock
Purchase Plan, referred to in these materials as the "Plan." We believe the
ESPP is an important part of the benefits provided to our employees and we hope
you will take the time to carefully review this information.
Samuels Jewelers, Inc. (the "Company") adopted the Plan in order to provide
you with an opportunity to share in the Company's growth and to purchase its
stock at a discounted price and without payment of brokerage costs.
The Company believes the Plan assists it in hiring and retaining qualified
employees and in building a satisfying long-term relationship with existing
employees through recognition of their contribution to the Company.
We have divided our discussion of the Plan into two parts. The first part
of this document describes the terms of the Plan, which provides for the
purchase of common stock at a discount and without commission. The second part
of this document describes the tax consequences relating to your participation
in the Plan.
The following information may not answer all the questions you have about
the Plan and is not intended to go into every detail of the Plan. A copy of
the Plan is found at the end of this package. The Human Resources Department
will be happy to answer further questions.
THE PLAN DOES PROVIDE YOU THE OPPORTUNITY TO PURCHASE SECURITIES ON TERMS
WHICH ARE MORE FAVORABLE THAN THOSE AVAILABLE TO THE PUBLIC. WHEN YOU
PARTICIPATE IN THE PLAN, YOU ARE AN INVESTOR IN SECURITIES. AS AN INVESTOR,
YOU ARE RESPONSIBLE FOR ASSESSING THE RISKS AND ASSUMING ALL LIABILITIES
ASSOCIATED WITH THE RISK. PURCHASING STOCK CAN BE A GOOD WAY TO INVEST MONEY,
BUT IT DOES INVOLVE RISK. THE PLAN DOES NOT GUARANTEE A PROFIT WHEN YOU SELL
THE STOCK.
INFORMATION ABOUT SAMUELS JEWELERS, INC.
An important part of your participation in the Plan is understanding the
Company, its products, operations and financial condition. Like any
stockholder of the Company, you can keep yourself informed about the Company by
reviewing reports and other documents which the Company prepares for
stockholders and the general public. If you become a stockholder of the
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<PAGE> 42
Company, you will be entitled to attend stockholder meetings and to vote in the
election of directors and other matters brought before the stockholders.
If you have not already received a copy of the Company's Annual Report to
Stockholders for the fiscal year ended May 30, 1998, you may request a copy
from the Company.
The federal securities laws require the Company to provide information about
its business and financial status in annual reports, commonly known as "10-Ks"
and quarterly reports, commonly known as "10-Qs". These reports are filed with
the Securities and Exchange Commission (the "SEC"). In addition, if certain
important corporate events occur during the year, the Company may file reports
commonly known as "8-Ks". The Company also will prepare and file with the SEC
a proxy statement in connection with its annual meeting of stockholders. The
proxy statement provides further information about the Company and its
officers, directors and major stockholders. In connection with the annual
meeting of stockholders, the Company will also provide financial and other
information to its stockholders, usually in the form of an annual report to
stockholders. From time to time the Company may also file other documents with
the SEC as required by the Securities Exchange Act of 1934, as amended.
All of the documents described above constitute part of the information
required by the securities laws to be provided or made available to you in
connection with any purchase of stock under the Plan; that is, such documents,
when filed, will be incorporated by reference into these materials, which
constitute the Prospectus for the Plan.
If you are a stockholder of the Company, an optionee under any of the
Company's stock option plans or a participant in the Plan, you should receive
copies of the Company's SEC reports and other stockholder communications. You
may always request copies of this information, which can be obtained without
charge from the Company.
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<PAGE> 43
QUESTIONS INDEX
QUESTION PAGE
- -------- ----
1. How does the Plan work? . . . . . . . . . . . . . . . . . . . . . .
2. Am I eligible to buy Common Stock pursuant to the Plan? . . . . . .
3. Who has the right to determine what benefits I receive under
the Plan? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. How do I sign up to participate in the ESPP? . . . . . . . . . . . .
5. Do I have to reapply to participate each Purchase Period? . . . . .
6. How much of my earnings can I have withheld to purchase
Common Stock under the Plan? . . . . . . . . . . . . . . . . . . . .
7. When is stock purchased? . . . . . . . . . . . . . . . . . . . . . .
8. How many shares can I purchase under the Plan? . . . . . . . . . . .
9. At what price are the shares purchased? . . . . . . . . . . . . . .
10. What happens to my money during the period before stock is
purchased? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. Can I reduce or increase the percentage of my payroll
deductions at any time? . . . . . . . . . . . . . . . . . . . . . .
12. What happens if I leave the Company? . . . . . . . . . . . . . . . .
13. Can I stop deductions for a couple of pay periods and then
start again? . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14. Can I contribute additional amounts if I want to buy
additional shares of stock? . . . . . . . . . . . . . . . . . . . .
15. When can I sell stock purchased under the Plan? . . . . . . . . . .
16. If I am aware of important non-public information, can I
sell my stock before this news is disclosed to the public?
For example, if I know the Company is about to acquire a
competitor, can I sell my stock before the Company puts
out a press release? . . . . . . . . . . . . . . . . . . . . . . . .
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<PAGE> 44
17. Do I pay commissions on the purchase of stock under the
Plan or on the sale of that stock? . . . . . . . . . . . . . . . . .
18. Can I request that the stock be issued in the name of
my child, a family trust, an IRA, or in "street name"
for my broker? . . . . . . . . . . . . . . . . . . . . . . . . . . .
19. Can the Company change the terms of my rights? . . . . . . . . . . .
20. Does the Plan have any of the same benefits of a
qualified retirement plan (including a 401(k) plan)
and will my participation in the ESPP affect my
participation in the Company's 401(k) plan? . . . . . . . . . . . .
PART II - TAX ISSUES
21. Does the Company pay dividends on its Common Stock? . . . . . . . .
22. Am I taxed on the money withheld to purchase stock? . . . . . . . .
23. Do I have to pay tax when stock is purchased by me
under the Plan? . . . . . . . . . . . . . . . . . . . . . . . . . .
24. What is my tax when I sell the stock purchased by me
under the Plan? . . . . . . . . . . . . . . . . . . . . . . . . . .
25. Will my profit or loss be ordinary income or capital
gain or loss? . . . . . . . . . . . . . . . . . . . . . . . . . . .
26. What is the difference between ordinary income and
capital gain income for federal tax purposes? . . . . . . . . . . .
27. Is there any withholding at the time Common Stock
is purchased by me or when I sell the stock? . . . . . . . . . . . .
28. What constitutes a disposition of stock for tax
purposes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29. I am subject to Section 16 of the Securities Exchange
Act of 1934. Do special tax rules apply to me? . . . . . . . . . .
PART I
TERMS OF THE EMPLOYEE STOCK PURCHASE PLAN
Part I of this document provides general information about participation in
the ESPP. Part II of this document describes the various tax consequences to
you of your participation in the Plan.
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<PAGE> 45
1. HOW DOES THE PLAN WORK?
The Plan enables you to purchase, through payroll deductions, shares of the
Company's Common Stock at a discount from the market price of the stock at the
time of purchase. The Common Stock purchased for you will be issued from the
aggregate of 200,000 shares currently reserved under the Plan.
The Plan authorized the Board of Directors to establish a Committee (the
"Committee") to specify:
(i) a date or dates (each, the beginning of a "Purchase Period") on which
rights to purchase the Company's Common Stock will be offered to
employees;
(ii) the terms under which employees may contribute money for exercising
the rights.
Participants in the Plan authorize the Company to automatically deduct
after-tax dollars from each paycheck throughout the Purchase Period until the
end of the Purchase Period. At the end of each Purchase Period, the Company
will use your deductions to purchase Common Stock on your behalf at a price
equal to 85% of the lower of the closing price on the first and last day of the
Purchase Period.
2. AM I ELIGIBLE TO BUY COMMON STOCK PURSUANT TO THE PLAN?
Every employee of the Company who, on the commencement date of any Purchase
Period, has been employed by the Company for at least one year and is employed
on a full-time basis (which customarily requires not less than 20 hours of
service per calendar week and not less than 5 months of service per calendar
year) is eligible to participate in the Plan during a given Purchase Period.
Individuals who own (either directly or by attribution) 5% or more of the
voting stock of the Company cannot participate under the Plan. For this
purpose, options to acquire stock of the Company are treated as exercised.
Internal Revenue Service regulations require certain minimal standards for
participation in the Plan. The Committee has the discretion to specify other
standards for participation. When the Committee determines the standards which
will apply, these standards, together with the IRS standards, are set forth in
an offering document.
3. WHO HAS THE RIGHT TO DETERMINE WHAT BENEFITS I RECEIVE UNDER THE PLAN?
The decision to grant rights under the Plan is made by the Board of
Directors or the Committee, which is appointed by the Board of Directors.
Information about the current members
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<PAGE> 46
of the Board of Directors is provided in the IPO Prospectus. Additional
information about the administration of the Plan can be obtained by calling the
Human Resources Department.
4. HOW DO I SIGN UP TO PARTICIPATE IN THE ESPP?
In order to participate in the Plan, you must submit a payroll deduction
authorization form to the Human Resources Department before the beginning of
the respective Purchase Period. If you do not have a copy of such form, it can
be obtained from Human Resources. The payroll deduction authorization form
authorizes the Company to automatically deduct a percentage of each paycheck as
specified by you. The money deducted is used to purchase the Company's stock
for you.
5. DO I HAVE TO REAPPLY TO PARTICIPATE EACH PURCHASE PERIOD?
No. Once you submit an enrollment form, deductions will be made
automatically until:
o you withdraw from participation
o you are no longer eligible
o no further shares are authorized for purchase under the Plan, or
o the Board of Directors of the Company discontinues the program, which it
has the right to do at any time.
6. HOW MUCH OF MY EARNINGS CAN I HAVE WITHHELD TO PURCHASE COMMON STOCK UNDER
THE PLAN?
If you are eligible to participate in the Plan, you can authorize the
Company to withhold up to 5% of your base compensation for each pay period by
completing and submitting an authorization form. You may choose any whole
percentage of deductions from 2% up to 5% but cannot choose a fraction of a
percentage. For example, you may choose to have 2% or 3% of your earnings
deducted during each pay period but not 2.5%. The amount you choose to have
deducted, if any, is up to you.
For purposes of the Plan, your base compensation for a particular Purchase
Period shall be the amount of your base salary or wages, including overtime pay
but excluding bonuses and other incentive payments, that is payable to you
during the Purchase Period. If your earnings increase or decrease, the amount
deducted mill be adjusted accordingly.
7. WHEN IS STOCK PURCHASED?
Shares are purchased for you under the Plan on the last day of each Purchase
Period, which generally is the last business day of each calendar quarter.
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<PAGE> 47
8. HOW MANY SHARES CAN I PURCHASE UNDER THE PLAN?
The maximum number of shares that you can purchase in a Purchase Period will
be the number equal to your aggregate payroll deductions divided by the
applicable purchase price. Should the total number of shares of Common Stock
which may be purchased under the Plan by all Participants for a particular
Purchase Period exceed the number of shares available for purchase under the
Plan, then the Committee shall make a pro rata allocation of the available
shares and shall notify each Participant of such allocation and any unused
withholdings will be refunded to you or held for purchases in the next Purchase
Period.
In addition, you may not accrue the right to purchase more than $25,000
worth of stock in any calendar year.
9. AT WHAT PRICE ARE THE SHARES PURCHASED?
The shares are purchased at a price which is 85% of the lower of the closing
price on the first and last day of the Purchase Period.
For example, if the closing price of the stock on the first day of the
Purchase Period is $10 and the closing price of the stock on the last day of
the Purchase Period is $12, then stock will be purchased for you at a price per
share of $8.50 (85% of $10). If the price of the stock had been $8 on the last
day, then stock would be purchased for you at a price per share of $6.80 (85%
of $8).
10. WHAT HAPPENS TO MY MONEY DURING THE PERIOD BEFORE STOCK IS PURCHASED?
Your payroll deductions are maintained with the general funds of the Company
and do not earn interest for you.
11. CAN I REDUCE OR INCREASE THE PERCENTAGE OF MY PAYROLL DEDUCTIONS AT ANY
TIME?
You can adjust your payroll deduction percentage before the beginning of
each Purchase Period. However, a Participant may not during any Purchase
Period reduce or increase the percentage of Base Compensation to be paid for
shares of Common Stock under the Plan. But a Participant may withdraw from an
elected purchase during any particular period by giving written notice to the
Committee, in which event the Participant shall be promptly paid any
compensation withheld during such period.
Directors and officers subject to Section 16 of the Exchange Act should
treat a reduction in payroll deductions as a withdrawal and wait at least six
months before increasing their participation.
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<PAGE> 48
12. WHAT HAPPENS IF I LEAVE THE COMPANY?
If a Participant ceases to be an employee of the Company for any reason
during a Purchase Period, the Participant or a designated representative may
either:
(i) receive a stock certificate for the number of shares of Common Stock
paid for pursuant to payroll deductions made on behalf of the
Participant during the Purchase Period up to the day prior to the date
of the Participant's cessation of employment; or
(ii) receive a cash refund of all sums previously collected from the
Participant during the Purchase Period.
Any election provided shall be exercisable only during the 30-day period
following the date of the Participant's cessation of employment (but in no
event later than the last date of the Purchase Period), and the underlying
right to purchase stock under the Plan shall terminate upon the exercise of
such election. If a Participant or a designated representative fails to make a
timely election, the Company shall treat such failure as an election to
exercise alternative (ii).
13. CAN I STOP DEDUCTIONS FOR A COUPLE OF PAY PERIODS AND THEN START AGAIN?
Once you stop deductions you cannot start them again in that Purchase
Period, and your previously made contributions will be returned to you as soon
as practicable without interest. You can participate in a subsequent Purchase
Period, assuming you are otherwise eligible, if you complete and deliver a new
payroll deduction authorization form before the beginning of the subsequent
Purchase Period.
14. CAN I CONTRIBUTE ADDITIONAL AMOUNTS IF I WANT TO BUY ADDITIONAL SHARE OF
STOCK?
No.
15. WHEN CAN I SELL STOCK PURCHASED UNDER THE PLAN?
You can sell stock purchased under the Plan at any time or you can hold on
to your stock and enjoy your rights as a stockholder of the Company. However,
the Plan is designed to allow you to become a long-term stockholder in your
company. As a result, if you sell within 2 years of purchasing shares, the
Company reserves the right to deduct the amount of the discounted purchase
price from your final check. In addition, see Part II for the tax consequences
of an immediate sale.
16. IF I AM AWARE OF IMPORTANT NON-PUBLIC INFORMATION, CAN I SELL MY STOCK
BEFORE THIS NEWS IS DISCLOSED TO THE PUBLIC? FOR EXAMPLE, IF I KNOW THE
COMPANY IS ABOUT TO ACQUIRE A COMPETITOR, CAN I SELL MY STOCK BEFORE THE
COMPANY PUTS OUT A PRESS RELEASE?
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<PAGE> 49
No. If you are aware of important "inside information", whether good or
bad, you cannot sell shares of the Company's stock, whether received under the
Purchase Plan or otherwise, before dissemination of the information to the
public. Basically, "inside information" is information that is both very
important (material) and nonpublic (not disclosed through press releases,
newspaper articles or otherwise to the public which buys and sells securities).
A general test is whether dissemination of the information to the public would
be likely to affect the market price of the Company's stock or would be likely
to be considered important by people who are considering whether to buy or sell
the Company's stock. If the information makes you want to buy or sell, it
would probably have the same effect on others. Material information may
include projections, estimates or proposals.
If you are contemplating selling your stock and think you might have "inside
information" you should discuss your possible sale with the CFO. If, after
such discussion, it is determined that such information is in fact inside
information, you must wait to sell your stock until after such information has
been made public.
17. DO I PAY COMMISSIONS ON THE PURCHASE OF STOCK UNDER THE PLAN OR ON THE
SALE OF THAT STOCK?
You pay no commissions when stock is purchased for you under the Plan.
Generally, to sell your stock, you must take the stock certificate to a stock
broker who can arrange for its sale. You can expect to be charged a fee or
commission if you use a stock broker. Except as provided under the Plan, the
Company will not buy from you or sell on your behalf, or assist you in selling,
stock purchased for you under the Plan. Officers and directors are subject to
special limitations on the sale of their stock.
18. CAN I REQUEST THAT THE STOCK BE ISSUED IN THE NAME OF MY CHILD, A FAMILY
TRUST, AN IRA, OR IN "STREET NAME" FOR MY BROKER?
No, not while the shares are in the Plan. However, after you receive the
stock certificate for shares purchased under the Plan you may transfer the
shares to any party you designate by going through your broker or contacting
the Company's Stock Transfer Agent listed on the stock certificate.
19. CAN THE COMPANY CHANGE THE TERMS OF MY RIGHTS?
The Board may from time to time alter, amend, suspend or discontinue the
Plan; provided, however, that no such action shall adversely affect rights and
obligations with respect to rights to purchase stock at the time outstanding
under the Plan; and provided, further, that no such action of the Board may,
without approval of the stockholders of the Company, increase the number of
shares subject to the Plan or the maximum numbers of shares for which a right
to purchase stock under the Plan may be exercised, extend the term of the Plan,
alter the per share purchase price
C-9
<PAGE> 50
formula so as to reduce the purchase price per share specified in the Plan,
otherwise materially increase the benefits accruing to Participants under the
Plan or materially modify the requirements for eligibility to participate in
the Plan. Furthermore, the Plan may not, without the approval of the
stockholders of the Company, be amended in any manner which will cause the Plan
to fail to meet the requirements of an "employee stock purchase plan" under
Section 423 of the Code.
20. DOES THE PLAN HAVE ANY OF THE SAME BENEFITS OF A QUALIFIED RETIREMENT
PLAN (INCLUDING A 401(k) PLAN) AND WILL MY PARTICIPATION IN THE ESPP AFFECT
MY PARTICIPATION IN THE COMPANY'S 401(k) PLAN?
The Purchase Plan is not a qualified retirement plan and therefore does not
have the same tax deferral benefits, nor is the Purchase Plan subject to any
provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Your participation in the Plan does not affect your ability to participate in
the Company's 401(k) plan.
PART II
TAX ISSUES RELATING TO YOUR PARTICIPATION IN THE PLAN
The information in this Part II responds to questions you may have about the
federal tax consequences of participating in the Plan. You should understand,
however, that this tax information is not complete. For example, it does not
address state or local tax laws or the application of laws if you are subject
to tax laws in other countries. Furthermore, because tax laws and regulations
may change, and interpretations of these laws and regulations can change the
way the laws and regulations apply to you, this information may need to be
updated after the date of issuance of this Prospectus. Therefore, you should
consult a tax advisor if you have questions relating to the tax consequences of
participation in, and the sale of shares received under, the Plan.
21. DOES THE COMPANY PAY DIVIDENDS ON ITS COMMON STOCK?
The Company currently is not paying dividends on its Common Stock and
presently intends to continue this policy in order to retain cash for use in
its business.
22. AM I TAXED ON THE MONEY WITHHELD TO PURCHASE STOCK?
Yes. The money withheld from your wages to purchase common Stock under the
Plan is taxable income to you just as if you had actually received the money.
The amount withheld under the Plan is subject to all payroll taxes such as
social security and state, local and federal income taxes.
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23. DO I HAVE TO PAY TAX WHEN STOCK IS PURCHASED BY ME UNDER THE PLAN?
Even though you are buying the stock at a price which is 15% or more below
the fair market value of the stock at the time of purchase, you do not have to
pay tax on this benefit to you at the time of purchase. You may, however, be
subject to employment taxes (e.g., social security) at the time of purchase.
24. WHAT IS MY TAX WHEN I SELL THE STOCK PURCHASED BY ME UNDER THE PLAN?
Generally, you will include in your income and pay tax on the difference
between what you paid for the stock and what you sold it for. The amount of
tax will depend on your personal tax situation and the characterization of any
profit or loss on the sale as ordinary income or capital gain or loss, or a
combination of ordinary income and capital gain or loss. As with any stock
sale, you will need to be able to support the original purchase price.
Therefore, we urge you to keep track of all records related to the purchase of
stock under the ESPP.
If you are a director or an officer subject to SEC Section 16, special rules
apply to you.
25. WILL MY PROFIT OR LOSS BE ORDINARY INCOME OR CAPITAL GAIN OR LOSS?
The characterization of the income you recognize will vary and will depend
upon how long you held the Common Stock before you sold it.
Disqualifying Disposition
Generally, if you transfer your stock in a "disposition" within two years
after the beginning of the Purchase Period in which you purchased the stock (a
"disqualifying disposition"), the difference between (i) the fair market value
of the stock on the date it was purchased by you (the "Purchase Date Value")
and (ii) the price at which the stock was purchased (the "Exercise Price") will
be characterized as ordinary income, and the balance of the profit (if any) --
the difference between the sale price and the Purchase Date Value -- will be
characterized as capital gain.
If you sell or otherwise dispose of your stock in a disqualifying
disposition for an amount less than the Purchase Date Value, you generally will
be deemed to have received ordinary income equal to the difference between the
Purchase Date Value and the Exercise Price. However, you generally will be
able to report a capital loss equal to the difference between the sales price
and the Purchase Date Value. Thus, you will have ordinary income and a capital
loss in the same year and you may not be able to fully offset the income with
the loss.
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<PAGE> 52
Qualifying Disposition
Generally, if you transfer your stock in a qualifying disposition (a
disposition other than a disqualifying disposition), or if you die while owning
the stock, then any gain will be characterized as ordinary income to the extent
of the lesser of the gain recognized or an amount equal to the difference
between of the fair market value of the stock on the Purchase Date and the
Exercise Price. Any recognized gain in excess of the amount characterized as
ordinary income will be treated as capital gain.
If you make a qualifying disposition that results in a loss, there will be
no recognition of ordinary income and you will have a capital loss equal to the
difference between the sale price and the Exercise Price.
Any capital gain or loss recognized on a sale or transfer of Common Stock
purchased by you under the Plan will be long-term capital gain or loss if the
Common Stock is held for more than one year from the date of purchase.
The following chart is an illustration. Note that prices per share must be
adjusted to reflect the effect of stock dividends and splits, if any. Assume
that;
<TABLE>
<S> <C>
Your total payroll deductions were $ 300.00
Beginning of Purchase Period April 1, 1996
Stock value at beginning of Purchase Period $ 6.00
85% of stock value -- beginning $ 5.10
Exercise Date June 30, 1996
Stock value on Exercise Date $ 10.00
85% of stock value on Exercise Date $ 8.50
Your shares are purchased at $ 5.10
Number of shares purchased for you $300.00 divided by $5.10 = 58.8235 shares
</TABLE>
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<PAGE> 53
The following illustration explains how the above general rules are applied
in the case of a sale of a share purchased under the Plan.
<TABLE>
<CAPTION>
LINE #
<S> <C> <C>
1. 15% of the closing price at beginning of Purchase Period ___________
2. Closing price at end of Purchase Period ___________
3. Actual purchase price ___________
(For Tax Computation)
4. Gross proceeds of sale ___________
5. Less expenses of sale (commissions or fees) ___________
6. Net proceeds of sale ___________
If sold before the end of the capital gain holding period:
7. Ordinary income -- line 2 less line 3 ___________
8. Short-term capital gain or loss -- line 6 less line 2 ___________
If sold within two years after beginning of Purchase Price and after the end
of the capital gain holding period:
9. Ordinary income -- line 2 less line 3 ___________
10. Long-term capital gain or loss -- line 6 less line 2 ___________
If sold more than two years after beginning of Purchase Period and after the
end of the capital gain holding period:
11. Ordinary income: The lesser of (a) or (b) below: ___________
(a) 15% of the closing price beginning of Purchase
Period, line 1 ___________
(b) Excess of net proceeds of sale, line 6, over
actual price, line 3 ___________
12. Long-term capital gain or loss; Line 6 less the sum of
line 3 plus line 11 ___________
</TABLE>
In the event of a disqualifying disposition as described above, the
Company is allowed a deduction in its Federal income tax return in an amount
equal to the ordinary income required to be included in the income tax return of
the employee. In the absence of a disqualifying disposition, the Company is not
allowed any deduction.
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<PAGE> 54
26. WHAT IS THE DIFFERENCE BETWEEN ORDINARY INCOME AND CAPITAL GAIN INCOME
FOR FEDERAL TAX PURPOSES?
The maximum tax rate applicable to long-term capital gain may differ from
the maximum rate applicable to ordinary income and short-term capital gain.
Additionally, capital gains and losses are subject to certain other provisions
of the Internal Revenue Code not applicable to ordinary income.
27. IS THERE ANY WITHHOLDING AT THE TIME COMMON STOCK IS PURCHASED BY ME OR
WHEN I SELL THE STOCK?
There currently is no income tax withholding required when Common Stock is
purchased or sold by you. You may, however, be subject to employment tax
withholding (e.g., social security) at the time of purchase. The Company is
required to report to the IRS any ordinary income recognized by you as a result
of a disqualifying disposition. The Company may be required in the future to
withhold the amount due as taxes on such ordinary income from your salary.
28. WHAT CONSTITUTES A DISPOSITION OF STOCK FOR TAX PURPOSES?
A disposition generally includes any sale, exchange, gift or transfer of
legal title. A gift or certain other dispositions by you of Common Stock
acquired under the Plan may cause you to recognize some ordinary income.
Certain transactions are excluded, including a pledge or a transfer by request
or inheritance, or certain transfers to a spouse or former spouse incident to a
divorce. As this is a complicated area, you should consult your tax advisor
for the consequences of your disposition of Plan stock.
C-14
<PAGE> 55
PROXY SAMUELS JEWELERS, INC.
2914 Montopolis Drive, Suite 200, Austin, Texas 78741
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of SAMUELS JEWELERS, INC., a Delaware
corporation (the "Company"), hereby appoints Randy N. McCullough and E. Peter
Healey and each or either of them, the proxy or proxies of the undersigned,
with full power of substitution to such proxy and substitute, to vote all
shares of Common Stock of the Company that the undersigned is entitled to vote
at the Annual Meeting of Stockholders of the Company to be held at the offices
of DDJ Capital Management, LLC at 141 N. Linden Street, Suite S-4, Wellesley,
Massachusetts, at 9:00 a.m., local time, November 3, 1998 and all adjournments
and postponements thereof with authority to vote said stock on the matters set
forth below:
The Board of Directors recommends a vote FOR Items 1, 2, 3 and 4.
1. ELECTION OF DIRECTORS. David Barr, David J. Breazzano, Ken d'amato, David
H. Eisenberg, E. Peter Healey, Randy N. McCullough and Jerry Winston.
[ ] FOR all nominees listed above, except that a vote shall be withheld
from the following nominee(s) (insert names, if any)
-----------------------------------------------------------------------
[ ] WITHHOLD AUTHORITY to vote for all nominees.
This proxy also grants to the proxyholders the discretionary power to vote
the shares of Common Stock represented cumulatively for one or more of the
above nominees other than those (if any) for whom authority to vote is
withheld above.
2. APPROVAL OF SAMUELS JEWELERS, INC. 1998 STOCK OPTION PLAN.
[ ] For
[ ] Against
[ ] Abstain
3. APPROVAL OF SAMUELS JEWELERS, INC. 1998 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS.
[ ] For
[ ] Against
[ ] Abstain
<PAGE> 56
4. APPROVAL OF SAMUELS JEWELERS, INC. EMPLOYEE STOCK PURCHASE PLAN.
[ ] For
[ ] Against
[ ] Abstain
5. In their discretion, the proxyholders will vote upon such other business
as may be properly brought before the meeting and each adjournment or
postponement thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF EACH NOMINEE FOR DIRECTOR.
Dated: , 1998
-------------------------------
-------------------------------------------
(Signature)
-------------------------------------------
(Signature)
Please sign your name exactly as it appears
on the left. Executors, administrators,
trustees, guardians, attorneys and agents
should give their full titles and submit
evidence of the appointment unless
previously furnished to the Company or its
transfer agent. All joint owners should
sign.
PLEASE MARK, DATE, SIGN AND RETURN USING THE ENCLOSED
ENVELOPE. YOUR PROMPT ATTENTION WILL BE APPRECIATED.
