<PAGE> 1
DOCUMENTS INCORPORATED BY REFERENCE
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 29, 1999
COMMISSION FILE NUMBER 0-15017
_______________
SAMUELS JEWELERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3746316
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2914 MONTOPOLIS DRIVE, SUITE 200 78741
AUSTIN, TEXAS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (512) 369-1400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
-------------------
COMMON STOCK
WARRANTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes. [X] No. [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of August 31, 1999, the aggregate market value of the voting stock, held
by nonaffiliates of the issuer, was $20,879,925 based upon an average price of
$4.125 multiplied by 5,061,800 shares of common stock outstanding on such date
held by nonaffiliates.
As of August 31, 1999, the issuer had a total of 5,061,800 shares of common
stock outstanding.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a
court. Yes. [X] No. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Part III.
Samuels Jewelers, Inc. Proxy Statement relating to its 1999 Annual Meeting
of Shareholders, to be filed with the SEC within 120 days of May 29, 1999.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
THE COMPANY
Samuels Jewelers, Inc. ("Samuels" or the "Company"), was created in August
1998 for the purpose of acquiring the assets of Barry's Jewelers, Inc.
("Barry's" or "Predecessor") as part of Barry's Plan of Reorganization (the
"Plan"), which was confirmed by the U. S. Bankruptcy Court on September 16,
1998, and consummated on October 2, 1998 (the "Reorganization"). Samuels is
incorporated in Delaware and was initially funded by $15 million of new equity
provided by the former bondholders of Barry's, who also consented to the
conversion of $50 million of Barry's bonds they held into equity of Samuels
Jewelers, Inc.
Barry's Background
Barry's previously had filed a voluntary petition for relief under chapter
11 of the United States Bankruptcy Code on February 26, 1992, for the purpose of
implementing a pre-negotiated plan of reorganization (the "Old Plan"). The Court
confirmed the Old Plan and Barry's consummated the reorganization under that
plan in June of 1992.
When Barry's emerged under the Old Plan, it had approximately $103 million
in debt and approximately $16 million in equity. Ultimately, Barry's sales and
operating results failed to meet expectations, which thereby exacerbated Barry's
leverage situation. Then in June 1996, Barry's announced that it had overstated
Fiscal 1995 earnings by $1.5 million or 44.1% and that it had incurred a loss of
approximately $2 million in Fiscal 1996. These developments caused defaults on
Barry's two revolving credit facilities, one of which was accelerated and the
other renegotiated.
Shortly thereafter, a newly reconstituted board of directors began a search
for a new management team. During the spring of 1997, a new management team was
selected with an established background in the retail jewelry industry. This
background included experience with national retail jewelers in merchandising,
marketing, operations and training, systems installations and management,
financial management and reporting, as well as restructuring expertise.
After its appointment, the new management team identified additional
problems with Barry's financial and operational situation, including the
following situations: (a) Barry's was significantly over-leveraged; (b) Barry's
had a substantial number of stores that consistently operated at a net loss and
needed to be closed; (c) Barry's information systems were not year 2000
compliant, not integrated, not adequately supported by the vendors and generally
were ineffective; (d) Barry's had no continuity in management (it had, for
example, four Chief Executive Officers in the two years prior to the appointment
of the new management team); (e) Barry's had higher than normal inventory
shrinkage due to inadequate systems and poor inventory management and controls;
(f) Barry's operated with a below-industry-average inventory both in quality and
quantity, which limited not only the depth and breadth of selection in its
stores but also the value perception to customers; (g) Barry's had poor accounts
receivable management policies, and poor credit granting standards and had
failed to implement proper incentives to collect past due accounts; (h) Barry's
cost of collection of its accounts receivable was far in excess of acceptable
business practice levels; and (i) Barry's headquarters space was too large for
its needs and the lease for such space was significantly above market.
The new management team embarked on the development and implementation of a
business plan designed to address these issues and to restore Barry's to
profitability. Originally, Barry's hoped to implement its new business plan
without having to commence bankruptcy proceedings, but after discussions with
various constituencies it was determined that Barry's would have to commence
chapter 11 reorganization proceedings in order to provide it with the time,
flexibility and stability needed to formulate and fully implement the new
business plan and otherwise to reorganize its financial and operations affairs.
With the cooperation of these constituencies, the new management team
successfully instituted its new merchandising and marketing strategy in time for
the 1997 Christmas selling season. Concurrently, the new management team began
developing the infrastructure necessary to allow the company to grow and go
forward profitably. In the spring of 1998, management presented a plan that
readily received approval from the various constituencies. This plan included
approvals for using resources to obtain all new information technology that
would be necessary to efficiently operate the business and for the aggressive,
but successful, effort of
2
<PAGE> 3
relocating the home office from southern California to central Texas. These
substantial efforts were commenced throughout and substantially concluded in
1998.
Emergence from Chapter 11 Reorganization
Barry's filed the Plan with the bankruptcy court on April 30, 1998 and the
bankruptcy court confirmed the Plan, with certain modifications, on September
16, 1998. The Reorganization described under the Plan was consummated on October
2, 1998. The plan provided for the following:
o payment in full of certain administrative claims, tax claims, bank secured
claims and other allowed secured claims;
o distribution of 2.5 million shares of the Company's common stock to Barry's
bondholders in exchange for their allowed claims;
o distribution of 2.25 million shares of the Company's common stock in
exchange for $15 million in a new equity cash infusion;
o distribution of 250,000 restricted shares of the Company's common stock to
certain members of the new management team;
o payment of allowed claims of general unsecured creditors at a rate of $0.15
for each dollar of their allowed claims;
o issuance of 263,158 warrants to purchase the Company's common stock to
stockholders in exchange for their shares of Barry's common stock; and
o merger of Barry's into Samuels Jewelers, Inc.
In addition, Foothill Capital Corporation agreed to provide the Company with
a new fully secured line of credit of up to $50,000,000. On October 2, 1998, the
Company drew down approximately $32 million from this line of credit. These
borrowings along with the $15 million new cash equity infusion were used to pay
off Barry's previous line of credit balance with Bank Boston.
Samuels Jewelers
The new company's name, "Samuels Jewelers," comes from a chain of stores
operated by the Predecessor in the San Francisco Bay area. The chain was founded
in 1891 and it has a rich tradition of outstanding customer service and of
providing an excellent selection of fine jewelry.
The Company operates a chain of specialty retail jewelry stores generally
located in regional shopping malls. Our stores offer fine jewelry items in a
wide range of styles and prices, with a principal emphasis on diamond and
gemstone jewelry. As of August 13, 1999, the Company operated 123 retail jewelry
stores, principally in California, Texas, Colorado, Utah, Arizona, Idaho,
Montana, Indiana and North Carolina. As measured by the number of retail
locations, the Company is one of the larger specialty retailers of fine jewelry
in the country. The Company's corporate office is located at 2914 Montopolis
Drive, Suite 200, Austin, Texas 78741, and its telephone number is (512)
369-1400.
The Company's new stock is traded on the Nasdaq OTC Bulletin Board under the
symbol "SMJW".
Today, Samuels is a new company with new shareholders and a new board of
directors that is managed by a new management team, all the way down to and, in
many cases, including store manager level. The Company targets more affluent and
less credit dependent customers through a sophisticated marketing program that
focuses on offering quality merchandise at a fair price. The Company has
relocated its headquarters from southern California to central Texas, placing
the Company in more cost-effective facilities in a more geographically strategic
location for carrying on its operations, with new staff dedicated to providing
customer service. Samuels manages the business, including merchandising and
distribution functions, through new cost-effective operating systems that use
current technology that is fully year 2000 compliant. The Company has
consolidated the number of trade names under which it operates from over 14 to 6
and it plans to be operating all stores under the Samuels name within the next
two to three years. The Company has introduced a new store prototype that is
customer friendly, inviting and attracts the target customer, as well as the
various mall developers. Subsequent to year end, the Company outsourced the
credit function to an independent credit expert in Alliance Data Services
("ADS") and has embarked upon an aggressive plan of expansion with the
infrastructure capable of generating significant economies of size. As of August
31, 1999 the Company had opened 5 new stores and had binding commitments to open
3
<PAGE> 4
approximately 17 stores in Fiscal 2000 and the Company is in various stages of
negotiating for several more stores. See "Notes to Financial Statements - Note
11 Subsequent Events Sale of Credit Portfolio to Alliance Data Systems and
Acquisition of Silverman's and New Store Commitments".
The only remnants of Barry's are 106 locations of the over 200 leasehold
interests that Barry's occupied a few years ago. Most of the leases for these
locations have been renegotiated and many of the stores have been renamed and
remodeled. The rest will be renamed and remodeled in the coming few years.
The financial statements contained within this report are for Samuels
Jewelers, Inc. after October 2, 1998. Nevertheless, the Company is providing the
information with regard to Barry's as of and prior to that time under its
obligation, as set forth in the Securities and Exchange Act regulations, to
describe the general development of the business and to report selected
financial data for the Company, including its predecessor-in-interest. Thus, as
used herein, the Company, refers to Samuels for period after October 2, 1998 and
to Barry's for periods through October 2, 1998.
Upon emergence from Chapter 11 proceedings and with regard to the second
quarter of Fiscal 1999 and fiscal periods thereafter, the Company adopted the
fresh start reporting requirements of AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
In accordance with the fresh start reporting requirements, the reorganization
value of the Company has been allocated to the Company's assets in conformity
with the procedures specified by the Accounting Principles Board ("APB") Opinion
16, Business Combinations. In addition the accumulated deficit of the Company
was eliminated and its capital structure was revalued in accordance with the
Reorganization. The Company has recorded the effects of the Reorganization and
Fresh-Start Reporting as of October 2, 1998. The adjustment to eliminate the
Company's accumulated deficit totaled $77.6 million of which $11.6 million was
forgiveness of debt and the remaining $66.0 million was for Fresh-Start
adjustments.
The results of operations and cash flows for the four months ended October
2, 1998 include operations prior to the Company's emergence from Chapter 11
proceedings and the effects of Fresh-Start Reporting. The results of operations
and cash flows for the eight months ended May 29, 1999 include operations
subsequent to the Company's emergence from Chapter 11 proceedings and reflect
the effects of Fresh-Start Reporting. As a result, the net income for the eight
months ended May 29, 1999 is not comparable with prior periods and the net
income for the fiscal year ended May 29, 1999 is divided into Successor Company
(the "Successor Company") and Predecessor Company (the "Predecessor Company")
periods and it is also not comparable with net income from prior fiscal year
periods. In addition, the balance sheet as of May 29, 1999 is not comparable to
prior periods for the reasons discussed above.
The reorganized value of the Company's common equity of $47.1 million was
determined by the Company, with the assistance of financial advisors, by
reliance on the Discounted Cash Flow method using the weighted average cost of
capital. The reorganized value of the Company has been allocated to specific
assets categories pursuant to Fresh-Start Reporting. The Company's
Reorganization Value in Excess of Amounts Allocated to Identifiable Assets
reflects the difference in the Company's stock valuation and the Company's net
assets. The Company is amortizing the Reorganization Value in Excess of Amounts
Allocated to Identifiable Assets over ten years.
The Company changed its fiscal year end during 1998 from May 31 to the
Saturday closest to May 31. The Company's fiscal years ended May 29, 1999
("Fiscal 1999") and May 30, 1998 ("Fiscal 1998") may be referred to herein as
such.
STRATEGY
The Company's operating strategy is to provide exceptional values on fine
jewelry to its retail jewelry consumer. This is accomplished by partnering with
vendors to develop new products and expand assortments based on customer demand
and perceived value and then by communicating this value message through
targeted marketing programs. To enhance sales, the Company makes credit
financing available to qualified customers through a private label credit card
program and through various secondary credit sources. The Company's sales
capabilities are supported by a trained and knowledgeable sales staff, an
automated, centralized credit and collection system and a centralized
distribution system to replenish merchandise.
MERCHANDISE STRATEGY AND MIX
Strong vendor partnering has enabled management to leverage a large portion
of the Company's inventory through consignment arrangements, resulting in
dominant assortments of quality jewelry. A talented team of merchandise buyers
with expertise in jewelry manufacturing has been assembled to allow the Company
to not only buy a product, but also to also focus on developing product
4
<PAGE> 5
solutions that meet specific competitive opportunities created by consumer
demand. As a result, the Company's stores offer exceptional selection and
excellent values that enhance its ability to offer a better value to the
customer and, thereby, capture a larger market share.
The Company has repositioned its merchandise assortments to appeal to the
mainstream jewelry consumer. Improved price points, updated styling and an
expanded selection in high volume product categories such as bridal, diamond
fashion and gold have been the primary focus of the new merchandising strategy.
INVENTORY PURCHASING
Buyers based in the Company's corporate offices purchase most of the stores'
merchandise. Each store's inventory is replenished weekly or more often during
peak selling seasons. Management believes that centralized merchandise
purchasing provides the Company with quality controls and price advantages.
Three vendors collectively have accounted for 31%, 27%, and 25% of
merchandise purchases by the Company during Fiscal 1999, 1998 and 1997,
respectively. Management believes that the Company's relationship with these
three vendors, as well as its other vendors, is good. These vendors, and all
vendors key to the Company's new merchandising strategy, have agreed to
consignment agreements with Samuels.
SUPPLY AND PRICE FLUCTUATIONS
The world supply and price of diamonds are influenced considerably by the
Central Selling Organization ("CSO"), which is the marketing arm of DeBeers
Consolidated Mines, Ltd. ("DeBeers"), a South African company. Through the CSO,
over the past several years, DeBeers has supplied approximately 80% of the world
demand for rough diamonds, selling to gem cutters and polishers at controlled
prices.
The continued availability of diamonds to the Company's suppliers is
dependent, to a material degree, upon the political and economic situation in
South Africa. While several other countries, including Australia, the
Commonwealth of Independent States, Zaire, Angola, Tanzania and Sierra Leone are
suppliers of diamonds, the Company cannot predict with any certainty the effect
on the overall supply or price of diamonds in the event of an interruption of
supplies from South Africa, the CSO or DeBeers.
The Company is subject to other supply risks, including fluctuations in the
price of precious gems and metals. The Company presently does not engage in any
hedging activity with respect to possible fluctuations in the price of these
items. If such fluctuations should be unusually large or rapid and result in
prolonged higher or lower prices, there is no assurance that the necessary
retail price adjustments will be made quickly enough to prevent the Company from
being adversely affected.
TRADE NAMES
As of August 31, 1999, the Company operated 122 stores under the following
trade names: "Samuels", "Schubach", "Hatfield", "Harts", "Mission",
"Silverman's" and "Samuels Diamonds". See "Notes to Financial Statements - Note
11 Subsequent Events Acquisition of Silverman's and New Store Commitments." The
Company intends to change the names under which all of its stores operate to
"Samuels Jewelers" or "Samuels Diamonds" over the next two to three years.
STORE PERFORMANCE
The following table sets forth selected data with respect to the Company's
operations for the last five fiscal years:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of stores at beginning of year ............ 117 130 161 162 144
Acquired during the year ...................... 5 -- -- -- 15
Opened during the year ........................ 2 -- 17 7 8
Closed during the year(1) ..................... (8) (13) (48) (8) (5)
------ ------ ------ ------ ------
Total at year end ..................... 116 117 130 161 162
====== ====== ====== ====== ======
Percentage increase (decrease) in sales of ....... 2.0% 9.2% (10.0)% 2.2% 11.0%
Comparable stores(2)
Average sales per comparable store (in
Thousands)(2) ................................. $ 968 $ 951 $ 709 $ 905 $ 871
</TABLE>
5
<PAGE> 6
- ----------
(1) The 48 stores closed during Fiscal 1997 are composed of 33 stores closed on
or about May 11, 1997, as part of the Company's Chapter 11 Petition filing;
11 stores closed in connection with the restructuring, announced in January
1997, and 4 other stores closed during the year.
(2) Comparable stores are stores that were open for all of the current and
preceding year.
CREDIT PROGRAM
The Company's credit policy is intended to complement its overall sales
strategy. The principal objective is the extension of credit to those customers
who will produce the most reasonable rate of return. The Company also offers
credit insurance to its customers. This insurance program, underwritten by a
major insurance company, generally provides coverage for life, disability,
unemployment and loss of property.
Charges, net of down payments, under the Company's credit program accounted
for approximately 49.5% of Fiscal 1999 sales and 54.3% of Fiscal 1998 sales. The
decline in credit sales mix is attributable to management's policy of tightening
credit-granting standards offset by a merchandising and marketing strategy
designed to attract a more affluent customer. Payment periods for the credit
sales generally range from 24 to 36 months. Customers may also purchase jewelry
for cash and by using major national credit cards.
On July 20, 1999, the Company entered agreements with ADS to sell its
existing credit card accounts and to provide a third party credit card program
for the benefit of the Company's customers. The transactions set out in the
agreements were effected on August 30, 1999. See "Notes to Financial Statements
- - Note 11 Subsequent Events Sale of Credit Portfolio to Alliance Data Systems".
The Company does not expect a significant change in the credit policies offered
to its customers under the agreement with ADS.
SEASONALITY
Sales during the Christmas season, which includes the period from the day
following Thanksgiving Day to December 31, generally account for approximately
25% of the Company's annual net sales and all or nearly all of its annual
earnings. The success of the Company is heavily dependent each year on its
Christmas selling season, which in turn depends on many factors beyond the
Company's control, including the general business environment and competition in
the industry. The Company had net sales of $30.2 million during the Christmas
1998 selling season.
The Company also relies heavily on sales during other annual holidays and
special events. Although the Company's success on an annual basis does not
depend as heavily on the sales during these times as it does during the
Christmas season, unusually slow sales activity during these times will have an
impact on any projections for the Company's annual net sales.
COMPETITION
The retail jewelry industry is highly competitive. It is estimated that
there are approximately 35,000 retail jewelry stores in the United States, most
of which are independently operated and not part of a major chain. Numerous
companies, including publicly and privately held independent stores and small
chains, department stores, catalog showrooms, direct mail suppliers, and TV
shopping networks, provide competition on a national and regional basis. The
malls and shopping centers where many of the Company's stores are located
typically contain several other national chain or independent jewelry stores, as
well as one or more jewelry departments located in the "anchor" department
stores. Certain of the Company's competitors are substantially larger than the
Company and have greater financial resources.
Management believes that the primary elements of competition in the retail
jewelry business are quality of personnel, level of customer service, value of
merchandise offered, store location and design and credit terms. Management
believes that the Company's predecessor was unable to compete successfully in
prior years because of its failed merchandising programs, poor credit
underwriting practices, cash flow constraints, excessive collection costs, poor
inventory controls, executive turnover, restrictive financing arrangements,
ineffective investment in technology and the resultant excessive administrative
costs. In addition, the Company believes that, as the jewelry retailing industry
consolidates, the ability to compete effectively may become increasingly
dependent on volume purchasing capability, regional market focus, superior
management information systems, and the ability to provide customer service
through trained and knowledgeable sales staffs. Additionally, the competitive
environment is often affected by factors beyond a particular retailer's control,
such as shifts in consumer preferences, economic conditions, population and
traffic patterns.
6
<PAGE> 7
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field without considering the
impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000 and beyond.
The Company relies on its computer system, applications and devices in
operating and monitoring all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll modules), customer
services, infrastructure, embedded computer chips, networks, telecommunications
equipment and end products.
The Company has obtained a new integrated management information system that
includes a system processor and operating system, applications software, point
of sale hardware and additional microcomputers. The year 2000 issue was
addressed during the planning process, and all new system technology is believed
to be year 2000 compliant.
Through May 1999, the Company had spent approximately $3.5 million, with
$1.2 million of this amount for new hardware and $2.3 million for new software
on all projects to insure the Company meets all requirements to be year 2000
compliant. All of the internal operating systems the Company currently uses are
believed to be year 2000 compliant.
The Company also relies, directly and indirectly, on external systems of
business enterprises such as suppliers, creditors and financial organizations,
and of government entities, for accurate exchange of data. The Company has
received assurances from most of the parties with which it interacts that their
systems are currently year 2000 compliant or will be year 2000 compliant by
December 31, 1999. We have no assurances that their representations are correct,
and although the year 2000 issue may not materially affect the Company's
internal systems, it possibly could be affected through disruptions in the
operations of the parties with which it interacts.
Therefore, despite the Company's efforts to address the year 2000 impact on
its internal systems and business operations, there can be no assurance that
such impact will not result in a material disruption of its business or have a
material adverse effect on its business, financial condition, or results of
operations.
EMPLOYEES
At May 29, 1999, the Company had approximately 1,200 full-time and part-time
employees. Unions represented approximately 26 employees, or 2.2% of the
Company's employees, at such date. On December 31, 1998, the Company modified
and extended its existing union contract covering these employees, which expires
on January 31, 2000. The Company believes it provides working conditions and
wages that compare favorably with those offered by other retailers in the
industry and that its employee relations are good. The Company has not
experienced material labor unrest, disruption of operations or strikes.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements included in this annual report regarding future financial
performance and results of operations and other statements that are not
historical facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Statements to the effect that the Company or its management
"anticipates," "believes," "estimates," "expects," "intends," "plans,"
"predicts," or "projects" a particular result or course of events, or that such
result or course of events "may" or "should" occur, and similar expressions, are
also intended to identify forward-looking statements. Such statements are
subject to numerous risks, uncertainties and assumptions, including but not
limited to, the risk of losses and cash flow constraints despite the Company's
efforts to improve operations. Should these risks or uncertainties materialize,
or should the underlying assumptions prove incorrect, actual results may vary
materially from those indicated.
ITEM 2. PROPERTIES
The Company leases all of its retail stores. The stores range in size from
approximately 428 square feet to 3,690 square feet. The leases generally have an
initial term of five to fifteen years and are scheduled to expire at various
dates through 2010. Currently, leases at 7 stores have expired and these stores
are being occupied on a month-to-month basis. Some of the leases contain renewal
options for periods ranging from five to ten years on substantially the same
terms and conditions as the initial lease. Under most of the store leases, the
Company is required to pay taxes, insurance, and its pro rata share of common
area and maintenance expenses. The leases also usually require the Company to
pay the greater of a specified minimum rent or a contingent rent based on a
percentage of sales as set forth in the respective lease.
7
<PAGE> 8
During April 1999, the Company entered into separate purchase agreements for
the purchase of the leasehold interests, and properties related thereto, of five
stores from Hart's Diamond Jewelers. The five stores are located in Colorado.
The Company leases its headquarters in Austin, Texas. The lease for its
headquarters contains the following substantive terms: (a) approximately 24,000
square feet, with rent of $0.47 per square foot per month on a triple net basis;
and (b) a term of five years, with an option to renew for one additional five
year term at the average monthly net rental rate charged for comparable
premises. The Company also leases space in Irwindale, California, for its credit
center. Consistent with the company's outsourcing of its credit operations to
ADS, the Company has notified the landlord that it will terminate the lease on
the Irwindale facility in October 1999 in accordance with an early termination
provision of that lease.
As of August 31, 1999, the Company was operating 123 retail stores in the
following states:
<TABLE>
<CAPTION>
NUMBER OF
STATE STORES
- ------------------------------ ------------
<S> <C>
California ................... 31
Texas ........................ 31
Colorado ..................... 10
Utah ......................... 8
Arizona ...................... 5
Idaho ........................ 5
Montana ...................... 5
Indiana ...................... 4
North Carolina ............... 4
Others ....................... 20
------------
TOTAL ........................ 123
============
</TABLE>
The Company owns substantially all of the equipment used in its retail
stores and corporate headquarters.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in legal proceedings of a
character normally incident to its business. The Company believes that its
potential liability in any such pending or threatened proceedings, either
individually or in the aggregate, will not have a material effect on the
financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the quarter ended May 29, 1999.
8
<PAGE> 9
EXECUTIVE OFFICERS
The following individuals currently serve as the Company's executive
officers. Officers are elected by the board of directors each to serve until
their successor is elected and qualified, or until their earlier resignation or
removal from office or death.
Executive Officers
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Randy N. McCullough 47 President, Chief Executive Officer and Director
E. Peter Healey 46 Executive Vice President, Chief Financial Officer, Secretary,
Treasurer and Director
Bill R. Edgel 33 Senior Vice President - Merchandising and Marketing
Chad Haggar 35 Senior Vice President - Operations
Paul W. Hart 41 Senior Vice President - Management Information Systems
Robert J. Herman 38 Vice President, Controller and Assistant Secretary
</TABLE>
Set forth below is biographical information for each executive officer.
Randy N. McCullough, 47, has been a Director of the Company since September
22, 1998. Mr. McCullough has been the Company's President and Chief Executive
Officer since its inception on August 20, 1998 and previously served in that
capacity for the Predecessor Company since March 31, 1998. Mr. McCullough served
as the Predecessor Company's Executive Vice President and Chief Operating
Officer from January to March 1998. Mr. McCullough joined the Predecessor
Company in April 1997 and was its Senior Vice President-Merchandise from April
1997 to March 1998. Prior to joining the Predecessor Company, Mr. McCullough
served as President of Silverman's Factory 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.
E. Peter Healey, 46, has been a Director of the Company since September 22,
1998. Mr. Healey has served as the Company's Executive Vice President, Chief
Financial Officer, Secretary and Treasurer since its inception on August 20,
1998 and previously served in that capacity for the Predecessor Company 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.
Bill R. Edgel, 33, has been the Company's Senior Vice President -
Merchandising and Marketing since October 2, 1998 and previously served the
Predecessor Company as Vice President of Marketing since February 1997. Prior to
joining the Predecessor Company, Mr. Edgel served as Director of Credit
Marketing of Macy's West, a division of Federated Department Stores, from 1996
to 1997. From 1995 to 1996, Mr. Edgel served as Director of Marketing for
Merksamer Jewelers, Inc. from 1993 to 1995.
Chad C. Haggar, 35, has been the Company's Senior Vice President -
Operations since October 2, 1998 and previously served as Vice President -
Operations for the Predecessor Company since February 1997. Prior to joining the
Predecessor Company, Mr. Haggar served as Director of Stores of Fred Meyer, Inc.
from 1996 to 1997. From 1987 to 1996, Mr. Haggar served as Regional Manager of
Merksamer Jewelers, Inc. Prior to 1987 Mr. Haggar served in various management
positions, with leading jewelry chains, for over six years.
Paul W. Hart, 41, has been the Company's Senior Vice President - Management
Information Systems since October 2, 1998 and previously served in that capacity
for the Predecessor Company since August 1997. Prior to joining the Predecessor
Company, Mr. Hart served as Vice President - Management Information Systems of
MS Financial, Inc. From 1974 to 1995, Mr. Hart was employed by Zale Corporation,
serving as Director of Credit Systems from 1994 to 1995, and as its Manager of
Business Systems Planning and Support from 1988 to 1994.
Robert J. Herman, 38, has been the Company's Vice President, Controller and
Assistant Secretary since October 2, 1998 and previously served in that capacity
for the Predecessor Company since February 2, 1998. Prior to joining Barry's,
Mr. Herman served as the Controller for Datamark, Inc. from 1997 to February
1998. From 1994 to 1997, Mr. Herman served as the Controller for Silverman's
Factory Jewelers. From 1987 to 1994, Mr. Herman was employed by Sunbelt Nursery
Group, Inc., serving as its Controller from 1991 to 1994.
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock, par value $.001 per share ("Common Stock"),
began trading after the effective date of the Reorganization under the symbol
"SMJW". Less than one year of trading history of the Common Stock is available.
A graphical comparison of its predecessor's Common Stock against the market and
the predecessor's industry prior to the effective date is available in Barry's
1998 Form 10-K/A.
The Company's warrants are traded under the symbol "SMJWW".
The following table sets forth the high and low, per share closing prices of
the Company's new Common Stock since October 2, 1998.
<TABLE>
<CAPTION>
High Low
---------- ----------
<S> <C> <C>
Second quarter .......... $ 5.000 $ 3.875
Third quarter ........... $ 6.500 $ 4.375
Fourth quarter .......... $ 4.750 $ 3.500
</TABLE>
HOLDERS
Management believes that as of May 29, 1999 there are approximately 650
beneficial owners of its Common Stock.
DIVIDENDS
Under the Company's current working capital facility, with certain lenders
party thereto and Foothill Capital Corporation as agent and a lender, the
Company is prohibited from paying dividends. See "Notes to Financial Statements
- - Note 6 Notes Payable."
The Company did not pay any dividends during Fiscal 1999 and intends to
retain its earnings to provide funds for reinvestment in the Company's business,
and therefore, does not anticipate declaring or paying cash dividends in the
foreseeable future. Payment of dividends is subject to the then existing
business conditions and the business results, cash requirements and financial
condition of the Company, and will be at the discretion of the Company's Board
of Directors.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company and
the Predecessor Company, as of and for each of the four fiscal years ended May
1998 and for the four months ended October 2, 1998 and the eight months ended
May 29, 1999. The data should be read in conjunction with the financial
statements, related notes and other financial information included herein.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Successor Predecessor
Eight Months Four Months
Ended Ended Predecessor For the Fiscal Years Ended May
May 29, October 2, --------------------------------------------------------
1999 1998 1998 1997 1996 1995
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales ............................ $ 81,043 $ 27,494 $ 113,873 $ 130,446 $ 140,145 $ 136,055
Finance and credit insurance fees .... 6,517 3,397 11,316 13,900 16,008 15,681
----------- ----------- ----------- ----------- ----------- -----------
87,560 30,831 125,189 144,346 156,153 151,736
----------- ----------- ----------- ----------- ----------- -----------
Operating (loss) income(1) ........... 128 (2,672) (4,009) (29,741) 8,651 11,670
----------- ----------- ----------- ----------- ----------- -----------
Interest expense, net ................ 2,202 2,367 7,025 12,745 11,146 9,764
Reorganization items(2) .............. 400 (61,605) 11,134 2,322 -- --
Provision for income taxes ........... -- -- -- 284 288 --
----------- ----------- ----------- ----------- ----------- -----------
(Loss) income before extraordinary
item .............................. (2,474) 56,566 (22,168) (45,092) (2,783) 1,906
Extraordinary item(3) ................ -- 11,545 -- (876) -- --
----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income .................... $ (2,474) $ 68,111 $ (22,168) $ (45,968) $ (2,783) $ 1,906
=========== =========== =========== =========== =========== ===========
Basic and Diluted Per Share
Data:(4)
(Loss) income before extraordinary
item .............................. $ (0.49) $ 11.31 $ (5.50) $ (11.25) $ (0.70) $ 0.48
=========== =========== =========== =========== =========== ===========
Extraordinary item(3) ................ $ -- $ 2.31 $ -- $ (0.22) $ -- $ --
=========== =========== =========== =========== =========== ===========
Net (loss) income .................... $ (0.49) $ 13.62 $ (5.50) $ (11.47) $ (0.70) $ 0.48
=========== =========== =========== =========== =========== ===========
Weighted average number of common
shares outstanding ................. 5,002 5,002 4,029 4,007 3,978 3,969
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Current assets .......... $ 80,445 $ 95,939 $ 105,390 $ 127,075 $ 127,208
Working capital ......... 9,091 77,155 99,482 117,819 109,873
Total assets ............ 115,209 110,732 123,483 145,875 144,959
Total debt(5) ........... 45,893 126,812 130,271 103,579 92,368
</TABLE>
- ----------
(1) Operating (loss) income for the fiscal year ended May 31, 1997, includes
$1,336 of restructuring expenses primarily related to severance and costs
associated with 11 stores closed during the fiscal year. Operating (loss)
income for the fiscal year ended May 31, 1997, includes $3,947 for
impairment loss, and $3,033 for inventory valuation.
(2) Reorganization costs for the eight months ended May 29, 1999, include a
Fresh-start reporting income adjustment of $66,042. Other amounts consist
primarily of professional fees and other costs directly related to the
Company's Reorganization. See "Notes to Financial Statements - Note 10
Reorganization Costs."
(3) The year ended May 31, 1997 includes an extraordinary loss of $876 or $0.22
per share, incurred in connection with the early extinguishment of the
Company's Securitization Facility. The four months ended October 2, 1998
included an extraordinary gain of $11,545 or $2.31 per share incurred in
connection with the forgiveness of debt as a part of the Company's
Reorganization.
(4) Net income (loss) per share and weighted average number of common shares
outstanding for the Predecessor Company are not comparable to the Successor
Company due to the Reorganization and implementation of Fresh Start
Reporting.
(5) As of May 30, 1998 and May 31, 1997, total debt includes liabilities subject
to compromise under reorganization proceedings.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With respect to Management's Discussion and Analysis of Financial
Conditional and Results of Operations, see "Item 1 Cautionary Notice Regarding
Forward Looking Statements."
The Twelve Month Period Ended May 29, 1999 ("Fiscal 1999")(combining both the
predecessor and successor companies) Compared With Fiscal Year Ended May 31,
1998 ("Fiscal 1998")
STORE ACTIVITY
The following table sets forth selected data with respect to the Company's
operations for the last two fiscal years:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Number of stores at beginning of year .......... 117 130
Acquired during the year ..................... 5 --
Opened during the year ....................... 2 --
Closed during the year ....................... (8) (13)
------- -------
Total at year end .................... 116 117
======= =======
Percentage increase (decrease) in sales of ..... 2.0% 9.2%
Comparable stores
Average sales per comparable store (in
Thousands) ................................... $ 968 $ 951
</TABLE>
Of the eight stores closed during Fiscal 1999, five were closed during the
second quarter, prior to the Christmas selling season, two immediately
thereafter and the final store during the third quarter. The Company also opened
two new stores during the second quarter. The five stores acquired by the
Company all began operation during the last two months of the fiscal year. Of
the thirteen store closed during Fiscal 1998, two were closed during the first
quarter, prior to the Christmas selling season, three late in the third quarter
and eight in the fourth quarter.
The activity reflected above resulted in 5,932 and 6,576 equivalent store
weeks for Fiscal 1999 and 1998, respectively.
RESULTS OF OPERATIONS
Net sales for Fiscal 1999, were $108.5 million as compared to $113.9 million
for the previous year. This decrease of $5.4 million, or 4.7%, resulted
primarily from a 9.8% decrease in equivalent store weeks from Fiscal 1998 to
Fiscal 1999 offset by a 5.7% increase in equivalent store week average volume.
Sales at comparable stores, those open for all of the current and proceeding
year, increased by 2.0% from $103.5 million to $105.5 million. This increase of
2.0% in average comparable store volumes was a result of a continuation of the
upgrading of merchandise offered and marketing efforts to appeal to a better
customer and drive sales during traditionally slow periods, partially offset by
the temporary negative impact of the company's remodeling and name change
program during the second and third quarters. Throughout the fiscal year the
Company has continued to upgrade the quality of its merchandise as well as
offering an expanded assortment of higher ticket price merchandise. The Company
has also continued to refine its marketing efforts, targeting a more mature,
financially sound customer, with more discretionary spending ability. The
Company also held special promotional events to drive additional sales during
the traditionally slower periods of the year. During the current year comparable
store sales were negatively impacted in the second quarter as the Company began
a major remodeling and name change campaign that resulted in the temporary
closure or relocation of approximately 18 stores. These remodels and name
changes were completed early in the third quarter and these 18 stores showed
average sales increases during the third quarter which more than offset the
impact in the second quarter. The increase was offset somewhat by reduced credit
sales (representing 49.5% of sales in the current year as compared to 54.3% in
the prior year) which resulted from continued changes in credit underwriting
criteria and marketing efforts designed to lessen the Company's reliance on
credit sales, reduce charge offs and build a portfolio consisting of more
creditworthy customers.
Finance and credit insurance fees decreased from $11.3 million in Fiscal
1998 to $9.9 million in Fiscal 1999. This decrease of $1.4 million, or 12.4%,
was primarily due to the decrease in average outstanding customer receivables
resulting from the closing of almost 70 stores over the last 3 years, changes in
credit underwriting criteria, and lower reliance on credit to generate sales,
somewhat offset by an increase in average account balance as a result of
marketing efforts to appeal to a more affluent customer who buys higher priced
merchandise.
12
<PAGE> 13
Cost of goods sold, buying and occupancy expenses were 65.7% of sales in
Fiscal 1999 compared to 66.4% of sales in Fiscal 1998. Excluding amortization of
the Company's reorganization value in excess of amounts allocated to
identifiable assets of $1.2 million cost of goods sold, buying and occupancy
expenses this year was 64.6% of sales. The reduction in cost of goods sold,
buying and occupancy expenses resulted primarily from improved merchandise
margins and savings in occupancy expense due to the closing of relatively high
rent stores and the relocation and downsizing of the Company's headquarters.
Selling, general and administrative expenses were $44.2 million, a decrease
of $2.8 million, or 6.0% from the prior year. Selling, general and
administrative expenses decreased as a percentage of net sales to 40.7% in
Fiscal 1999 from 41.3% in Fiscal 1998. This improvement resulted from sales
efficiencies as well as some improvements in the efficiency of the structure of
the company but was offset somewhat by some fixed expenses being spread over a
smaller sales base.
The provision for doubtful accounts was $5.5 million for Fiscal 1999. This
was a decrease of $1.1 million, or 16.7% from $6.6 million for Fiscal 1998. The
provision was approximately 10.2% and 10.6%, of net credit sales for Fiscal 1999
and Fiscal 1998, respectively. The decrease in the provision was primarily due
to closed stores, which had generated less creditworthy customer receivables, as
well as the reduction in the percentage of credit sales to total sales from the
continuing effects of changes in credit underwriting and marketing efforts to
reduce reliance on credit to effect sales by targeting a more creditworthy
customer.
Net interest expense was $4.6 million for Fiscal 1999, a decrease of $2.4
million, or 34.3% from $7.0 million for Fiscal 1998. The decrease was due
partially to interest associated with the Company's Senior Secured Notes, which
was accrued during Fiscal 1998 but was not accrued during Fiscal 1999 (in
accordance with SOP 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code") because such interest was not allowed under the
Company's Plan of Reorganization. Upon completion of the Reorganization the
amounts outstanding under the respective revolving lines of credit were reduced
by an average of over $10 million. The Company also entered into a new financing
agreement on October 2, 1998, which resulted in reduced amounts outstanding as
well as a lower rate of interest on amounts outstanding after October 2, 1998.
Reorganization costs consist primarily of professional fees directly related
to the Chapter 11 filing and the grant of stock to management as part of the
Reorganization, offset by interest earned on accumulated cash during the
pendency of the Chapter 11 filing.
TAX LOSS CARRYFORWARDS
During 1999, the Company's net operating losses were reduced by
approximately $49 million as a result of debt discharge income. Pursuant to IRC
382 (1)(5), the Company's NOL's were further reduced by $27 million. At May 29,
1999, the Company had a net operating loss carryforward for federal income tax
purposes of $36 million. The remaining carryforward is not subject to any annual
limitation on its use. In the event of more than a 50% change in ownership of
the Company prior to October 2, 2000, the annual limitation on the use of the
losses will be zero. These losses begin to expire in 2012. In addition, the
Company has AMT credit carryforwards of $109. These credits do not expire. The
Company maintains a valuation allowance against the net deferred tax assets,
which in Management's opinion reflects the net deferred tax asset that is more
likely than not to be realized.
Fiscal Year Ended May 30, 1998 ("Fiscal 1998") Compared With Fiscal Year Ended
May 31, 1997 ("Fiscal 1997")
Net sales for Fiscal 1998 were $113.9 million, a decrease of $16.5 million,
or 12.7%, from net sales of $130.4 million for Fiscal 1997. This decrease
resulted primarily from the closure of 13 stores in Fiscal 1998 and 33 stores in
May 1997 offset by an increase in comparable store sales (those open in both the
current and preceding year). Comparable store sales increased by $8.6 million,
or 9.2% from Fiscal 1997 to Fiscal 1998. This increase resulted from improved
merchandise offerings and improved marketing but was offset by the reduction of
credit sales caused by changes in credit granting standards.
Finance and credit insurance fees decreased from $13.9 million in Fiscal
1997 to $11.3 million in Fiscal 1998. This decrease of $2.6 million, or 18.7%,
was primarily due to the decrease in average outstanding customer receivables
resulting from store closures, changes in credit underwriting criteria, and
lower reliance on credit to generate sales.
Cost of goods sold, buying and occupancy expenses were 66.4% of sales in
Fiscal 1998 compared to 71.3% of sales in Fiscal 1997. The increase in gross
margin resulted from the sale of fresher merchandise purchased during Fiscal
1998 under the new merchandising strategy, (which allowed for a reduction in
competitive discounting) and a reduction in the inventory shrink percentage. In
connection with the change in merchandising strategy developed by the Company's
new management team, an inventory valuation reserve of $3.0
13
<PAGE> 14
million was established as of May 31, 1997. The inventory valuation reserve was
$2.2 million at May 30, 1998. The reduction of the inventory valuation reserve
is the result of sales of merchandise below cost to reposition the Company's
merchandise selection.
Selling, general and administrative expenses were $47.0 million, a decrease
of $10.0 million, or 17.5% from the prior year, primarily due to decreases in
advertising expenses, professional services, shipping expenses, credit
department expenses, payroll expense and other store related expenses. Selling,
general and administrative expenses decreased as a percentage of net sales to
41.3% in Fiscal 1998 from 43.7% in Fiscal 1997. The decrease as a percentage of
net sales is attributable primarily to the decrease in marketing expense and
efficiencies in the Company's credit department.
The provision for doubtful accounts was $6.6 million, a decrease of $12.2
million from the prior year. The provision for doubtful accounts was
approximately 5.8% and 14.4% of net sales for Fiscal 1998 and 1997,
respectively. The decrease is primarily due to improvement in the performance of
the Company's credit portfolio and changes in credit underwriting criteria.
Additionally, in May 1997, the Company closed 33 stores. These store closures
required an increase in the provision for doubtful accounts for Fiscal 1997.
Interest expense was $7.0 million, a decrease of $5.7 million from the prior
year. As indicated in the Plan, the Senior Secured Notes will be exchanged for
common stock in the new reorganized company. Accordingly, and in accordance with
SOP 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy
Code" interest expense of $6.0 million on these notes was not recorded because
management believes that it is unlikely that such interest will be paid and
because the accrued interest on the Senior Secured Notes will not become an
allowed claim.
The Company recorded $11.1 million of reorganization costs in Fiscal 1998.
The reorganization costs primarily include professional fees, losses on the
disposal of property and equipment related to 13 store closures and the closure
of the Company's former headquarters in Monrovia, California, adjustments to
pre-petition unsecured liabilities, provision for lease rejection claims and
employee costs related to the Chapter 11 filing. The above expenses are offset
by interest earned on accumulated cash resulting from the Chapter 11 filing.
FINANCIAL CONDITION
CREDIT PROGRAM
The Company offers its merchandise sales on credit terms to qualified
customers. The Company's credit policies establish monthly payments such that
the payment of the credit balance will occur, generally, over a period ranging
from 24 to 36 months. The Company's customer receivables are revolving charge
accounts. The Company currently collects (and has historically collected)
approximately 10% of its customer receivable balances each month. Sales under
the Company's credit program accounted for approximately 49.5% of Fiscal 1999
sales, net of down payments compared to 54.3% for Fiscal 1998. As of May 29,
1999 and May 30, 1998, the aggregate customer receivables balances were $50.2
million and $55.2 million, respectively. Aggregate credit collections during the
fiscal year ended May 29, 1999 were $62.3 million.
See "Note 11 Subsequent Events - Sale of Credit Portfolio to Alliance Data
Systems."
INVENTORY
At May 29, 1999, owned inventory was approximately $32.7 million, an
increase of approximately $5.7 million (net of a Fresh-start reporting
adjustment of $5.1 million) from May 30, 1998. This increase is a result of the
Company implementing a new merchandise assortment plan, designed to target a
more mature, financially sound customer, with more discretionary spending
ability. The Company has recently implemented programs to liquidate additional
aged merchandise that it feels no longer fits its assortment.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Upon emergence from Chapter 11 bankruptcy proceedings the DIP Financing
Agreement with Bank Boston was paid off, see "Financing Transactions." In
addition, settlement of claims was commenced and new common stock and warrants
were issued, see "Item 1.
Business - The Company."
The Company's operations require working capital to fund the purchase of
inventory, carry its accounts receivable, make lease payments, and the funding
of normal operating expenses. The seasonality of the Company's business requires
a significant build-up of inventory for the Christmas holiday selling period.
These seasonal inventory needs generally must be funded during the late summer
14
<PAGE> 15
and fall months because of the necessary lead-time to obtain additional
inventory. Additionally, the heavy holiday selling period leads to a seasonal
build-up of customer receivables that must be funded during the winter and
spring months. See "Notes to Financial Statements - Note 11 Subsequent Events
Sale of Credit Portfolio to Alliance Data Systems.
The Company enters into consignment inventory agreements with its key
vendors in the ordinary course of business. During Fiscal 1999, consignment
inventory on hand ranged from $30 to $38 million. These amounts are excluded
from the merchandise inventory balance in the financial statements.
The Company reported cash flows used in operating activities of
approximately $11.1 million for Fiscal 1999, as compared to cash flows provided
by operating activities of $15.1 million for Fiscal 1998 and $8.3 million for
Fiscal 1997. Cash used in operating activities for Fiscal 1999 resulted
primarily from a $10.7 million increase in inventories (an increase of
approximately $5.6 million net of a Fresh-Start Reporting adjustment of $5.1
million) (see "Inventory"), offset by an increase of $3.1 million in trade
accounts payable.
In addition, the Company requires working capital to fund capital
expenditures. Capital expenditures for Fiscal 1999, 1998 and 1997, were $9.1
million, $3.0 million, and $7.2 million, respectively. Expenditures in Fiscal
1999 were made primarily in connection with computer equipment associated with
the Company's new merchandise and financial systems, leasehold improvements
associated with remodeling of nineteen stores, the build out of the Company's
new headquarters, the opening of two new stores and the acquisition of five
stores.
The Company made net repayments of $12.0 million under its revolving credit
facility including $11.4 million upon emergence from bankruptcy proceedings, and
received $15.0 million for the issuance of new stock.
FINANCING TRANSACTIONS
To replace the DIP Financing agreement and to provide for longer term
financing on October 2, 1998, the Company entered into a three year, $50.0
million financing agreement with Foothill Capital Corporation as a lender and as
agent for a lender group (the "Lenders"). The lenders will make revolving
advances to the Company in amounts determined based on percentages of eligible
accounts receivable and inventory. The annual rate of interest will be, at the
Company's option, (i) 2.25% per annum over the Eurodollar rate or (ii) 0.5% per
annum over the bank's prime rate, provided, however, that in no event will the
applicable interest rate on any advance be less than 7% per annum. Interest
charges are payable monthly. Upon the occurrence and during the continuation of
any event of default under the financing agreement, all obligations will bear
interest at a per annum rate equal to three percentage points above the
otherwise applicable interest rate. As collateral for any and all obligations to
the lenders under the financing agreement, the Company granted a first priority
perfected security interest in and to substantially all of its owned or
thereafter acquired assets, both tangible and intangible. The financing
agreement contains quarterly covenants which include its meeting a minimum level
of tangible net worth and prohibits the payment of dividends. The Company
entered into Amendment Number One to the Loan and Security Agreement with the
Lenders on April 15, 1999. The amendments under this Amendment Number One
adjusted some of the covenants required of the Company under this financing
agreement.
As of May 29, 1999, the Company had direct borrowings of $45.9 million
outstanding with additional credit available of approximately $4.1 million. As
of May 29, 1999, the Company was in compliance with all terms of the financing
agreement. See "Notes to Financial Statements - Note 11 Subsequent Events
Amendment of Financing Agreement with Foothill."
INFLATION
The impact of inflation on the cost of merchandise (including gems and
metals), labor, occupancy and other operating costs can affect the Company's
results. For example, most of the Company's leases require the Company to pay
rent, taxes, maintenance, insurance, repairs and utility costs, all of which are
subject to inflationary pressures. To the extent permitted by competition, in
general the Company passes increased costs to the customer by increasing sales
prices over time.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to market risk in the form of interest rate risk. At
May 29, 1999, the Company had $45.9 million outstanding under its revolving line
of credit. This revolving line is priced with a variable rate based on LIBOR or
a base rate, plus, in each case an applicable margin. See "Note 6 Notes
Payable". An increase or decrease in interest rates would affect the interest
costs
15
<PAGE> 16
relating this revolving line of credit. The Company has no interest rate swaps
or other hedging facilities relating to its revolving line of credit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedule of the Company and
the report of independent auditors are listed at Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 17
PART III
ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, ETC.
The information contained in the Company's definitive Proxy Statement
relating to its 1999 Annual Meeting of Shareholders, which will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934 within 120 days of May 29, 1999, with respect to
Directors of the Registrant (Item 10), Executive Compensation (Item 11),
Security Ownership of Certain Beneficial Owners and Management (Item 12), and
Certain Relationships and Related Transactions (Item 13), are incorporated
herein by reference in response to such items of Form 10-K. The information
required by Item 10 with respect to executive officers is included in Part 4
under the caption "Executive Officers."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. FINANCIAL STATEMENTS
The following are included herein under Item 8:
Financial Statements, Financial Statement Schedules and Exhibits
Independent Auditors' Report -- Deloitte & Touche LLP
Balance Sheets for the Successor Company as of May 29, 1999 and the
Predecessor Company as of May 30, 1998
Statements of Operations for the Successor Company for the eight months
ended May 29, 1999, and the Predecessor Company for the four month Period
ended October 2, 1998 and the years ended May 30, 1998 and May 31, 1997
Statements of Stockholders' Equity (Deficiency) for the three years ended
May 29, 1999
Statements of Cash Flows for the Successor Company for the eight months
ended May 29, 1999 and the Predecessor Company for the four months ended
October 2, 1998 and the years ended May 30, 1998 and May 31, 1997
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
II. Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is included in the Financial Statements or notes thereto.
17
<PAGE> 18
3. EXHIBITS
Exhibit No. Exhibit
2.1 Order Confirming Original Disclosure Statement and Plan of
Reorganization, Dated April 30, 1998, Proposed by Barry's
Jewelers, Inc., as modified, dated September 16, 1998 (with
Plan attached).(1)
2.2 Certificate of Ownership and Merger of Barry's Jewelers,
Inc. with and into Samuels Jewelers, Inc. dated October 2,
1998.(1)
3.1 Certificate of Incorporation of Samuels Jewelers, Inc.(1)
3.2 Bylaws of Samuels Jewelers, Inc.(1)
4.1 Warrant Agreement dated as of October 2, 1998 between the
Company and Norwest Bank Minnesota, N.A., as Warrant
Agent.(1)
4.2 Registration Rights Agreement dated as of October 2, 1998
among the Company, The Galileo Fund, L.P., B III Capital
Partners, L.P., DDJ Overseas Corporation, Paine Webber High
Income Fund, Managed High Yield Fund Inc., All-American
Term Trust Inc. and Paine Webber Offshore Funds PLC, The
High Income Fund.(1)
10.1(a) Loan and Security Agreement dated October 2, 1998, between
the Company and Foothill Capital Corporation, as agent for
certain lenders party thereto.(2)
10.1(b) Amendment Number One to Loan and Security Agreement entered
into as of April 15, 1999, among the Company, Foothill
Capital Corporation and the financial institutions listed
on the signature pages thereto.(3)
10.1(c) Amendment Number Two to Loan and Security Agreement entered
into as of August 30, 1999, among the Company, Foothill
Capital Corporation and the financial institutions listed
on the signature pages thereto, (3)
10.2 Employment Agreement, dated as of October 2, 1998 between
the Company and Randy N. McCullough.(1)
10.3 Employment Agreement, dated as of October 2, 1998 between
the Company and E. Peter Healey.(1)
10.4 Employment Agreement, dated as of October 2, 1998 between
the Company and Chad C. Haggar.(1)
10.5 Employment Agreement, dated as of October 2, 1998 between
the Company and Bill R. Edgel.(1)
10.6 Employment Agreement, dated as of October 2, 1998 between
the Company and Paul Hart.(1)
10.7 Private Label Credit Card Agreement between World Financial
Network National Bank and the Company dated as of July 27,
1999.(3)
10.8 Purchase and Sale Agreement between World Financial Network
National Bank and the Company dated as of July 27, 1999.(3)
23.1 Consent of Independent Auditors.(3)
27.1 Financial Data Schedule.(3)
99.1 Press Release dated October 5, 1998.(1)
- ---------------
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
October 6, 1998.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 29, 1998.
(3) Filed herewith.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Samuels Jewelers, Inc.
September 13, 1999 By: /s/ RANDY N. MCCULLOUGH
------------------------------
Randy N. McCullough
President and Chief
Executive Officer
September 13, 1999 By: /s/ E. PETER HEALEY
------------------------------
E. Peter Healey
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
September 13, 1999 By: /s/ ROBERT J. HERMAN
------------------------------
Robert J. Herman
Vice President and Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID BARR Director September 13, 1999
- ----------------------------------
David Barr
/s/ DAVID J. BREAZZANO Director September 13, 1999
- ----------------------------------
David J. Breazzano
/s/ DAVID H. EISENBERG Director September 13, 1999
- ----------------------------------
David H. Eisenberg
/s/ E. PETER HEALEY Director September 13, 1999
- ----------------------------------
E. Peter Healey
/s/ WENDY LANDON Director September 13, 1999
- ----------------------------------
Wendy Landon
/s/ RANDY N. MCCULLOUGH Director September 13, 1999
- ----------------------------------
Randy N. McCullough
/s/ JERRY WINSTON Director September 13, 1999
- ----------------------------------
Jerry Winston
</TABLE>
19
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Samuels Jewelers, Inc.
Austin, Texas
We have audited the accompanying balance sheets of Samuel's Jewelers, Inc. as of
May 29, 1999 (Successor Company balance sheet) and May 30, 1998 (Predecessor
Company balance sheet), and the related statements of operations, shareholders'
equity (deficiency) and cash flows for the eight months ended May 29, 1999
(Successor Company operations), the four months ended October 2, 1998, and the
years ended May 30, 1998 and May 31, 1997, (Predecessor Company operations).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, on September 16, 1998, the
Bankruptcy Court entered an order confirming the plan of reorganization which
became effective after the close of business on October 2, 1998. Accordingly,
the accompanying financial statements have been prepared in conformity with
AICPA Statement of Position 90-7, "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities, and a capital structure having carrying values
not comparable with prior periods as described in Note 1.
In our opinion, the Successor Company financial statements present fairly, in
all material respects, the financial position of Samuel's Jewelers, Inc. as of
May 29, 1999, and the results of its operations and its cash flows for the eight
months ended May 29, 1999 in conformity with generally accepted accounting
principles. Further, in our opinion, the Predecessor Company financial
statements referred to above present fairly, in all material respects, the
financial position of the Predecessor Company as of May 30, 1998, and the
results of its operations and its cash flows for the four months ended October
2, 1998 and the years ended May 30, 1998 and May 31, 1997 in conformity with
generally accepted accounting principles.
Dallas, Texas
September 10, 1999
20
<PAGE> 21
SAMUELS JEWELERS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS (Notes 1 and 6)
<TABLE>
<CAPTION>
Successor Predecessor
May 29, May 30,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ 1,456 $ 19,301
Customer receivables, net of allowances for doubtful accounts of
$5,120 (1999) and $7,099 (1998) ........................................ 45,098 48,076
Merchandise inventories (Notes 3 and 8) ..................................... 32,684 26,993
Prepaid expenses and other current assets ................................... 1,207 1,569
------------ ------------
Total current assets ........................................................... 80,445 95,939
------------ ------------
Property and equipment: (Note 2)
Leasehold improvements, furniture and fixtures .............................. 15,396 17,824
Computers and equipment ..................................................... 4,334 5,724
------------ ------------
19,730 23,548
Less: accumulated depreciation and amortization ............................. 2,109 10,250
------------ ------------
Net property and equipment .................................................. 17,621 13,298
Other assets ................................................................... 631 1,495
Reorganization value in excess of amounts allocated to identifiable assets,
Net ......................................................................... 16,512 --
------------ ------------
Total assets ................................................................... $ 115,209 $ 110,732
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
(Notes 1 and 6)
Current liabilities:
Notes payable (Note 6) ...................................................... $ 45,893 $ --
Accounts payable - trade .................................................... 12,157 9,086
Other accrued liabilities (Note 4) .......................................... 13,304 9,698
------------ ------------
Total current liabilities ...................................................... 71,354 18,784
Liabilities subject to compromise under reorganization proceedings
(Note 5) ..................................................................... -- 126,812
------------ ------------
Commitments and contingencies (Note 8)
Shareholders' equity (deficiency): (Notes 1 and 9)
Common stock, no par value; authorized 8,000,000 shares; issued and
outstanding, 4,029,372 shares at May 30, 1998 ............................ -- 33,247
Common stock, $.001 par value; authorized 20,000,000 shares; issued
and outstanding, 5,001,800 shares at May 29, 1999 ....................... 5 --
Additional paid in capital .................................................. 48,346 --
Deferred compensation ....................................................... (1,251) --
Notes receivable ............................................................ (771) --
Accumulated deficit ......................................................... (2,474) (68,111)
------------ ------------
Total shareholders' equity (deficiency) ........................................ 43,855 (34,864)
------------ ------------
Total liabilities and shareholders' equity (deficiency) ........................ $ 115,209 $ 110,732
============ ============
</TABLE>
See Notes to Financial Statements.
21
<PAGE> 22
SAMUELS JEWELERS, INC.
STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Successor Predecessor
Eight Months Four Months Predecessor
Ended Ended For the Years Ended
May 29, October 2, May 30, May 31,
1999 1998 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .................................................... $ 81,043 $ 27,494 $ 113,873 $ 130,446
Finance and credit insurance fees ............................ 6,517 3,397 11,316 13,900
------------ ------------ ------------ ------------
87,560 30,891 125,189 144,346
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold, buying and occupancy .................. 52,198 19,091 75,567 93,002
Selling, general and administrative expenses .............. 31,217 12,980 47,045 57,036
Provision for doubtful accounts ........................... 4,017 1,492 6,586 18,766
Impairment loss (Note 2) .................................. -- -- -- 3,947
Restructuring expenses (Note 1) ........................... -- -- -- 1,336
------------ ------------ ------------ ------------
87,432 33,563 129,198 174,087
------------ ------------ ------------ ------------
Operating (loss) income ...................................... 128 (2,672) (4,009) (29,741)
Interest expense, net (excludes $5,989 of interest expense
in Fiscal 1998 on Senior Secured Notes, Note 6) ........... 2,202 2,367 7,025 12,745
------------ ------------ ------------ ------------
Loss before reorganization items, income taxes, and
extraordinary item ........................................ (2,074) (5,039) (11,034) (42,486)
Reorganization items
Fresh-start adjustments (Note 1) .......................... -- (66,042) -- --
Reorganization costs (Note 10) ............................ 400 4,437 11,134 2,322
------------ ------------ ------------ ------------
Earnings (loss) before income taxes and extraordinary
item ...................................................... (2,474) 56,566 (22,168) (44,808)
Income taxes (Note 7) ........................................ -- -- -- 284
------------ ------------ ------------ ------------
Earnings (loss) before extraordinary item .................... (2,474) 56,566 (22,168) (45,092)
Extraordinary item (Note 1) .................................. -- 11,545 -- (876)
------------ ------------ ------------ ------------
Net earnings (loss) .......................................... $ (2,474) $ 68,111 $ (22,168) $ (45,968)
============ ============ ============ ============
Basic and Diluted Per share data:
Earnings (loss) before extraordinary item ................. $ (0.49) 11.31 $ (5.50) (11.25)
Extraordinary item (Note 1) ............................... $ -- 2.31 $ -- (0.22)
------------ ------------ ------------ ------------
Net earnings (loss) ....................................... $ (0.49) $ 13.62 $ (5.50) $ (11.47)
============ ============ ============ ============
Weighted-average number of common shares
outstanding ............................................. 5,002 5,002 4,029 4,007
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
22
<PAGE> 23
SAMUELS JEWELERS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor Successor
Common Stock Common Stock
------------------------ -----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at May 31, 1996 ....................................... 3,999 $ 33,196
Net loss for the year .........................................
Shares issued pursuant to employment contracts (Note 9) ....... 20 37
Shares issued pursuant to employee stock purchase Plan
(Note 9) ...................................................... 10 14
Balance at May 31, 1997 ....................................... 4,029 33,247
Net loss for the year .........................................
Balance at May 30, 1998 ....................................... 4,029 33,247
Net income for the four months ended October 2, 1998 ..........
Fresh-start reporting adjustment .............................. (4,029) (33,247)
Exchange of senior secured notes for stock .................... 2,500 $ 2
Shares issued pursuant to plan of reorganization .............. 2,502 3
Deferred compensation (Note 9) ................................
Notes receivable (Note 9) .....................................
Net loss for the eight months ended May 29, 1999 ..............
---------- ---------- ---------- ----------
Balance at May 29, 1999 ....................................... -- $ -- 5,002 $ 5
========== ========== ========== ==========
<CAPTION>
Retained
Additional Deferred Notes Earnings
Paid in Capital Compensation Receivable (Deficit) Total
--------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1996 .................................... $ 25 $ 33,221
Net loss for the year ...................................... (45,968) (45,968)
Shares issued pursuant to employment contracts (Note 9) .... 37
Shares issued pursuant to employee stock purchase Plan
(Note 9) ................................................... 14
--------------- ------------ ---------- ---------- ----------
Balance at May 31, 1997 .................................... (45,943) (12,696)
Net loss for the year ...................................... (22,168) (22,168)
--------------- ------------ ---------- ---------- ----------
Balance at May 30, 1998 .................................... (68,111) (34,864)
Net income for the four months ended October 2, 1998 ....... 68,111 68,111
Fresh-start reporting adjustment ........................... (33,247)
Exchange of senior secured notes for stock ................. $ 32,086 32,088
Shares issued pursuant to plan of reorganization ........... 16,260 16,263
Deferred compensation (Note 9) ............................. $ (1,251) $ (1,251)
Notes receivable (Note 9) .................................. $ (771) (771)
Net loss for the eight months ended May 29, 1999 ........... (2,474) (2,474)
--------------- ------------ ---------- ---------- ----------
Balance at May 29, 1999 .................................... $ 48,346 $ (1,251) $ (771) $ (2,474) $ 43,855
=============== ============ ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
23
<PAGE> 24
SAMUELS JEWELERS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Successor Co. Predecessor Co.
Eight Months Four Months Predecessor Co.
Ended Ended For the Years Ended
May 29, October 2, May 30, May 31,
1999 1998 1998 1997
--------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ..................................................... $ (2,474) $ 68,111 $ (22,168) $ (45,968)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Fresh-start adjustments ................................... -- (66,042)
Extraordinary item - gain on forgiveness of debt .......... -- (11,545) -- --
Depreciation and amortization ............................. 3,292 1,341 4,166 4,992
Impairment of long-lived assets ........................... -- -- -- 3,947
Extraordinary loss ........................................ -- -- -- 876
Compensation on issuance of common stock .................. -- -- -- 37
Provision for doubtful accounts ........................... 4,017 1,492 6,586 18,766
Inventory valuation allowance ............................. -- -- (815) 3,033
Loss on sale or abandonment of property and equipment ..... 315 -- 2,132 311
Deferred income taxes ..................................... -- -- -- 50
Management stock grant .................................... -- 417 -- --
Changes in assets and liabilities:
Customer receivables ...................................... (5,183) 2,652 (110) (4,598)
Merchandise inventories ................................... (6,155) (4,592) 9,700 10,152
Prepaid expenses and other current assets ................. (190) 552 573 (111)
Other assets .............................................. (148) (21) (141) (2,385)
Restructuring and reorganization costs .................... -- -- 3,090 2,752
Accounts payable-- trade .................................. (545) 3,616 8,865 6,728
Other accrued liabilities ................................. (1,936) 1,921 3,182 9,681
--------------- --------------- ---------- ----------
Net cash provided by (used in) operating
activities ......................................... (9,007) (2,098) 15,060 8,263
--------------- --------------- ---------- ----------
Cash Flows from Investing Activities:
Purchase of property and equipment ........................... (6,478) (2,641) (3,081) (7,158)
Proceeds from sale of assets ................................. 100 -- -- 74
--------------- --------------- ---------- ----------
Net cash used in investing activities ................ (6,378) (2,641) (3,081) (7,084)
--------------- --------------- ---------- ----------
Cash Flows from Financing Activities:
Net borrowing (repayments) under revolving credit
facility .................................................. (565) (11,397) -- 49,666
Issuance of common stock ..................................... 15,012 -- -- --
Notes receivable ............................................. (771) -- -- --
Net (repayments) borrowings under securitization
facility .................................................. -- -- -- (45,119)
Proceeds from employee stock purchase plan ................... -- -- -- 14
Principal payments on long-term debt ......................... -- -- -- (183)
--------------- --------------- ---------- ----------
Net cash provided by financing activities ............ 13,676 (11,397) -- 4,378
--------------- --------------- ---------- ----------
Net increase in cash and cash equivalents ...................... (1,709) (16,136) 11,979 5,557
Cash and cash equivalents at beginning of year ................. 3,165 19,301 7,322 1,765
--------------- --------------- ---------- ----------
Cash and cash equivalents at end of year ....................... $ 1,456 $ 3,165 $ 19,301 $ 7,322
=============== =============== ========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest .................................................. $ 1,958 $ 2,060 $ 5,760 $ 8,364
Income taxes .............................................. $ -- $ -- $ -- $ 30
Noncash investing and financing activities:
Merchandise inventory returned in exchange for pre-petition .. $ -- $ -- $ 5,496 $ --
liabilities (Notes 1 and 5)
Exchange of Senior Notes for Common Stock (Note 1) .......... $ 32,088 $ -- $ -- $ --
Deferred compensation (Notes 1 and 9) ........................ $ (1,251) $ -- $ -- $ --
</TABLE>
See Notes to Financial Statements.
24
<PAGE> 25
SAMUELS JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE EIGHT MONTH PERIOD ENDED MAY 29, 1999,
THE FOUR MONTH PERIOD ENDED OCTOBER 2, 1998,
THE FISCAL YEAR ENDED MAY 30 1998,
AND THE FISCAL YEAR ENDED MAY 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. REORGANIZATION AND BASIS OF PRESENTATION
REORGANIZATION
Samuels
Samuels Jewelers, Inc. ("Samuels" or the "Company"), was created in August,
1998 for the purpose of acquiring the assets of Barry's Jewelers, Inc.
("Barry's") as part of Barry's Plan of Reorganization (the "Plan") which was
confirmed by the U.S Bankruptcy Court on September 16, 1998, and consummated on
October 2, 1998 (the "Reorganization"). Samuels is incorporated in Delaware and
was initially funded by $15 million of new equity provided by the former
bondholders of Barry's who also consented to the conversion of their $50 million
of Barry's bonds into equity of Samuels Jewelers, Inc.
On May 11, 1997, (the "Petition Date"), Barry's filed a voluntary petition
for reorganization under Chapter 11 in the United States Bankruptcy Court for
the Central District of California, Los Angeles Division (the "Bankruptcy
Court"). After the Petition Date, Barry's continued in possession of its
properties and, as Debtor-in-Possession, was authorized to operate and manage
its businesses and enter into all transactions (including obtaining services,
inventories, and supplies) that it could have entered into in the ordinary
course of business without approval of the Bankruptcy Court.
On September 16, 1998, the Bankruptcy court entered an order (the
"Confirmation Order") confirming Barry's Original Disclosure Statement and Plan
of Reorganization dated April 30, 1998, as Modified (as so modified and
confirmed, the "Plan"). A copy of the Plan and the Confirmation Order are
attached as Exhibits to Barry's Current Report on Form 8-K dated September 16,
1998. Please refer to such documents for more information.
Upon emergence from Chapter 11 proceedings and with regard to the second
quarter of Fiscal 1999 and fiscal periods thereafter, the Company adopted the
fresh start reporting requirements of AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
during the second quarter of Fiscal 1999. In accordance with the fresh start
reporting requirements, the reorganization value of the Company has been
allocated to the Company's assets in conformity with the procedures specified by
the Accounting Principles Board Opinion 16, Business Combinations. In addition
the accumulated deficit of the Company was eliminated and its capital structure
was revalued in accordance with the Plan. The Company has recorded the effects
of the Plan and Fresh-Start Reporting as of October 2, 1998. The adjustment to
eliminate the Company's accumulated deficit totaled $77.6 million of which $11.6
million was forgiveness of debt and the remaining $66.0 million was Fresh-Start
adjustments.
Under the plan, the Company issued 5,001,800 shares of the reorganized
company stock. Of those shares 2,500,000 shares were issued to holders of
Allowed Class 2 and Class 5 claims (secured and unsecured Claims of
Bondholders), an additional 2,251,800 were sold to holders of Allowed Class 2
and Class 5 claims, and 250,000 shares were granted to executive officers of the
reorganized company. Under the plan, the Company issued 263,158 Reorganized
Company Warrants to the holders of Allowed Class 9 claims (claims of former
holders of common stock of Barry's Jewelers, Inc.) which are exercisable at
rates outlined in the Company's Plan of Reorganization.
The plan also provided for the payment of certain administrative claims,
including tax claims, bank secured claims, and other allowed claims. Holders of
Class 6 general unsecured claims are receiving payment at a rate of $.15 for
each dollar of their allowed claims.
On October 2, 1998, as part of its plan of reorganization, Barry's was
merged into Samuels.
The financial statements contained within this report are for Samuels
Jewelers, Inc. after October 2, 1999. Nevertheless, the Company is providing the
information with regard to Barry's Jewelers, Inc. as of and prior to that time
under its obligation, as set forth in the Securities and Exchange Act
regulations. Thus, as used herein, the Company, refers to Samuels for period
after October 2, 1998 and to Barry's for periods through October 2, 1998.
25
<PAGE> 26
BASIS OF PRESENTATION
The results of operations and cash flows for the four months ended October
2, 1998 and for the years ended May 30, 1998 and May 31, 1997, include
operations prior to the Company's emergence from Chapter 11 proceedings
(referred to as "Predecessor Company") and the effects of Fresh-Start Reporting.
The results of operations and cash flows for the eight months ended May 29, 1999
include operations subsequent to the Company's emergence from Chapter 11
proceedings (referred to as "Successor Company")and reflect the effects of
Fresh-Start Reporting. As a result, the net income for the eight months ended
May 29, 1999 is not comparable with prior periods and the net income for the
year-to-date period ended May 29, 1999 is divided into Successor Company and
Predecessor Company and is also not comparable with prior periods. In addition,
the balance sheet as of May 29, 1999 is not comparable to prior periods for the
reasons discussed above.
The reorganized value of the Company's common equity of $47.1 million was
determined by the Company, with the assistance of financial advisors, by
reliance on the Discounted Cash Flow method using the weighted average cost of
capital. The reorganized value of the Company has been allocated to specific
asset categories pursuant to Fresh-Start Reporting. Reorganization Value in
Excess of Amounts Allocated to Identifiable Assets reflects the difference in
the Company's stock valuation and the Company's net assets. The Company is
amortizing the Reorganization Value in Excess of Amounts Allocated to
Identifiable Assets over ten years.
The adoption of the Fresh-start reporting requirements had the following
effect on the Company's unaudited Condensed Balance Sheet dated October 2, 1999:
<TABLE>
<CAPTION>
Pre- Debt Exchange
Confirmation Discharge of Stock
------------ --------- --------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents ...................................... $ 14,562 $ (11,397) $ --
Customer receivables, net ...................................... 43,932 -- --
Merchandise inventories ........................................ 31,585 -- --
Prepaid expenses and other current assets ...................... 1,017 -- --
------------ --------- ---------
Total current assets .............................................. 91,096 (11,397) --
Net property and equipment ........................................ 14,905 -- --
Other assets ...................................................... 1,209 (718) --
Reorganization value in excess of amounts allocated to
identifiable assets, net .......................................... -- -- --
------------ --------- ---------
Total assets ...................................................... $ 107,210 $ (12,115) $ --
============ ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable - trade ....................................... $ 12,702 $ -- $ --
Other accrued liabilities ...................................... 11,932 3,308 --
------------ --------- ---------
Total current liabilities ......................................... 24,634 3,308 --
Liabilities subject to compromise under reorganization
proceedings ....................................................... 126,499 (73,426) (53,073)
Long-term debt .................................................... -- 46,458 --
Shareholders' equity (deficiency):
Common stock, no par value; authorized 8,000,000 shares;
Issued and outstanding, 4,029,372 shares at May 30, 1998 .... 33,247 -- (33,247)
Common stock, $.001 par value; authorized 20,000,000
Shares; issued and outstanding, 5,001,800 shares at May
29, 1999 .................................................... -- -- 2
Additional paid in capital ..................................... 417 -- 86,318
Accumulated deficit ............................................ (77,587) 11,545 --
------------ --------- ---------
Total shareholders' equity (deficiency) ........................... (43,923) 11,545 53,073
------------ --------- ---------
Total liabilities and shareholders' deficiency .................... $ 107,210 $ (12,115) $ --
============ ========= =========
<CAPTION>
Additional
Fresh-Start Capitalization Adjusted
----------- -------------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ -- $ -- $ 3,165
Customer receivables, net ...................................... -- -- 43,932
Merchandise inventories ........................................ (5,056) -- 26,529
Prepaid expenses and other current assets ...................... -- -- 1,017
--------- ------------ ---------
Total current assets .............................................. (5,056) -- 74,643
Net property and equipment ........................................ (1,238) -- 13,667
Other assets ...................................................... -- -- 491
Reorganization value in excess of amounts allocated to
identifiable assets, net .......................................... 17,687 -- 17,687
--------- ------------ ---------
Total assets ...................................................... $ 11,393 $ -- $ 106,488
========= ============ =========
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Accounts payable - trade ....................................... $ -- $ -- $ 12,702
Other accrued liabilities ...................................... -- -- 15,240
--------- ------------ ---------
Total current liabilities ......................................... -- -- 27,942
Liabilities subject to compromise under reorganization
proceedings ....................................................... -- -- --
Long-term debt .................................................... -- (15,012) 31,446
Shareholders' equity (deficiency):
Common stock, no par value; authorized 8,000,000 shares;
Issued and outstanding, 4,029,372 shares at May 30, 1998 .... -- -- --
Common stock, $.001 par value; authorized 20,000,000
Shares; issued and outstanding, 5,001,800 shares at May
29, 1999 .................................................... -- 3 5
Additional paid in capital ..................................... (54,649) 15,009 47,095
Accumulated deficit ............................................ 66,042 -- --
--------- ------------ ---------
Total shareholders' equity (deficiency) ........................... 11,393 15,012 47,100
--------- ------------ ---------
Total liabilities and shareholders' deficiency .................... $ 11,393 $ -- $ 106,488
========= ============ =========
</TABLE>
26
<PAGE> 27
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The Company changed its fiscal year end during 1998 from May 31
to the Saturday closest to May 31. The Company's fiscal years ended May 29, 1999
("Fiscal 1999"), May 30, 1998 ("Fiscal 1998") and May 31, 1997 ("Fiscal 1997"),
may be referred to herein as such.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with an original maturity at date of purchase of three months or
less to be cash equivalents.
Customer Receivables. The Company offers its merchandise on credit terms to
qualified customers. The Company's policy is to attempt to obtain a cash down
payment on all credit sales, with remaining monthly payments established such
that the payment of the credit balance will occur, generally, over a period
ranging from 24 to 36 months. In accordance with industry practice, customer
receivables are included in current assets in the Company's balance sheet. The
Company routinely assesses the collectibility of its customer receivables. See
"Note 11 Subsequent Events - Sale of Credit Portfolio to Alliance Data Systems."
Merchandise Inventories. Merchandise inventories, substantially all of which
represent finished goods, are stated at the lower of cost or market. Cost is
determined using the average cost method.
Property and Equipment. Property and equipment in existence at October 2,
1998 were stated at fair values as of that date pursuant to fresh start
reporting adopted in connection with the Reorganization. Additions since October
2, 1998 are stated at cost.
Depreciation and amortization of leasehold improvements, furniture and
fixtures, computers and equipment are computed by the straight-line method over
the lesser of related lease terms or the estimated useful lives of such assets
as set forth in the following table:
<TABLE>
<CAPTION>
USEFUL LIVES
IN YEARS
------------
<S> <C>
Leasehold improvements ............ 10-15
Furniture and fixtures ............ 5-10
Computers and equipment ........... 5
</TABLE>
Impairment of Long-lived Assets. Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed of," requires an entity to review long-lived
assets for impairment and recognize a loss if expected future cash flows are
less than the carrying amount of the assets; such losses are measured as the
difference between the carrying value and the estimated fair value of the
assets. The estimated fair value is determined based on expected future cash
flows. The Company adopted this standard in Fiscal 1997 and recognized an
impairment loss of approximately $3.9 million. This impairment loss is comprised
of leasehold improvements and fixtures at 37 closed stores, as well as computer
equipment and software related to the Company's plan to replace its merchandise
management and point-of-sale systems.
Deferred Debt Issuance. Deferred debt issuance costs are reported on the
Company's balance sheet as other assets and are being amortized on a
straight-line basis over the terms of the related financing agreements.
Revenue Recognition. The Company recognizes revenue upon delivery of
merchandise to the customer and either the receipt of a cash payment or approval
of a credit agreement.
Reorganization Costs. Expenditures directly related to the Chapter 11 filing
are classified as reorganization costs and are expensed as incurred. See "Note
10 Reorganization costs."
Income Taxes. Income taxes are computed using the liability method. The
provision for income taxes includes income taxes payable for the current period
and the deferred income tax consequences of transactions that have been
recognized in the Company's financial statements or income tax returns. The
carrying value of deferred income tax assets is determined based on an
evaluation of whether the realization of such assets is more likely than not.
Temporary differences result primarily from accrued liabilities, valuation
allowances, depreciation and amortization, and state franchise taxes. The
valuation allowance is reviewed periodically to determine the amount of deferred
tax asset considered realizable.
(Loss) per Share. The Company computes earnings per share in accordance with
SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires the Company to present
basic and diluted earnings per share on the face of the income statement. Basic
earnings per
27
<PAGE> 28
share are computed by dividing net income by the weighted average number of
common shares outstanding. Diluted earnings per share are computed by dividing
net income by the sum of the weighted average number of common shares
outstanding for the period plus the assumed exercise of all dilutive securities.
However, in the case of a loss per share, dilutive securities outstanding would
be antidilutive and would, therefore, be excluded from the computation of
diluted earnings per share. The weighted-average number of shares used to
calculate basic earnings per share was 5,001,800 for Fiscal 1999. Diluted
earnings per share were the same as basic earnings per share.
Accounting for Stock-based Compensation. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS No. 123")
requires compensation expense equal to the fair value of an option grant to be
estimated using accepted option-pricing formulas when an option is granted. The
compensation may either be charged to the statement of operations or set forth
as pro forma information in the footnotes to the financial statements, depending
on the method elected by the Company upon adoption of the standard. During
Fiscal 1997, the Company adopted the disclosure requirements of SFAS No. 123 and
elected to continue using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," for stock option expense recognition and has disclosed the proforma
effects of SFAS No. 123. See "Note 9 Shareholders' Equity (Deficiency)."
Disclosure about Segments of an Enterprise and Related Information.
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" ("SFAS No. 131") became effective for
years beginning after December 15, 1997. The Company is not engaged in multiple
businesses or geographic segments requiring separate disclosure under SFAS No.
131.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.
Fair Market Value of Financial Instruments. The carrying amounts of notes
payable and trade accounts payable approximate fair value because of the short
maturity of these financial instruments.
Reclassifications. Certain previously reported amounts were reclassified to
conform to current year presentations.
3. INVENTORY VALUATION
In connection with the implementation of fresh-start reporting, the Company
increased its inventory valuation reserve to $7,274 at October 2, 1998 in order
to adjust the carrying value of its inventory to its net realizable value. The
inventory valuation reserve was $5,336 at May 29, 1999 and $2,218 at May 30,
1998. The reduction in the inventory valuation reserve is the result of sales of
aged merchandise below normal margin levels.
4. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following as of the fiscal years
ended May:
<TABLE>
<CAPTION>
Successor Predecessor
1999 1998
---------- ----------
<S> <C> <C>
Accrued wages and benefits ........ $ 2,472 $ 3,450
Accrued bankruptcy claims ......... 2,071 --
Accrued professional fees ......... 1,922 1,766
Sales tax ......................... 694 686
Layaway and customer refunds ...... 414 489
Accrued interest .................. 254 790
Other accrued expenses ............ 5,477 2,517
---------- ----------
$ 13,304 $ 9,698
========== ==========
</TABLE>
28
<PAGE> 29
5. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization proceedings consists
of the following as of the fiscal years ended May:
<TABLE>
<CAPTION>
Successor Predecessor
1999 1998
---------- -----------
<S> <C> <C>
Secured liabilities:
Borrowings outstanding under Revolving Credit Agreement (Note .. .. $ -- $ 57,855
6)
Senior Secured Notes (includes interest payable of $3,073
Accrued through Petition Date) (Note 6) ......................... 53,073
Other notes payable and capital lease obligations .................. -- 88
---------- ----------
-- 111,016
---------- ----------
Unsecured liabilities:
Trade accounts payable ............................................. 4,870
Other accrued expenses (includes restructuring and
Reorganization expenses) ........................................ -- 10,926
---------- ----------
-- 15,796
---------- ----------
$ -- $ 126,812
========== ==========
</TABLE>
In accordance with the Plan, these liabilities subject to compromise were
resolved on the Effective Date.
6. NOTES PAYABLE
On October 2, 1998, the Company entered into a three year, $50.0 million
financing agreement with Foothill Capital Corporation as a lender and as agent
for a lender group (the "Lenders"). The lenders will make revolving advances to
the Company in amounts determined based on percentages of eligible accounts
receivable and inventory. The annual rate of interest will be, at the Company's
option, (i) 2.25% per annum over the Eurodollar rate or (ii) 0.5% per annum over
the bank's prime rate, provided, however, that in no event will the applicable
interest rate on any advance be less than 7% per annum. Interest charges are
payable monthly. Upon the occurrence and during the continuation of any event of
default under the financing agreement, all obligations will bear interest at a
per annum rate equal to three percentage points above the otherwise applicable
interest rate. As collateral for any and all obligations to the lenders under
the financing agreement, the Company granted a first priority perfected security
interest in and to substantially all of its owned or thereafter acquired assets,
both tangible and intangible. The financing agreement contains quarterly
covenants which include its meeting a minimum level of tangible net worth and
prohibits the payment of dividends. See "Note 11 Subsequent Events - Amendment
to Financing Agreement with Foothill."
At May 29, 1999 the Company had direct borrowings of $45.9 million
outstanding under the revolving line of credit, all of which was classified as
current, with an interest rate of 8.25% on $2.9 million, 7.25% on 18.0 million
and 7.24% on $25.0 million. The weighted average interest rate for the eight
months ended May 29, 1999 was 7.56%. At May 29, 1999 the Company had additional
credit available of approximately $4.1 million.
7. INCOME TAXES
During 1999, the Company's net operating losses were reduced by
approximately $49 million as a result of debt discharge income. Pursuant to IRC
382 (1)(5), the Company's NOL's were further reduced by $27 million. At May 29,
1999, the Company had a net operating loss carryforward for federal income tax
purposes of $36 million. The remaining carryforward is not subject to any annual
limitation on its use. In the event of more than a 50% change in ownership of
the Company prior to October 2, 2000, the annual limitation on the use of the
losses will be zero. These losses begin to expire in 2012. In addition, the
Company has AMT credit carryforwards of $109. These credits do not expire. The
Company maintains a valuation allowance against the net deferred tax assets,
which in Management's opinion reflects the net deferred tax asset that is more
likely than not to be realized.
29
<PAGE> 30
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
FOR THE EIGHT FOR THE FOUR PREDECESSOR
MONTHS ENDED MONTHS ENDED FOR THE FISCAL YEARS
MAY 29, OCTOBER 2, ENDED MAY
1999 1998 1998 1997
------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Current:
Federal ........ $ -- $ -- $ -- $204
State .......... -- -- -- 30
---- ---- ---- ----
-- -- -- 234
Deferred:
Federal ........ -- -- -- 50
State .......... -- -- -- --
---- ---- ---- ----
-- -- -- 50
---- ---- ---- ----
$ -- $ -- $ -- $284
==== ==== ==== ====
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
FOR THE EIGHT FOR THE FOUR PREDECESSOR
MONTHS ENDED MONTHS ENDED FOR THE FISCAL YEARS
MAY 29, OCTOBER 2, ENDED MAY
1999 1998 1998 1997
------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Statutory rate ........ (35.0)% (35.0)% (35.0)% (35.0)%
Surtax benefit ........ 1.0 1.0 1.0 1.0
Valuation allowance ... 34.0 34.0 34.0 35.4
Other ................. -- -- -- (0.8)
---- ---- ---- ----
0.0% 0.0% 0.0% 0.6%
==== ==== ==== ====
</TABLE>
Significant components of the Company's deferred income taxes are as
follows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
MAY 29, MAY 30,
1999 1998
--------- -----------
<S> <C> <C>
Current tax assets:
Reserve for bad debts .............. $ 2,233 $ 3,081
Inventory .......................... 705 584
Vacation accrual ................... 358 341
State Franchise taxes .............. 991 (1,018)
Restructuring reserve .............. 3,053 3,617
Other .............................. (8) --
-------- --------
7,332 6,605
======== ========
Noncurrent tax assets:
State franchise taxes .............. (818) (1,218)
Property and equipment ............. (1,138) (1,237)
Net operating loss carryforwards ... 2,558 40,368
Other .............................. 2,159 1,006
-------- --------
2,761 38,919
-------- --------
Total deferred tax assets ............ 10,093 45,524
Valuation allowance .................. (9,982) (45,452)
-------- --------
Net deferred tax assets .............. $ 111 $ 72
======== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company leases store and office facilities and certain equipment used in
its regular operations under operating leases, which expire at various dates
through 2010. The store leases provide for additional rentals based upon sales
and for payment of taxes, insurance and certain other expenses. Rent expense
charged to operations is as follows for the fiscal years ended May:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
FOR THE EIGHT FOR THE FOUR PREDECESSOR
MONTHS ENDED MONTHS ENDED FOR THE FISCAL YEARS
MAY 29, OCTOBER 2, ENDED MAY
1999 1998 1998 1997
------------- ------------ ------- -------
<S> <C> <C> <C> <C>
Minimum rentals ...... $ 5,078 $ 2,620 $ 9,373 $11,616
Contingent rentals ... 1,218 536 2,216 2,706
------- ------- ------- -------
$ 6,296 $ 3,156 $11,589 $14,322
======= ======= ======= =======
</TABLE>
30
<PAGE> 31
Included in the above table is rent expense paid to officers/shareholders
related to certain stores and the office facility of $0, $683 and $649,
respectively for the fiscal years ended May 1999, 1998 and 1997.
Minimum rental commitments for all remaining noncancelable leases in effect
as of May 29, 1999 are as follows for the fiscal years ended May:
<TABLE>
<S> <C>
2000............. $ 7,034
2001............. 6,391
2002............. 5,842
2003............. 5,516
2004............. 4,882
Thereafter....... 13,835
--------
$ 43,500
========
</TABLE>
The Company enters into consignment inventory agreements with its key
vendors in the ordinary course of business. During Fiscal 1999, consignment
inventory on hand ranged from $30 to $38 million. These amounts are excluded
from the merchandise inventory balance on the accompanying balance sheet.
Consignment inventory was approximately $30.1 million and $32.0 at May 29, 1999
and May 30, 1998, respectively.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. Based upon discussions with legal counsel,
management believes that its litigation currently pending, other than its
Chapter 11 proceedings previously discussed, will not have a material adverse
effect on the Company's financial position or results of operations.
9. SHAREHOLDERS' EQUITY (DEFICIENCY)
Stock Option Plans. In 1998 the Company adopted a stock option plan for
certain of its officers and key employees. The number of shares of common stock
that can be purchased pursuant to this plan cannot exceed 500,000 and must be
granted prior to October 2, 2008. The exercise price for options granted under
this plan may not be less than the fair market value of the Company's common
stock at the date of grant. These options become exercisable over a four year
period and vest at 25% per year. At May 29, 1999, the Company had 231,200
options outstanding with an exercise price of $6.67 per share.
In 1998 the Company also adopted a stock option plan for its non-employee
directors. The number of shares of common stock that can be purchased pursuant
to this plan cannot exceed 250,000 and must be granted prior to September 30,
2008. The exercise price for options granted under this plan may not be less
than the fair market value of the Company's common stock at the date of grant.
These options become exercisable over a four year period and vest at 25% per
year. At May 29, 1999, the Company had 25,000 options outstanding with an
exercise price of $6.67 per share.
Stock options for all plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
1999 Exercise Price
------- ----------------
<S> <C> <C>
Options outstanding at the
beginning of the year......... -- --
Granted......................... 256,200 $ 6.67
------- -------
Options outstanding at the
end of the year............... 256,200 $ 6.67
======= =======
</TABLE>
The estimated fair value of options granted was $3.15 per share during
Fiscal 1999. The fair value of each stock option grant was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate 4.8%, no dividend yield, expected lives of
7.23 years and expected volatility of 35%. The Company applies the provisions of
APB Opinion 25 and related interpretations in accounting for its employee
benefit plans. Accordingly no compensation expense has been recognized for its
stock option plans. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for the awards under
those plans consistent with the method prescribed by SFAS No. 123, The Company's
proforma net loss would have been $3.0 million for the eight month period ended
May 29, 1999. Proforma net loss per share would have been $(.60) for the eight
month period ended May 29, 1999.
31
<PAGE> 32
Warrants. At May 29, 1999 the Company had 263,158 warrants outstanding which
were issued to shareholders of Barry's Jewelers, Inc as a part of the Company's
Reorganization. The warrants are exercisable over a five year period with strike
prices ranging from $19.69 to $24.00 per share. The Company has an option that,
upon the occurrence of certain transactions, allows the Company to call the
warrants at a price equal to the greater of $.20 or the net exercise value
(i.e., the difference between the fully diluted market price of the common stock
and the strike price of the warrant.)
401(k) Retirement Plan. Barry's Board of Directors adopted a qualified
401(k) retirement plan effective June 1, 1995. Substantially all full-time
employees of the Company, age 21 and older, are eligible to participate in the
Company's 401(k) plan beginning the first day of the month following the date of
employment. Employees may elect to contribute 1% to 15% of their compensation,
subject to certain IRS limitations. Effective June 1, 1999, the plan was
amended, changing its name to Samuels 401(k) Plan, changing the plan record
keeper, changing the eligibility period to the first day of the month following
the date of employment, and changing the plan year to a calendar year. Employer
matching contributions are determined annually by a Board of Directors
resolution. The Board of Directors agreed to match contributions for calendar
year 1999 at $.50 per dollar of contribution up to a 6% deferral rate. No
employer matching contributions were granted prior to that time. Participants
are partially vested in employer matching contributions after two years and
fully vested after five years of employment with the Company.
Employee Incentive Stock Grant. On October 2, 1998, the Company issued
250,000 restricted shares of common stock to certain key executives as part of
their employment agreements provided for in the Plan of Reorganization. These
grants vest 25% per year, commencing on the grant date and each of the first
three anniversaries thereof. At May 29, 1999, 62,500 shares were fully vested.
As a result of these grants, the company recognized deferred compensation
expense in the amount of $0.4 million for Fiscal 1999. The deferred compensation
expense is being amortized over the remaining three-year vesting period.
Notes Receivable. As part of the employment agreements for certain key
executives, the company issued notes in the amount of $936 (and agreed to issue
more notes as shares vest) to help defray the tax expense of the above stock
grants. These notes bear interest at the applicable federal short-term rate and
are payable in quarterly installments over the three year vesting schedule. If
however, the executive is employed on the quarterly due date, a bonus in the
amount of the principal then due is then payable. The Company recognized
deferred compensation expense in the full amount of the notes issued. The
notes receivable will be charged to income as compensation expense over
three-years.
10. REORGANIZATION COSTS
Reorganization costs consisted of the following:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
FOR THE EIGHT FOR THE FOUR PREDECESSOR
MONTHS ENDED MONTHS ENDED FOR THE FISCAL YEARS
MAY 29, OCTOBER 2, ENDED MAY
1999 1998 1998 1997
------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Professional fees .............................................. $ -- $ 3,196 $ 5,662 $ 462
Loss on disposal of property and equipment (related to store
closures and the Company's former headquarters)............... -- 379 2,448 --
Adjustments to pre-petition unsecured liabilities .............. -- -- 1,440 --
Provision for lease rejection claims ........................... -- 81 1,127 1,860
Employee costs related to the Chapter 11 filing ................ 400 239 696 --
Other .......................................................... -- 926 586 --
Interest earned on accumulated cash resulting from
Chapter 11 Filing .............................................. -- (384) (825) --
-------- -------- -------- --------
Total .......................................................... $ 400 $ 4,437 $ 11,134 $ 2,322
======== ======== ======== ========
</TABLE>
Cash paid (net of interest income) for reorganization costs during the eight
months ended May 29,1999, the four months ended October 2, 1998, and the years
ended May 1998 and 1997 amounted to $2.5 million, $2.3 million, $3.6 million and
$1.2 million, respectively. Retainers paid to professionals are included in
prepaid and other current assets in the accompanying 1997 balance sheet.
11. SUBSEQUENT EVENTS
Sale of Credit Portfolio to Alliance Data Systems. On July 20, 1999, the
Company entered agreements with Alliance Data Systems ("ADS") to sell its
existing credit card accounts and to provide a third party credit card program
for the benefit of the Company's customers. The transactions set out in the
agreements were effected on August 30, 1999. The Company does not expect a
significant change in its credit policies under the agreement with ADS. On
closing the sale to ADS, the company sold its approximately $46.8 million,
Accounts Receivable to World Financial Network National Bank ("WFN") at face
value, less a hold back reserve of
32
<PAGE> 33
approximately $9.4 million. The net proceeds of approximately $37.4 million were
used to reduce the balances outstanding under the company's financing agreement
with the Lenders.
Amendment to financing agreement with Foothill. Concurrent with the sale of
the credit facility with ADS, the financing agreement was amended to allow,
among other things, for the sale to WFN and a reduction of the total commitment
under the financing agreement with the Lenders from $50.0 million to $40.0
million.
Acquisition of Silverman's and New Store Commitments. On July 20, 1999
Samuels entered into a purchase agreement with Silverman's to acquire lease
rights and fixtures for seventeen Silverman's stores. The purchase price for
these assets was 60,000 shares of the Company's Common Stock, the delivery of
which is contingent upon the delivery of the assets to the Company. The company
will not assume any of Silverman's liabilities and will be acquiring none of
Silverman's other assets as part of the purchase agreement. Acquisition of the
lease rights is subject to landlord approval, and where landlord approval cannot
be received, the purchase price will be reduced based upon an agreed upon
allocation. The 60,000 shares have been issued and are registered under the
Company's shelf registration on Form S-1, declared effective by the SEC on June
9, 1999, but they are currently held in trust pursuant to an escrow agreement
and are to be released to the seller upon the successful assignment of the lease
rights to the Company. The actual number of leases assigned may not be
determinable until as late as December 1, 1999. To the extent certain lease
rights are not assigned, the shares allocated to those leases will be returned
to the Company. As of August 31, 1999, five leases have been assumed that will
require the issuance of 16,500 shares. Two lease assignments with a total of
4,600 shares allocated have already been abandoned. The other ten lease
assignments are still under negotiation.
The Silverman's acquisition represents the Company's departure from a mall
only retail jewelry environment. Only one of the former Silverman's stores is
located in a mall. The others are either located in power centers or are
stand-alone stores. The Company plans to rename the non-mall stores Samuels
Diamonds. The mall store will be renamed Samuels Jewelers.
As of August 31, 1999, in addition to the Silverman's store acquisition, the
company has opened two new stores and entered into leases for twelve additional
new stores which will be opened prior to the 1999 Christmas retail selling
season. Five of these stores will be in three new markets and the rest are in
existing markets. Additionally, the company is in various stages of negotiations
for several other leases on new locations.
33
<PAGE> 34
SCHEDULE II
SAMUELS JEWELERS, INC.
VALUATION & QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS/ END OF
OF PERIOD EXPENSES OTHER PERIOD
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
YEAR END 1999:
Allowance for doubtful accounts ..... $ 7,099 $ 5,509 $ (7,488) $ 5,120
Inventory valuation allowance (1) ... $ 2,218 $ 5,056 $ (1,938) $ 5,336
YEAR END 1998:
Allowance for doubtful accounts ..... $ 10,300 $ 6,586 $ (9,787) $ 7,099
Inventory valuation allowance ....... $ 3,033 $ $ (815) $ 2,218
YEAR END 1997:
Allowance for doubtful accounts ..... $ 10,930 $ 18,766 $(19,396) $ 10,300
Inventory valuation allowance ....... $ -- $ 3,033 $ -- $ 3,033
YEAR END 1996:
Allowance for doubtful accounts ..... $ 11,662 $ 11,839 $(12,571) $ 10,930
</TABLE>
(1) The inventory valuation allowance was adjusted by $5,056 as of October 2,
1998, as a part of the Company's adoption of the fresh-start reporting
requirements of Statement of Position 90-7. See "Note 1 Reorganization and
Basis of Presentation."
34
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C>
2.1 Order Confirming Original Disclosure Statement and Plan of
Reorganization, Dated April 30, 1998, Proposed by Barry's
Jewelers, Inc., as modified, dated September 16, 1998 (with
Plan attached).(1)
2.2 Certificate of Ownership and Merger of Barry's Jewelers, Inc.
with and into Samuels Jewelers, Inc. dated October 2, 1998.(1)
3.1 Certificate of Incorporation of Samuels Jewelers, Inc.(1)
3.2 Bylaws of Samuels Jewelers, Inc.(1)
4.1 Warrant Agreement dated as of October 2, 1998 between the
Company and Norwest Bank Minnesota, N.A., as Warrant Agent.(1)
4.2 Registration Rights Agreement dated as of October 2, 1998
among the Company, The Galileo Fund, L.P., B III Capital
Partners, L.P., DDJ Overseas Corporation, Paine Webber High
Income Fund, Managed High Yield Fund Inc., All-American Term
Trust Inc. and Paine Webber Offshore Funds PLC, The High
Income Fund.(1)
10.1(a) Loan and Security Agreement dated October 2, 1998, between the
Company and Foothill Capital Corporation, as agent for certain
lenders party thereto.(2)
10.1(b) Amendment Number One to Loan and Security Agreement entered
into as of April 15, 1999, among the Company, Foothill Capital
Corporation and the financial institutions listed on the
signature pages thereto.(3)
10.1(c) Amendment Number Two to Loan and Security Agreement entered
into as of August 30, 1999, among the Company, Foothill
Capital Corporation and the financial institutions listed on
the signature pages thereto, (3)
10.2 Employment Agreement, dated as of October 2, 1998 between the
Company and Randy N. McCullough.(1)
10.3 Employment Agreement, dated as of October 2, 1998 between the
Company and E. Peter Healey.(1)
10.4 Employment Agreement, dated as of October 2, 1998 between the
Company and Chad C. Haggar.(1)
10.5 Employment Agreement, dated as of October 2, 1998 between the
Company and Bill R. Edgel.(1)
10.6 Employment Agreement, dated as of October 2, 1998 between the
Company and Paul Hart.(1)
10.7 Private Label Credit Card Agreement between World Financial
Network National Bank and the Company dated as of July 27,
1999.(3)
10.8 Purchase and Sale Agreement between World Financial Network
National Bank and the Company dated as of July 27, 1999.(3)
23.1 Consent of Independent Auditors.(3)
27.1 Financial Data Schedule.(3)
99.1 Press Release dated October 5, 1998.(1)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
October 6, 1998.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended August 29, 1998.
(3) Filed herewith.
<PAGE> 1
EXHIBIT 10.1(b)
AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT
This Amendment Number One to Loan and Security Agreement ("Amendment")
is entered into as of April 15, 1999, among SAMUELS JEWELERS, INC., a Delaware
corporation (the "Borrower"), on the one hand, and the financial institutions
listed on the signature pages hereof (such financial institutions, together with
their respective successors and assigns, are referred to hereinafter each
individually as a "Lender" and collectively as the "Lenders"), and FOOTHILL
CAPITAL CORPORATION, as Agent ("Agent"), on the other hand.
RECITALS
A. Borrower, Lenders and Agent have previously entered into that
certain Loan and Security Agreement, dated as of October 2, 1998 (the
"Agreement").
B. Borrower, Lenders and Agent desire to amend the Agreement as
provided for an on the conditions herein.
NOW, THEREFORE, Borrower, Lenders and Agent hereby amend certain
provisions of the Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this
Amendment shall have the meanings given to them in the Agreement unless
specifically defined herein.
2. AMENDMENTS
2.1 Section 1.1 of the Agreement is hereby amended by adding the
following definition thereto:
"Owned Inventory" means, as of any date of determination, Inventory
that is owned by Borrower (other than all merchandise classified on
the Borrower's books and records as "miscellaneous" including, but
not limited to, customer trade-ins, breakouts and giftware), and
specifically excluding any Inventory acquired by Borrower on
consignment from vendors.
2.2 Section 2.1 (a) (y) of the Agreement is hereby amended and
restated in its entirety to read as follows:
(y) the lesser of (i) 70% (75% during a Seasonal Period) of the Cost
of Eligible Inventory, less the amount, if any, of the Inventory
Reserve, and reserves for gift certificates outstanding and for
shrinkage, and (ii) 80% (85% during a Seasonal Period) of the GOB
Value of Owned Inventory,
1
<PAGE> 2
less the amount, if any, of the Inventory Reserve and reserves for
gift certificates outstanding and for shrinkage, minus
2.3 Section 7.20 (b) of the Agreement is hereby amended and
restated in its entirety to read as follows:
(b) Tangible Net Worth. Tangible Net Worth of at least the
following amounts as of the end of the corresponding fiscal
quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Minimum Tangible Net Worth
--------------------- --------------------------
<S> <C> <C>
05/29/99 $ 26,000,000
08/29/99 $ 24,000,000
11/27/99 $ 20,000,000
</TABLE>
for each fiscal quarter ending thereafter, such minimum Tangible
Net Worth shall be set at amounts acceptable to the Agent and the
Lenders based upon a discount from the Borrower's projected
Tangible Net Worth for such periods, all as set forth in detailed
financial projections (including a balance sheet, income
statement, statement of cash flows, and availability
calculations) for Borrower's fiscal year ending June 3, 2000,
which projections are to be delivered to Lenders on or before
June 1, 999. Failure to deliver such projections by such date, in
form and content (and reflecting financial performance)
acceptable to the Lenders in their sole discretion, shall
constitute an Event of Default.
2.4 Section 17.5(a) of the Agreement is hereby amended by
deleting the words "within three days" contained therein and replacing them with
the words "within seven Business Days".
3. REPRESENTATION AND WARRANTIES. Borrower hereby affirms to Lenders
and Agent that all Borrower's representations and warranties set forth in the
Agreement are true, complete and accurate in all respects as of the date hereof
(except to the extent such representations and warranties relate solely to an
earlier date).
4. DEFAULTS; WAIVER. Agent and the Lenders acknowledge and agree
that any Event of Default occasioned by Borrower's noncompliance with the
requirements of Section 7.20(b) (minimum Tangible Net Worth) as set forth in the
Loan Agreement prior to the amendment provided in Section 2 hereof, is hereby
waived.
2
<PAGE> 3
5. Borrower hereby affirms to Lenders and Agent that, subject to the
waiver provided in the preceding sentence, no Default or Event of Default exists
as of the date hereof.
6. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the following:
(a) Receipt by Agent of fully executed copies of this Amendment;
and
(b) Payment of a fee to Agent, for the pro rata account of
Lenders, in the amount of $10,000.
7.COSTS AND EXPENSES. Borrower shall pay to Agent all of Agent's
out-of-pocket costs, and expenses (including, without limitation, the reasonable
fees and expenses of its counsel, which counsel may include any local counsel
reasonably deemed necessary, search fees, filing and recording fees,
documentation fees, appraisal fees, travel expenses, and other fees) arising in
connection with the preparation, execution, and delivery of this Amendment and
any related documents.
8. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended, modified, and supplemented hereby, shall remain in full
force and effect.
9. COUNTERPARTS: EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which when so executed and delivered shall be deemed to be an original.
All such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the execution of a
counterpart of this Amendment by each of the parties hereto.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
SAMUELS JEWELERS, INC.
a Delaware corporation
By: /s/ ROBERT HERMAN
------------------------------
Title: /s/ Asst. Secretary
---------------------------
FOOTHILL CAPITAL CORPORATION
a California corporation, as
Agent and as a Lender
By: /s/ ROBERT CASTINE
------------------------------
Title: /s/ Vice President
---------------------------
LASALLE BUSINESS CREDIT, INC.
a Delaware corporation
By: /s/ SCOTT BUSCH
------------------------------
Title: /s/ FVP
---------------------------
SUNROCK CAPITAL CORP.
a Delaware corporation
By: /s/ ROBERT HERMAN
------------------------------
Title: /s/ Asst. Secretary
---------------------------
4
<PAGE> 1
EXHIBIT 10.1(c)
AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT
This Amendment Number Two to Loan and Security Agreement ("Amendment")
is entered into as of August 30, 1999, among SAMUELS JEWELERS, INC., a Delaware
corporation (the "Borrower"), on the one hand, and the financial institutions
listed on the signature pages hereof (such financial institutions, together with
their respective successors and assigns, are referred to hereinafter each
individually as a "Lender" and collectively as the "Lenders"), and FOOTHILL
CAPITAL CORPORATION, as Agent ("Agent"), on the other hand.
RECITALS
A. Borrower, Lenders and Agent have previously entered into that
certain Loan and Security Agreement, dated as of October 2, 1998 and amended by
that certain Amendment Number One, dated as of April 15, 1999 (the "Agreement").
B. Borrower, Lenders and Agent desire to further amend the Agreement as
provided for and on the conditions herein.
NOW, THEREFORE, Borrower, Lenders and Agent hereby amend certain
provisions of the Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this Amendment
shall have the meanings given to them in the Agreement unless specifically
defined herein.
2. AMENDMENTS.
2.1 Section 1.1 of the Agreement is hereby amended by deleting the
following definitions therefrom: "Credit Sales Reserve," "Dilution Reserve,"
"Eligible Accounts," and "Reduction Option."
2.2 Section 1.1 of the Agreement is hereby amended by adding the
following new definitions thereto:
"Credit Card Issuer" means World Financial Network National
Bank.
"Credit Card Agreement" means that certain Private Label Credit
Card Program Agreement, between Credit Card Issuer and Borrower.
"Holdings" means Samuels Holdings, a California corporation, and
a wholly owned subsidiary of Borrower.
1
<PAGE> 2
"Permitted Accounts Sale Agreement" means that certain
Purchase and Sale Agreement, dated as of July 27, 1999 between Borrower
and Credit Card Issuer.
"Permitted Accounts Sale Proceeds" means the monies due to
Borrower as a result of the sale of the Private Label Accounts pursuant
to the Permitted Accounts Sale Agreement.
"Permitted Stock Repurchase Transactions" means any of one or
more transactions in which Borrower repurchases its common stock in the
open market, so long as (a) at such time no Event of Default has
occurred and is continuing or would arise as a result of such
repurchase, (b) such purchase is not from an Affiliate, (c) the
purchase price for any such transaction does not exceed $7 per share,
and (d) after each such repurchase is taken into account Borrower's
Availability would be at least $5,000,000.
"Private Label Accounts" means those certain Accounts existing
as of August 30, 1999 and arising out of Borrower's sales of Inventory
to customers pursuant to Borrower's existing private label credit card
arrangements, together with those of Borrower's Books and any General
Intangibles related to such Accounts all as more completely described
on Schedule P-2. The Private Label Accounts are to be sold to Credit
Card Issuer pursuant to the Permitted Accounts Sale Agreement
"Samuels.com" means Samuels.com, Inc., a Delaware corporation,
and a wholly owned subsidiary of Borrower.
2.3 Section 1.1 of the Agreement is hereby amended by amending each
of the following existing definitions to read as hereinafter set forth:
(a) "Maximum Amount" means $40,000,000.
(b) "Permitted Accounts Sale" means Borrower's sale of its
Private Label Accounts to the Credit Card Issuer from time to time on
the terms set forth in the Permitted Accounts Sale Agreement.
(c) "Seasonal Period" means, with respect to Advances against
Inventory under Section 2.1 (a)(y). the period from and including
October 1 in any year through and including December 15 in that year.
2.4 Section 2.1 (a) of the Agreement is hereby amended by deleting
paragraph (x) therefrom in its entirety.
2.5 Section 2.1 (b) of the Agreement is hereby amended to read as
follows:
2
<PAGE> 3
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Agent may create reserves against the Borrowing Base
or reduce its advance rates based upon Eligible Inventory without
declaring an Event of Default if it determines that there has occurred
a Material Adverse Change.
2.6 Section 2.1(n) of the Agreement is hereby amended and restated
in its entirety to read:
"[Intentionally Deleted]"
2.7 Section 5.2 of the Agreement is hereby amended and restated in
its entirety to read:
"[Intentionally Deleted]"
2.8 Section 7.3 of the Agreement is hereby amended by adding the
following to the end thereof:
;provided, however, that Borrower shall be entitled to make the
Permitted Accounts Sale to the Credit Card Issuer pursuant to the
terms of the Permitted Accounts Sale Agreement.
2.9 Clause (viii) of Section 7.13 of the Agreement is hereby amended
to read as follows:
(viii) Borrower may hold not less than 100% of the equity
interests in Holdings and Samuels.com and may hold the Tax Loan Notes.
2.10 a new clause (x) is hereby added to Section 7.13 of the
Agreement as follows:
(x) Borrower may acquire its own shares in one or more Permitted
Stock Repurchase Transactions; provided, however, that the aggregate
amount Borrower may spend for all such transactions may not exceed
$1,000,000;
2.11 Section 7.14(c) of the Agreement is hereby deleted and
replaced with the following:
(c) advances or any loans to any Affiliate of Borrower permitted
by clause (viii) of Section 7.13;
2.12 Section 7.20(a) of the Agreement is hereby amended and
restated in its entirety to read:
"[Intentionally Deleted]"
3
<PAGE> 4
2.13 Section 7.20 (b) of the Agreement is hereby amended to read as
follows:
(b) Tangible Net Worth. A Tangible Net Worth of at least the
following amounts as of the last day of the fiscal quarters of Borrower
ending on or about the last day of the following months:
<TABLE>
<CAPTION>
Month Minimum Tangible Net Worth
----- --------------------------
<S> <C>
August 1999 $24,000,000
November 1999 $20,000,000
February 2000 $28,000,000
May 2000 $27,000,000
August 2000 $24,000.000
November 2000 $21,000,000
February 2001 $29,000,000
May 2001 $28,000,000
August 2001 $25,000,000
</TABLE>
2.14 Section 7.22 of the Agreement is hereby amended and restated in
its entirety to read:
"[Intentionally Deleted]"
2.15 Schedule C-1 of the Agreement is hereby amended and restated
in its entirety to read as set forth on Schedule C-1 to this Amendment to
reflect the allocated Commitments of the Lenders as of the effective date of
this Amendment; and a new Schedule P-2 is hereby added to the Agreement, to read
as set forth on Schedule P-2 to this Amendment.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Lenders
and Agent that all of Borrower's representations and warranties set forth in the
Agreement are true, complete and accurate in all respects as of the date hereof
(except to the extent such representations and warranties relate solely to an
earlier date).
4. DEFAULTS: WAIVER. Borrower hereby affirms to Lenders and Agent that.
subject to the waiver provided in the preceding sentence, no Default or Event of
Default exists as of the date hereof.
5. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the following:
(a) Receipt by Agent of fully executed copies of this Amendment;
(b) Receipt by Agent of fully executed copies of an Irrevocable
Assignment by Borrower in form and substance acceptable to Agent, specifying
payment of the
4
<PAGE> 5
Permitted Accounts Sale Proceeds directly to the Agent's Account, and payment of
any future monies owing by Credit Card Issuer directly to the Lockboxes;
(c) Payment of a fee to Agent, for the pro rata account of Lenders,
in the amount of $30,000.
6. COSTS AND EXPENSES. Borrower shall pay to Agent all of Agent's
out-of-pocket costs and expenses (including, without limitation, the reasonable
fees and expenses of its counsel, which counsel may include any local counsel
reasonably deemed necessary, search fees, filing and recording fees,
documentation fees, appraisal fees, travel expenses, and other fees) arising in
connection with the preparation, execution, and delivery of this Amendment and
any related documents
7. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended, modified, and supplemented hereby, shall remain in full
force and effect.
8. COUNTERPARTS EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original. All
such counterparts,
5
<PAGE> 6
taken together, shall constitute but one and the same Amendment. This Amendment
shall become effective upon the execution of a counterpart of this Amendment by
each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
SAMUELS JEWELERS, INC.,
a Delaware corporation
By /s/ E. PETER HEALEY
-------------------------------------
Title: E. Peter Healey
----------------------------------
Executive Vice President and CFO
----------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent and
as a Lender
By /s/ ROBERT CASTINE
-------------------------------------
Title: Vice President
----------------------------------
LASALLE BUSINESS CREDIT, INC.,
a Delaware corporation
By /s/ HERBERT KIDD
-------------------------------------
Title: S.V.P.
----------------------------------
SUNROCK CAPITAL CORP.,
a Delaware corporation
By /s/ JOHN IRWIN
-------------------------------------
Title: S.V.P.
----------------------------------
6
<PAGE> 7
SCHEDULE C-1
COMMITMENTS AS OF EFFECTIVE DATE OF
AMENDMENT NO. 2 TO THIS AGREEMENT
<TABLE>
<CAPTION>
Lender Commitment
- ------ ----------
<S> <C>
Foothill Capital Corporation $16,000,000
LaSalle Business Credit, Inc. $16,000,000
Sunrock Capital Corp. $ 8,000,000
</TABLE>
7
<PAGE> 8
SCHEDULE P-2
Private Label Accounts
All capitalized terms not separately defined herein are used herein as
defined in the Purchase and Sale Agreement, dated July 27, 1999 between Borrower
and World Financial Network National Bank (the "Agreement").
Private Label Accounts means:
(i) all of the Accounts and the Receivables (excluding all
Ineligible Accounts) as of the Cut-Off Time;
(ii) all Account Documentation;
(iii) all Books and Records;
(iv) all pending Credit Card applications and Borrower's rights
with respect to applications for new Accounts; and
(v) the Cardholder List;
The following terms are defined in the Agreement as follows:
"Account" shall mean (i) a Credit Card accessed open-end consumer
credit account established by Borrower, (ii) the numbers associated with such
accounts, and (iii) any and all rights, remedies, benefits, interests and
titles, both legal and equitable, to which Borrower may be entitled with respect
to any of the foregoing. "Account" shall exclude any Ineligible Accounts.
"Account Documentation" shall mean, with respect to an Account, any
and all documentation from time to time relating to such Account, including,
without limitation, Cardholder Agreements, applications and all legally required
forms, notices and disclosures relating to such applications and Accounts,
historical statements and microfilm records thereof, paper and systemic records
of customer service and collection notes and letters, all computer master file
records and any records of whatever form or nature related to any of the
foregoing, all Transaction Records and all tangible and intangible information,
arising from any of the foregoing or pertaining thereto.
"Books and Records" shall mean all books, records, files, credit or
collection information, periodic statement applications, business records,
reports, correspondence, and other financial and computer data owned by Borrower
for use in connection with, or relating to, the Credit Card Business or the
Private Label Accounts whether in documentary form or on microfilm, microfiche,
magnetic tape, computer disk or other form and whether maintained by Borrower or
an agent or servicer of Borrower.
<PAGE> 9
"Cardholder" shall mean an individual (i) to whom a Credit Card has
been issued pursuant to a Cardholder Agreement, (ii) in whose name an Account,
in connection with which the Credit Card may be used, is established, or (iii)
who is or may become an obligor on the Account.
"Cardholder Agreement" shall mean an agreement between Borrower, on the
one hand, and a Cardholder, on the other hand, under which Credit Cards are
issued, containing the terms and conditions applicable to an Account as such
agreement may be amended, modified and supplemented from time to time.
"Credit Card" shall mean the plastic card or temporary card with the
name "Jewelcard" on it which card is owned by Borrower in respect of an Account
and evidences a Cardholder's right to purchase goods and services on credit.
"Credit Card Business" shall mean, collectively, all the Accounts and
Receivables and all of the elements of Borrower's business of operating the
open-ended credit card revolving retail credit plan.
"Receivables" shall mean any and all amounts owing by Cardholders on
Accounts, including, without limitation, amounts owed due to outstanding
extensions of credit, interest and finance charges (whether billed or accrued)
and fees for returned checks, late payments or otherwise.
Notwithstanding the foregoing, to the extent that any of the Private
Label Accounts are repurchased by or reacquired by Borrower (whether pursuant to
the Agreement or otherwise), such assets shall be Collateral subject to the
security interest of Agent.
<PAGE> 1
EXHIBIT 10.7
PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT
BETWEEN
WORLD FINANCIAL NETWORK NATIONAL BANK
AND
SAMUELS JEWELERS, INC.
DATED AS OF JULY , 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 DEFINITIONS.....................................................................................1
1.1 Certain Definitions.........................................................................1
1.2 Other Definitions...........................................................................5
SECTION 2 THE PLAN........................................................................................5
2.1 Establishment and Operation Of The Plan.....................................................5
2.2 Applications for Credit Under the Plan; Billing Statements..................................6
2.3 Operating Procedures........................................................................7
2.4 Plan Documents..............................................................................7
2.5 Marketing...................................................................................8
2.6 Administration of Accounts..................................................................8
2.7 Credit Decision.............................................................................8
2.8 Ownership of Accounts and Mailing Lists.....................................................8
2.9 Credit Insurance and Enhancement Services...................................................9
2.10 Ownership of Samuels' Name..................................................................9
SECTION 3 OPERATION OF THE PLAN...........................................................................9
3.1 Honoring Credit Cards.......................................................................9
3.2 Additional Operating Procedures.............................................................9
3.3 Cardholder Disputes Regarding Goods or Services............................................10
3.4 No Special Agreements......................................................................10
3.5 Cardholder Disputes Regarding Violations of Law or Regulation..............................11
3.6 Payment to Samuels; Ownership of Accounts; Fees; Accounting................................11
3.7 Insertion of Samuels' Promotional Materials................................................12
3.8 Payments...................................................................................12
3.9 Chargebacks................................................................................13
3.10 Assignment of Title in Charged Back Accounts...............................................13
3.11 Promotion of Program and Card Plan; Non-Competition........................................14
3.12 Postage....................................................................................15
3.13 Reports....................................................................................15
3.14 Contingent Purchase Price..................................................................15
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SAMUELS......................................................17
4.1 Organization, Power and Qualification......................................................17
4.2 Authorization, Validity and Non-Contravention..............................................17
4.3 Accuracy of Information....................................................................18
4.4 Validity of Charge Slips...................................................................18
4.5 Compliance with Law........................................................................18
4.6 Samuels' Name, Trademarks and Service Marks................................................18
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS, CONTINUED
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 5 COVENANTS OF SAMUELS...........................................................................19
5.1 Notices of Changes.........................................................................19
5.2 Financial Statements.......................................................................19
5.3 Inspection.................................................................................19
5.4 Samuels' Business..........................................................................18
5.5 Samuels' Stores............................................................................19
SECTION 6 REPRESENTATIONS AND WARRANTIES OF BANK.........................................................20
6.1 Organization, Power and Qualification......................................................20
6.2 Authorization, Validity and Non-Contravention..............................................20
6.3 Accuracy of Information....................................................................20
6.4 Compliance with Law........................................................................20
SECTION 7 COVENANTS OF BANK..............................................................................21
7.1 Notices of Changes.........................................................................21
7.2 Inspection.................................................................................21
7.3 Bank's Business............................................................................21
SECTION 8 INDEMNIFICATION................................................................................21
8.1 Indemnification Obligations................................................................22
8.2 Limitation on Liability....................................................................22
8.3 No Warranties..............................................................................22
8.4 Notification of Indemnification; Conduct of Defense........................................23
SECTION 9 TERM AND TERMINATION...........................................................................23
9.1 Term.......................................................................................23
9.2 Termination with Cause by Bank; Bank Termination Events....................................23
9.3 Termination with Cause by Samuels; Samuels Termination Events..............................24
9.4 Termination of Particular State............................................................25
9.5 [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC]....................................26
9.6 Obligations not Affected by Termination....................................................26
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS, CONTINUED
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 10 MISCELLANEOUS.................................................................................26
10.1 Entire Agreement...............................................................................26
10.2 Coordination of Public Statements..............................................................26
10.3 Amendment......................................................................................26
10.4 Successors and Assigns.........................................................................26
10.5 Waiver.........................................................................................27
10.6 Severability...................................................................................27
10.7 Notices........................................................................................27
10.8 Captions and Cross-References..................................................................27
10.9 Governing Law..................................................................................27
10.10 Counterparts...................................................................................27
10.11 Force Majeure..................................................................................28
10.12 Year 2000 Compliance...........................................................................28
10.13 Relationship of Parties........................................................................28
10.14 Survival.......................................................................................29
10.15 Mutual Drafting................................................................................29
10.16 Independent Contractor.........................................................................29
10.17 No Third Party Beneficiaries...................................................................29
10.18 Counterparts...................................................................................29
10.19 Confidentiality................................................................................29
10.20 Purchase Agreement.............................................................................31
10.21 Additional Documentation.........................................................................
SCHEDULES
1.1 Discount Rate .................................................................................32
2.1 Service Standards..............................................................................33
2.4 Credit Collateral Specifications...............................................................34
2.8 Monthly Master File Information................................................................55
3.13 Reports........................................................................................56
</TABLE>
iii
<PAGE> 5
PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT
THIS PRIVATE LABEL CREDIT CARD PROGRAM AGREEMENT is made as of this day
of July, 1999, by and between Samuels Jewelers, Inc. with its principal office
at 2914 Montopolis, Suite 200, Austin, Texas 78741 (hereinafter referred to as
"Samuels"), and WORLD FINANCIAL NETWORK NATIONAL BANK, with its principal office
at 800 TechCenter Drive, Gahanna, Ohio 43230, (hereinafter referred to as
"Bank").
RECITALS:
WHEREAS, Samuels has requested Bank to extend credit, to qualifying
individuals in the form of private label open-ended credit card accounts for the
purchase of Goods and Services from Samuels' Stores and to issue Credit Cards to
such individuals; and
WHEREAS, Bank shall own the Accounts, and Cardholder payments will be
sent to such location as Bank shall from time to time direct; and
WHEREAS, subject to the terms of Section 10.20 hereof, Bank shall
purchase from Samuels those certain eligible private label credit card accounts
owned by Samuels bearing the name Samuels Jewelers, Schubach's Jewelers,
Hatfield Jewelers, A. Hirsch & Son or Mission Jewelers (the "Existing Accounts")
which are conveyed to Bank pursuant to a purchase agreement to be entered into
between Bank and Samuels; and
WHEREAS, Bank shall operate and administer a program of private label
credit card accounts which shall include both the Existing Accounts and the new
Accounts created by Bank.
WHEREAS, Bank has agreed to extend credit under the Accounts subject to
the terms and conditions as more fully set forth herein.
NOW THEREFORE, in consideration of the terms and conditions hereof, and
for other good and valuable consideration, the receipt of which is hereby
mutually acknowledged by the parties, Bank and Samuels agree as follows:
SECTION 1. DEFINITIONS
1.1 Certain Definitions. As used herein and unless otherwise required
by the context, the following terms shall have the following respective
meanings:
"Account" shall mean an individual open-end revolving line of credit
established by Bank for a Customer pursuant to the terms of a Credit
Card Agreement, including without limitation, upon acquisition from
Samuels, each of the Existing Accounts;
"Agreement" shall mean this Private Label Credit Card Program Agreement
and any future amendments or supplements thereto.
Page 1
<PAGE> 6
"Applicable Law" shall mean any applicable federal, state or local law,
rule, or regulation.
"Applicant" shall mean an individual who is a Customer of Samuels'
Stores, who applies for an Account under the Plan.
"Business Day" shall mean any day, except Saturday, Sunday or a day on
which banks in Ohio are required to be closed.
"Cardholder" shall mean any natural person to whom an Account has been
issued by Bank and/or any authorized user of the Account.
"Charge Data" shall mean Account identification and transaction
information with regard to each Purchase by Cardholders on credit and
each return of a Purchase or a credit to the Account.
"Charge Slip" shall mean a sales receipt, register receipt tape,
invoice or other documentation, whether in hard copy or electronic
form, in each case evidencing a Purchase that is to be charged to a
Cardholder's Account.
"Contingent Purchase Price Shortfall" shall have the meaning set forth
in Section 3.14 (c).
"Contract Year" shall mean each one-year period (except in the case of
the last Contract Year of the Term, which shall end on the termination
date) commencing on the first day of the first full calendar month
following the start of Bank's processing of Net Proceeds and each
anniversary thereof.
"Credit Card" shall mean the plastic credit card issued by Bank to
qualifying Applicants exclusively for purchasing Goods and Services
pursuant to the Plan.
"Credit Card Agreement" shall mean the open-end revolving credit
agreement between a Cardholder and Bank governing the Account and
Cardholder's use of the Credit Card, together with any modifications or
amendments which may be made to such agreement.
"Credit Sales Day" shall mean any day, whether or not a Business Day,
on which Goods and/or Services are sold by Samuels' Stores.
"Credit Slip" shall mean a sales credit receipt or other documentation,
whether in hard copy or electronic form, evidencing a return or
exchange of Goods or a credit on an Account as an adjustment by Samuels
or Samuels' Stores for goodwill or for Services rendered or not
rendered by Samuels' Stores to a Cardholder.
Page 2
<PAGE> 7
"Customer" shall mean any individual who is a customer or potential
customer of Samuels' Stores.
"Deferred Billing Programs" shall mean any special repayment terms
approved by Bank, including without limitation deferred finance
charges, deferred payments and same as cash.
"Discount Fee" shall mean an amount to be charged by Bank equal to Net
Sales multiplied by the Discount Rate.
"Discount Rate" shall have the meaning set forth in Schedule 1.1.
"Existing Accounts" shall have the meaning set forth in the third
recital.
"Extended Term" shall have the meaning set forth in Section 9.1.
"Forms" shall have the meaning set forth in Section 2.4.
"Goods and/or Services" shall mean those goods and/or services sold at
retail by Samuels' Stores as of the date of execution of this Agreement
by Samuels.
"Initial Term" shall have the meaning set forth in Section 9.1.
"Net Proceeds" shall mean Purchases on Accounts, less (i) credits to
Accounts for the return of Goods or adjustments by Samuels and Samuels'
Stores for goodwill or for Services, all as shown in the Transaction
Records (as corrected by Bank in the event of any computational error),
calculated each Business Day, (ii) payments from Cardholders received
by Samuels and Samuels' Stores from Cardholders on Bank's behalf, (iii)
any applicable Discount Fees in effect on the date received by Bank,
(iv) any Contingent Purchase Price Shortfall, and (v) any other fees
required by this Agreement in effect on the date of calculation by
Bank.
"Net Sales" shall mean Purchases, less credits or refunds for Goods and
Services, all as shown in the Transaction Records (as corrected by Bank
in the event of any computational error), calculated each Business Day;
"Net Write-Off Amount" shall mean, for any period, an amount equal to
the Receivables (excluding interest and fees) written-off by Bank minus
the net amount (less attorneys' and agencies' fees and other collection
costs and fees) of cash Recoveries related to written-off Receivables
received during such period.
"Operating Procedures" shall mean Bank's instructions and procedures as
written by Bank and provided to Samuels to be followed by Samuels and
Samuels' Stores in connection with the Plan. Such Operating Procedures
may be amended or modified by Bank from time to time at its sole
discretion; provided, however, unless required by law, Bank shall first
consult with Samuels regarding any proposed changes and a copy of any
such amendment or modification shall be provided to Samuels at least
ten (10) Business Days before its effective date, and for those changes
required by law, notice shall be given as soon as practicable;
"Plan" shall mean the revolving lines of credit established by Bank for
Customers of Samuels' Stores by virtue of this Agreement.
Page 3
<PAGE> 8
"Plan Commencement Date" shall mean the date on which Bank purchases
the Existing Accounts from Samuels.
"Purchase" shall mean a specific extension of credit as provided for
under this Agreement by Bank to a Cardholder for the purchase of Goods
and/or Services.
"Purchase Agreement" shall mean that purchase and sale agreement
referred to in Section 10.20.
"Quick Credit" shall mean an in-store application procedure designed to
open Accounts as expeditiously as possible at point of sale, whereby an
application for an Account is processed without a paper application
being completed by an Applicant. An Applicant's credit card (Visa,
MasterCard, American Express, Discover or other Bank approved private
label card) is electronically read by a terminal that captures the
Applicant's name and credit card account number. Other data as required
by the Operating Procedures is entered into that same terminal by the
Samuels' Store associate. This data is used by Bank to request a credit
bureau report and make a decision whether to approve or decline the
Applicant.
"Receivable" shall mean any and all amounts owing on the date of
calculation on an Account, including, without limitation, principal
balances from outstanding Purchases, accrued finance charges, late fees
and any other fees assessed on the Accounts, less any payments and
credits received with respect to the Accounts as of the close of
business on the preceding day, but excluding any receivables which have
been written-off on the Accounts.
"Recoveries" shall mean payments, net of collection fees and expenses,
including without limitation, agency and attorneys' fees, received on
Accounts previously written-off by Bank.
"Renewal Term" shall have the meaning set forth in Section 9.1.
"Samuels Deposit Account" shall mean a deposit account maintained by
Samuels as set forth in Section 3.6 (a);
"Samuels' Stores" shall mean those certain retail locations selling
Goods and/or Services which, subject to change or adjustment pursuant
to the terms of this Agreement, are owned and operated by Samuels or
which are licensees or franchisees of Samuels and which operate under
any one (1) of the following tradenames: Mission Jewelers, Schubach's
Jewelers, Harts, Hatfield Jewelers, A. Hirsch & Son, or Samuels
Jewelers, Silverman's or the successor store name designated by Samuels
to the 20 (or less) Silverman's Stores which Samuels proposes to
acquire, or any other retail locations included in the Plan pursuant to
Section 3.11(b).
"Statemented Account" shall mean each Account for which a billing
statement is generated within a particular billing cycle; and
"Term" shall mean the Initial Term, the Renewal Term and the Extended
Term.
Page 4
<PAGE> 9
"Transaction Record" shall mean, with respect to each Purchase of Goods
or Services by Cardholders from Samuels' Stores, each credit or return
applicable to a Purchase of Goods or Services, and each payment
received by Samuels and Samuels' Stores from Cardholders on Bank's
behalf: (a) the Charge Slip or Credit Slip corresponding to the
Purchase, credit or return; or (b) an electronic tape or transmission
containing the following information: the Account number of the
Cardholder, the Samuels' Store number at which the Purchase, credit or
return was made, the total of (i) the Purchase price of Goods or
Services purchased or amount of the credit, as applicable, plus (ii)
the date of the transaction, a description of the Goods or Services
purchased, credited or returned and the authorization code, if any,
obtained by Samuels' Store prior to completing the transaction; or (c)
electronic draft capture whereby Samuels' Store electronically
transmits the information described in subsection (b) hereof to a
network provider (selected by Samuels at its expense) of electronic
draft capture transmission, which in turn transmits such information to
Bank by an electronic tape or transmission.
"Year 2000 Compliant" shall mean the ability to correctly process,
sequence, and calculate without interruption, all data and date related
data for all dates to, through and after January 1, 2000, including
leap year calculations.
1.2 Other Definitions. As used herein, terms defined in the
introductory paragraph hereof and in other sections of this Agreement shall have
such respective defined meanings. Defined terms stated in the singular shall
include reference to the plural and vice versa.
SECTION 2. THE PLAN
2.1 Establishment and Operation of the Plan. (a) The Plan is hereby
established for the sole purpose of providing Customer financing for Goods and
Services purchased from Samuels' Stores. Bank shall use reasonable efforts to
commence the Plan in substantially all Samuels' Stores on or before August 27,
1999, or such other date as the parties mutually agree upon in writing. Bank
shall on or after July 15, 1999 commence the Plan in the 20 (or less) Samuels'
Stores operating under the Silverman's name as of June 1, 1999, if acquired by
Samuels. Qualified Applicants desiring to use the Plan shall be granted an
Account by Bank with a credit line in an amount to be determined by Bank in its
discretion for each individual Applicant. Subject to Section 3.6 (d), Bank shall
determine the terms and conditions of the Account to be contained in a Credit
Card Agreement, which Credit Card Agreement shall be subject to change at Bank's
sole discretion upon notice given by Bank to the Cardholders in accordance with
Applicable Law.
Page 5
<PAGE> 10
(b) Commencing on the Plan Commencement Date, Bank shall operate the
Plan in accordance with the Service Standards set forth in Schedule 2.1.
However, Bank shall not be liable for any failure to perform in accordance with
the Service Standards solely to the extent that such failure is the result of an
act or omission of Samuels, Samuels' Stores or a force majeure event specified
in Section 10.1. Samuels will notify Bank at least 45 days in advance of any
sales or other events conducted by Samuels or Samuels' Stores which may result
in increases in customer service inquiries, credit authorizations, Applicants
and/or Purchases volumes. If Samuels fails to notify Bank within such 45 day
time period, Bank shall not be required to meet the Service Standards during
such sales or other events period. If Samuels fails to provide at least 45 days
advance notice, but provides Bank with less advance notice, Bank shall propose
to Samuels in writing the support and Service Standards, if any, which Bank
could offer for the proposed event, and any costs to be borne by Samuels for the
same, and Samuels shall have the option to accept or reject Bank's proposal.
2.2 Applications for Credit Under the Plan; Billing Statements. (a)
Applicants who wish to apply for an Account under the Plan (except for Quick
Credit Applicants) must submit a completed application on a form approved by
Bank, and Bank shall grant or deny the request for credit based solely upon
Bank's credit criteria. Samuels or Samuels' Stores shall provide a copy of the
Credit Card Agreement to the Applicant to be retained for the Applicant's
records. The application shall thereafter be mailed to Bank by Applicant or
submitted by Samuels or Samuels' Stores on behalf of the Applicant. If Bank
grants the request for an Account, Bank will issue a Credit Card to the
Applicant which accesses an individual line of credit in an amount determined by
Bank.
(b) Bank will make available to Samuels a Quick Credit application
procedure for Applicants who wish to purchase, at the time of application, Goods
or Services from Samuels' Stores. If an Applicant wishes to submit a Quick
Credit application, Applicant will provide the information required by Bank to
authorized employees at Samuels' Stores. Such employees will be responsible for
making sure that the Applicant is given the Credit Card Agreement to keep for
his or her records. Samuels' Stores will then promptly transmit the application
information to Bank, and Bank will make the decision to approve or deny the
application based upon Bank's credit criteria. Quick Credit decisions shall be
communicated electronically directly to Samuels' Stores. Bank will issue a
Credit Card to approved Applicants. Samuels shall provide at its own expense
terminals, cash registers or other equipment necessary to handle Quick Credit
based upon Bank's specifications, and shall have the capability to handle Quick
Credit within sixty (60) days after the Plan Commencement Date. [INTENTIONALLY
OMITTED FOR PURPOSES OF FILING WITH SEC.] Bank may offset such fees against
amounts payable by Bank to Samuels.
(c) Samuels agrees that Samuels shall promptly forward all original
applications to Bank for retention as set forth in the Operating Procedures.
Samuels further agrees that it and Samuels' Stores will keep confidential the
information on such applications and copies of applications and shall not
disclose the information to anyone other than authorized representatives of
Bank.
(d) All Cardholders will receive from Bank a periodic statement (the
"Billing Statement") listing the amounts of Purchases made and credits received
and other information, as required by Applicable Law or deemed desirable by
Bank.
Page 6
<PAGE> 11
(e) Bank may at its option, to the extent permitted by Applicable Law,
make available to Samuels Internet application and Charge Slip processing. In
such event, and if Samuels elects to make such Internet applications and
processing available to Customers, Samuels shall be responsible for integrating
and maintaining the Internet application processing on its website at its sole
expense. WFN may impose a different Discount Rate or other fees for Internet Net
Sales and applications, provided that Bank shall notify Samuels in advance from
time to time of the amount of such Discount Rate or other fees, in writing, and
Samuels may elect not to utilize Internet application processing at any time.
2.3 Operating Procedures. Samuels and Samuels' Stores shall observe and
comply with the Operating Procedures and such other reasonable procedures as
Bank may prescribe on not less than ten (10) days prior notice to Samuels
otherwise required by Applicable Law. Samuels shall ensure that Samuels' Stores
are trained regarding the Operating Procedures and shall use commercially
reasonable efforts to ensure their compliance with them.
2.4 Plan Documents. Samuels shall design, with Bank's assistance and
approval, not to be unreasonably withheld, the application, Credit Card, card
mailer and billing statement to be used under the Plan, subject to the
requirements of Applicable Law and the Credit Collateral Specifications
reasonably set by Bank from time to time, the initial specifications are set
forth in Schedule 2.4. The degree to which Samuels' tradenames, trademarks,
servicemarks or logos (collectively referred to as the "Design") appear on
applications, card mailers, Credit Cards, billing statements, letters, and other
documents and forms (collectively, "Forms") is a matter to be determined by Bank
after consultation and coordination with Samuels and subject to Samuels' right
to reject any Form as provided in Section 2.10, and in accordance with
Applicable Law. Bank shall provide at Bank's expense appropriate quantities of
the applications, Credit Card plastics, card mailer and billing statements,
however, there shall only be one Design for these and all other Forms. In the
event Samuels desires more than one Design for the Forms, Samuels shall pay for
the Forms containing any other Design(s) approved by Bank. Samuels shall pay the
costs of all Credit Card plastics, including embossing and encoding, requested
by Samuels for reissuance of Credit Cards to Cardholders (other than
replacements made on an individual basis) as well as the postage costs for the
mailing of such Credit Cards. Bank shall, at its expense, issue new Credit Cards
to the Existing Accounts' Cardholders after completion of the purchase. In the
event any Forms become obsolete as a result of changes requested by Samuels
(other than changes required by Applicable Law), Samuels shall reimburse Bank
for the costs associated with any unused obsolete Forms.
2.5 Marketing. Samuels agrees to prominently advertise and actively
promote the Plan wherever Applicants can apply for an Account. Bank and Samuels
will cooperate to execute programs to market the Plan, both initially and on a
continuing basis. Once Samuels and Bank agree upon standards for advertising and
promotion and the use of Bank's and Samuels' names or any trademark, service
mark or trade name of Bank and Samuels, neither party will deviate from such
standards without express prior approval of the other party.
2.6 Administration of Accounts. Bank shall perform all functions
necessary to administer and service the Accounts, including but not limited to:
making all necessary credit investigations; notifying Applicants in writing of
acceptance or rejection of credit; preparing and mailing billing statements;
making collections; processing adjustments, handling Cardholder inquiries, and
processing payments.
Page 7
<PAGE> 12
2.7 Credit Decision. The decision to extend credit to any Applicant
under the Plan shall be Bank's decision. Bank will consult in good faith with
Samuels regarding Bank's development of credit standards and scorecards in order
to maximize the potential of the Plan and mutually benefit Bank and Samuels.
Samuels may from time to time request Bank to consider offering certain types of
special credit programs. Bank shall reasonably consider Samuels' requests and
negotiate with Samuels in good faith. However, Bank shall, in its sole
discretion, subject to Applicable Laws and safety and soundness considerations,
determine whether or not to offer any of such programs. In the event Bank agrees
to any special credit program, Bank and Samuels shall mutually agree upon any
special terms associated with the program.
2.8 Ownership of Accounts and Mailing Lists. The Accounts and all
information related thereto, including without limitation the receivables,
names, addresses, credit and transaction information of Cardholders, as set
forth in Bank's records shall be the exclusive property of Bank during and after
the Term of this Agreement unless the Accounts are purchased by Samuels pursuant
to Section 9. Bank will not transfer, sell or otherwise disclose the Account
information to competitors of Samuels. Bank shall have the right to take a
security interest in the Goods purchased with an Account to the extent permitted
by Applicable Law. During the Term of this Agreement, Bank shall provide to
Samuels on or before the 7th Business Day of the following month one (1) master
file tape containing the information set forth on Schedule 2.8, provided such
information resides on Bank's system and any other information agreed to by Bank
and Samuels, to the extent permitted by Applicable Law, (but excluding any
Cardholders who have requested that such information not be shared or
disclosed), which Samuels may use solely for the purpose of marketing its Goods
and Services to Cardholders as permitted by Applicable Law. Bank shall provide
Samuels with additional master file tapes, or extracts, as requested by Samuels
at Bank's then current (commercially reasonable) price for such files or
extracts. Samuels shall keep such Cardholder information confidential (unless
such information was obtained independently by Samuels from the Cardholder and
the Cardholder has not requested any restriction on disclosure of such
information), and shall not sell, lease or transfer such information to any
third party without Bank's prior written consent. The names and addresses of
Customers, as set forth in Samuels' records, shall be the exclusive property of
Samuels, but Samuels, subject to Applicable Law, shall make the names and
addresses of Customers available to Bank during the Term of this Agreement to be
used only for purposes of solicitation of Applicants by Bank and administration
of the Plan in accordance with the terms of this Agreement.
2.9 Credit Insurance and Enhancement Services. (a) Bank will make
available to Cardholders various types of credit-related insurance products
offered by Bank and/or its vendors or affiliates. Such products shall include,
but not be limited to, credit life, accidental death and disability insurance.
(b) Bank will make available to Cardholders various types of other
products and services. Such products and services may include but are not
limited to travel clubs, legal services and renters insurance.
(c) Samuels will assist Bank in the offering of such products and
services so long as such support will not require Samuels to obtain a license of
any kind or incur any direct expense or cost with respect to the offering or
sale of any such products and services. [INTENTIONALLY OMITTED FOR PURPOSES OF
FILING WITH SEC].
Page 8
<PAGE> 13
2.10 Ownership of Samuels' Name. Anything in this Agreement to the
contrary notwithstanding, Samuels shall retain all rights in and to Samuels'
name and the name selected by Samuels for use on the Credit Card and all
trademarks, service marks and other rights pertaining to such names
(collectively, the "Name Rights") and all goodwill associated with the use of
the Name Rights whether under this Agreement or otherwise shall inure to the
benefit of Samuels. Samuels shall have the right, in its sole and absolute
discretion, to prohibit the use of any of its Name Rights in any Forms,
advertisements or other materials proposed to be used by Bank which Samuels in
its reasonable business judgment deems objectionable or improper. Bank shall
cease all use of the Name Rights upon the termination of this Agreement for any
reason unless Bank retains the Accounts after termination of the Agreement, in
which case Bank may use the Name Rights solely in connection with the
administration and collection of the balance due on the Accounts.
SECTION 3. OPERATION OF THE PLAN
3.1 Honoring Credit Cards. Samuels agrees that Samuels and Samuels'
Stores will honor any Credit Card properly issued and currently authorized by
Bank, and shall deliver to Bank all Transaction Records evidencing transactions
made under the Plan in accordance with the provisions of this Agreement and the
Operating Procedures.
3.2 Additional Operating Procedures. In addition to the procedures,
instructions and practices contained in the Operating Procedures, Samuels agrees
that Samuels and Samuels' Stores will comply with the following procedures:
(a) Before completing a Credit Card sale, Samuels' Stores will examine
the Credit Card and Charge Slip and use commercially reasonable efforts to
determine: (i) that the Credit Card appears on its face to be a Credit Card;
(ii) that the Credit Card has been signed; and (iii) that the signature on the
Charge Slip reasonably appears to be the same as the authorized signature
appearing on the Credit Card.
(b) In each Credit Card transaction Samuels and Samuels' Stores must
obtain all the information contained in clause (b) of the definition of
Transaction Record. The date which appears on the Charge Slip or Credit Slip
will be prima facie evidence of the transaction date, and Samuels shall be
required to transmit all Transaction Records relating to such Charge Slip and/or
Credit Slip so that Bank receives such Transaction Records no later than the
second Business Day after the transaction date. From time to time, a Samuels'
Store may be required by Bank to obtain identification from a Cardholder at the
time of sale, and may be required to record this information on the Charge Slip.
The "Cardholder Copy" of each Charge Slip shall be delivered to the Cardholder
at the time of the transaction.
(c) All Charge Slips will evidence the total price of the sale minus
any cash down payment or trade-in. Samuels shall retain the "Merchant Copy" of
all Samuels and Samuels' Store generated Charge and Credit Slips for each
transaction for a period of sixty (60) months from the date of presentation to
Bank.
(d) Samuels and Samuels' Stores will maintain a fair policy for the
exchange and return of Goods and adjustment for Services rendered and for that
purpose will give credit to Accounts upon such exchange, return or adjustment.
Samuels and Samuels' Stores will not make cash refunds to Cardholders on Credit
Card Purchases. If any Goods are
Page 9
<PAGE> 14
returned, price adjustment is allowed, or debt for Services is adjusted, Samuels
and Samuels' Stores will legibly complete, date and sign a Credit Slip in a form
acceptable to Bank; and (ii) deliver a completed legible copy thereof to the
Cardholder. Upon receipt of Transaction Records reflecting a credit to which
there has been a corresponding debit, Bank will either offset against amounts
payable by Bank to Samuels or charge against the Samuels' Deposit Account the
total shown on the Credit Slip, and credit the Cardholder's Account in the
amount of such Credit Slip. If the Samuels' Deposit Account contains
insufficient funds, Samuels shall remit the amount of such Credit Slips, or any
unpaid portion thereof, to Bank within five (5) Business Days after written
demand.
(e) Samuels' Stores shall not accept a transaction to be charged to an
Account without presentation of a Credit Card or proper identification as
outlined in the Operating Procedures.
3.3 Cardholder Disputes Regarding Goods or Services. Samuels and
Samuels' Stores shall act promptly to resolve disputes with Cardholders
regarding Goods or Services obtained through Samuels and Samuels' Stores
pursuant to the Plan. Samuels and Samuels' Stores shall process credits or
refunds for Cardholders utilizing the Plan within three (3) Business Days.
3.4 No Special Agreements. Neither Samuels nor Samuels' Stores will
extract any special agreement, condition or security from Cardholders in
connection with any Charge Slip, except for sales for non-returnable goods,
which statement of non-return must be clearly stated on the Charge Slip.
3.5 Cardholder Disputes Regarding Violations of Law or Regulation.
Samuels shall assist Bank in further investigating and using its reasonable
efforts to help resolve any Applicant or Cardholder claim, dispute, or defense
which may be asserted under Applicable Law.
3.6 Payment to Samuels; Ownership of Accounts; Fees; Accounting. (a)
Samuels shall electronically transmit all Charge Data from Samuels and Samuels'
Stores to Bank in a format acceptable to Bank. Upon receipt, Bank shall use
commercially reasonable efforts to promptly verify and process such Charge Data,
and in the time frames specified herein, Bank will remit to Samuels an amount
equal to the Net Proceeds indicated by such Charge Data for the Credit Sales
Day(s) for which such remittance is made. In the event Bank discovers any
discrepancies in the amount of Charge Data submitted by Samuels or paid by Bank
to Samuels, Bank shall notify Samuels in detail of the discrepancy, and credit
or debit Samuels, as the case may be, in a subsequent daily settlement. Bank
will transfer funds via Automated Clearing House ("ACH") to an account
designated in writing by Samuels to Bank (the "Samuels Deposit Account"). If
Charge Data is received by Bank's processing center before 1:00 p.m. Eastern
time on a Business Day, Bank will initiate such ACH transfer by 12:00 noon
Eastern time on the next Business Day thereafter. In the event that the Charge
Data is received after 1:00 p.m. Eastern time on a Business Day, then Bank will
initiate such transfer no later than 12 noon Eastern time on the second Business
Day thereafter. Bank shall not remit funds to individual Samuels' Stores.
(b) Bank shall own all the Accounts under the Plan from the time of
establishment, and except as otherwise provided herein, neither Samuels nor
Samuels' Stores shall have any right to any indebtedness on an Account or to any
Account payment from a Cardholder arising out of or in connection with any
Purchases under the Plan. Upon
Page 10
<PAGE> 15
the delivery of each Charge Slip by Samuels and Samuels' Stores to Bank, Samuels
and Samuels' Stores shall be deemed to have disclaimed and surrendered all or
any right, title or interest in all such Charge Slips and in all other rights
and writings evidencing such Purchases, if any.
(c) All Transaction Records are subject to review and acceptance by
Bank. In the event of a computational or similar error of an accounting or
record keeping nature with respect to such Transaction Records, Bank may credit
to or charge against (as the case may be) the Samuels' Deposit Account the
proper amount as corrected. Upon any such correction Bank shall give prompt
notice thereof to Samuels.
(d) Subject to Applicable Law and the terms and conditions set forth in
the Credit Card Agreement, Bank shall initially charge each Cardholder (except
for any special and/or promotional programs as set by Bank), a finance charge on
the unpaid balance in their Account at an annual percentage rate equal to not
less than [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC]; a
[INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC] minimum finance charge;
late fees equal to a minimum of [INTENTIONALLY OMITTED FOR PURPOSES OF FILING
WITH SEC]; returned check fees equal to a minimum of [INTENTIONALLY OMITTED FOR
PURPOSES OF FILING WITH SEC]; and a minimum payment requirement of
[INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC]. Bank may make any
changes in the terms of the Credit Card Agreement at any time without notice to
Samuels as required by Applicable Law or on an individual Account by Account
basis in connection with its servicing of the Accounts. With respect to any
other changes in terms affecting the APR or fees charged by Bank, as set forth
above, Bank will, prior to making any changes, discuss such changes with
Samuels. Notwithstanding the foregoing, Bank shall have the sole right to
determine the terms and conditions applicable to the Accounts, however, Bank
shall consult with Samuels regarding such terms and conditions in order to
maximize the potential of the Plan and to make such Plan mutually beneficial to
Bank and Samuels. Bank may at any time change the finance charge calculation
method, including the average daily balance computation.
(e) Samuels and Samuels' Stores shall obtain and maintain at their own
expense such point of sale and authorization terminals and other items of
equipment as are necessary for it to receive authorizations, transmit Charge
Slip and Credit Slip information, process Credit Card applications and perform
its obligations under this Agreement. The methods used to facilitate
communications between Bank and Samuels and Samuels' Stores, including without
limitation, computer programs and telecommunications protocols shall be
determined by Bank from time to time and Bank shall provide Samuels with
reasonable prior notice of any change in such methods. [INTENTIONALLY OMITTED
FOR PURPOSES OF FILING WITH SEC].
(f) Samuels may from time to time offer Deferred Billing Programs to
Cardholders. Samuels shall be responsible for ensuring that all Purchases
subject to any Deferred Billing Programs are properly designated as such on the
Transaction Record in accordance with Bank's instructions.
3.7 Insertion of Samuels' Promotional Materials. Bank will from time to
time insert Samuels' promotional materials for Samuels' Goods and Services,
which are provided by Samuels at Samuels' expense, into the Account billing
statements and new Credit Card mailers, so long as the materials: (a) are
provided to Bank at least ten (10) Business Days prior to the scheduled mailing
date of such statements or notices; (b) if they reference Bank
Page 11
<PAGE> 16
or the Plan in any manner, are approved by Bank as to content, in Bank's
reasonable discretion; (c) meet all size, weight, or other specifications for
such inserts as shall be reasonably set by Bank from time to time, the initial
specifications are set forth in Schedule 2.4; (d) there is sufficient space in
Bank's standard envelope for the insert in addition to any legally required
material, Cardholder notices and other materials which Bank is including in the
mailing; and (e) Samuels pays any and all additional postage costs caused by
Bank's insertion of materials provided by Samuels, if instructed by Samuels to
insert regardless of the additional postage costs.
3.8 Payments. All payments to be made by Cardholders with respect to
any amounts outstanding on the Accounts shall be made in accordance with the
instructions of Bank and at the location or address specified by Bank. Samuels
hereby authorizes Bank, or any of its employees or agents, to endorse "WORLD
FINANCIAL NETWORK NATIONAL BANK" upon all or any checks, drafts, money orders or
other evidence of payment, made payable to Samuels and intended as payment on an
Account, that may come into Bank's possession from Cardholders and to credit
said payment against the appropriate Cardholder's Account. Samuels further
agrees that if Samuels is permitted by Bank to receive any payment made with
respect to the Plan, Samuels and Samuels' Stores will on Bank's behalf hold such
payment in trust for the Cardholder making the payment and will within one (1)
Business Day after receipt transmit the Transaction Records to Bank pursuant to
this Agreement. Bank will offset against amounts payable by Bank to Samuels,
charge the amount of such payment against the Samuels' Deposit Account, or, if
the Samuels' Deposit Account contains insufficient funds, Samuels shall remit
the amount of such payment, or any unpaid portion thereof, to Bank within five
(5) Business Days after upon written demand. Payments made by Cardholders at
Samuels' Stores shall not be deemed received by Bank until Bank receives and
accepts the Transaction Records. Bank has the sole right to receive and retain
all payments made with respect to all Accounts and to pursue collection of all
amounts outstanding, unless an Account or Purchase is charged back to Samuels
pursuant to the provisions of Sections 3.9 and 3.10 hereof. Samuels shall
promptly comply with any written instruction by Bank or any successor to Bank to
cease accepting Account payments and thereafter inform Cardholders who wish to
make payments that payments should be made to Bank.
3.9 Chargebacks. Bank shall have the right to demand immediate purchase
by Samuels of any Purchase or Account and charge back to Samuels the unpaid
balance of any such Purchase or Account, if and whenever:
(a) Any Applicant or Cardholder claim, defense or dispute is asserted
against Bank with respect to such Purchase or Account as a result of an action
or inaction by Samuels and/or Samuels' Stores pursuant to and within the time
limits under Applicable Law, including, but not limited to, a violation by
Samuels and/or Samuels' Stores of the Federal Consumer Credit Protection Act,
Federal Reserve Board Regulation Z or Federal Reserve Board Regulation B, as
amended, regardless of whether such claim, dispute or defense has merit and
without any requirements to conduct an investigation into the merits;
(b) Bank determines in good faith and in its reasonable judgment that
with respect to such Purchase or Account: (i) there is a breach of any warranty
or representation made by or with respect to Samuels under this Agreement; (ii)
there is a failure by Samuels to comply with any term or condition of this
Agreement, which failure shall not have been cured within fifteen days after
receipt of written notice thereof from Bank; (iii) after receipt of a fraud
affidavit from the Cardholder Bank determines that the signature on any Charge
Slip
Page 12
<PAGE> 17
has been forged or is counterfeit; (iv) an application, a Charge Slip or Credit
Slip has not been submitted in compliance with the Operating Procedures; or (v)
Samuels or Samuels' Stores have failed to comply with the Operating Procedures
and such failure has not been cured (or is not capable of being cured) within
fifteen days after receipt of written notice thereof from Bank; and
(c) After 30 days prior written notice to Samuels, an Account or any
Purchase amount is not paid when due, and the Cardholder has stated in writing
that the Cardholder's reason for such nonpayment is an alleged breach of
warranty or representation by Samuels or Samuels' Stores or the result of a
dispute by a Cardholder in connection with the sale of Goods, or the furnishing
of Services by Samuels or Samuels' Stores to such Cardholder.
3.10 Assignment of Title in Charged Back Accounts. With respect to any
amount of a Purchase or an Account to be charged back to and to be purchased by
Samuels, Samuels shall promptly pay such amount directly to Bank in immediately
available funds or Bank will either debit the Samuels' Deposit Account or debit
the Net Proceeds to be paid to Samuels, to the extent the balance thereof is
sufficient. Upon payment or debiting of such amount by Samuels to Bank, Bank
shall assign and transfer to Samuels, without recourse, all of Bank's right,
title and interest in and to such Purchase or Account and deliver all
documentation with respect thereto. Samuels further consents to all extensions
or compromises given any Cardholder with respect to any such Purchase or
Account, and agrees that such shall not affect any liability of Samuels
hereunder or right of Bank to charge back any Account or Purchase as provided in
this Agreement; provided, however, that Bank shall not have the right to charge
back for any Purchase or Account an amount in excess of any reductions,
extensions or compromises in amounts owed by a Cardholder to Bank. Samuels shall
not resubmit or re-transmit any charged back purchases or Accounts to Bank,
without Bank's prior written consent.
3.11 Promotion of Program and Card Plan; Non-Competition. (a)
Throughout the Term of this Agreement, Samuels and Samuels' Stores shall
actively and consistently market, promote, participate in and support the Plan
as set forth in this Agreement. However, Samuels shall not be required to
support or promote the Plan at stores which are subject to a pre-existing
program with another lender which cannot be terminated or are stores which Bank
does not include in the Plan pursuant to Section 3.11(b), nor in stores located
in states terminated pursuant to Section 9.4. Samuels agrees that in
consideration and as an inducement for Bank to make the Plan available to
Samuels as outlined in this Agreement and the Operating Procedures, for as long
as this Agreement is in existence, neither Samuels nor its subsidiaries or
affiliates will, without the prior written consent of Bank, contract or
establish with any other credit card processor/provider or provide or process on
its own behalf any "private label" or "co-brand" revolving credit or other
credit card issuance or processing arrangement or programs similar in purpose to
the Plan or to the services and transactions contemplated under this Agreement,
except that if either party provides notice of termination pursuant to Section
9.1 of this Agreement or if Samuels terminates under Section 9.3, Samuels may
enter into a contract with another credit card processor/provider effective on
or after termination of this Agreement. Notwithstanding the foregoing, nothing
contained in this Agreement will be construed to prohibit or prevent Samuels
from accepting any major general purpose credit card (including without
limitation, American Express Card, MasterCard, Visa, or NOVUS), any form of
general purpose debit card or revolving and/or fixed payment (installment)
credit programs for Applicants declined by Bank, as a means of payment by
Customers for purchase of Goods and Services.
Page 13
<PAGE> 18
(b) [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
3.12 Postage. Any increase(s) in the cost of mailing Account billing
statements or new Credit Cards due to an increase in the first class pre-sort
cost of postage from the United States Postal Service which increase occurs on
or after the date of execution of this Agreement shall be borne by Samuels.
Adjustments will be made for any subsequent decreases in the cost of postage.
Bank will use commercially reasonable efforts to obtain the best bulk rate
discount.
3.13 Reports. Bank will deliver to Samuels the reports in Schedule
3.13. Bank may provide any additional reports requested by Samuels upon such
terms and at the costs mutually agreed to by the parties.
3.14 Contingent Purchase Price. [INTENTIONALLY OMITTED FOR PURPOSES OF
FILING WITH SEC].
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SAMUELS
Samuels hereby represents and warrants to Bank as follows:
4.1 Organization, Power and Qualification. Samuels is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware and has full corporate power and authority to enter into this
Agreement and to carry out the provisions of this Agreement. Samuels is duly
qualified and in good standing to do business in all the states where Samuels is
located, except where the failure to so qualify would not have a material
adverse effect on the business of Samuels, or where the failure to so qualify
would not have a material adverse effect on Samuels' or Bank's ability to
continue operation of the Plan.
4.2 Authorization, Validity and Non-Contravention. (a) This Agreement
has been duly authorized by all necessary corporate proceedings, has been duly
executed and delivered by Samuels and is a valid and legally binding agreement
of Samuels duly enforceable in accordance with its terms (except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and by
general equity principles).
(b) No consent, approval, authorization, order, registration or
qualification of or with any court or regulatory authority or other governmental
body having jurisdiction over Samuels is required for, and the absence of which
would adversely affect, the legal and valid execution and delivery of this
Agreement, and the performance of the transactions contemplated by this
Agreement.
(c) The execution and delivery of this Agreement by Samuels hereunder
and the compliance by Samuels with all provisions of this Agreement (i) will not
conflict with or violate any Applicable Law, and (ii) will not result in a
breach of or default under any of the terms or provisions of any indenture, loan
agreement or other contract or agreement under which Samuels is an obligor or by
which its property is bound where such conflict, breach or default would have a
material adverse effect on Samuels, nor will such execution, delivery or
compliance violate or result in the violation of the Articles of Incorporation
or By-Laws of Samuels.
Page 14
<PAGE> 19
4.3 Accuracy of Information. All factual information furnished by
Samuels to Bank in writing at any time pursuant to any requirement of, or
furnished in response to any written request of Bank under this Agreement or any
transaction contemplated hereby has been, and all such factual information
hereafter furnished by Samuels to Bank will be, true and accurate in every
respect material to the transactions contemplated hereby on the date as of which
such information was or will be stated or certified.
4.4 Validity of Charge Slips. (a) As of the date any Transaction
Records are presented to Bank in accordance with the provisions of this
Agreement, each Charge Slip relating to such Transaction Records shall represent
the obligation of a Cardholder in the respective amount set forth therein for
Goods sold or Services rendered, together with applicable taxes, if any, and
shall not involve any element of credit for any other purpose.
(b) As of the date any Transaction Records are presented to Bank in
accordance with the provisions of this Agreement, Samuels has no actual
knowledge nor should have known, or notice of any fact or matter which would
immediately or ultimately impair the validity of any Charge Slip relating to
such Transaction Records, the transaction evidenced thereby, or its
collectibility.
4.5 Compliance with Law. Any action or inaction taken by Samuels in
connection with the Plan shall be in compliance with all Applicable Law except
where the failure to so comply (i) is caused by some action or inaction of the
Bank, or (ii) would not have an adverse effect on Samuels, the Bank or the Plan.
4.6 Samuels' Name, Trademarks and Service Marks. Samuels has the legal
right to use and to permit the Bank to use, to the extent set forth herein, the
various tradenames, trademarks, logos and service marks utilized by Samuels in
the conduct of its business.
Page 15
<PAGE> 20
SECTION 5. COVENANTS OF SAMUELS
Samuels agrees that during the Term of this Agreement, Samuels shall:
5.1 Notices of Changes. Samuels will as soon as reasonably possible
notify Bank of any: (a) actual or planned change in the name or form of business
organization of Samuels, change in the location of its chief executive office or
the location of the office where its records concerning the Plan are kept; (b)
actual or planned merger or consolidation of Samuels or the sale of a
significant portion of its stock or of any substantial amount of its assets not
in the ordinary course of business or any change in the control of Samuels; (c)
material adverse change in its financial condition or operations or the
commencement of any litigation which would have a material adverse effect on
Samuels; or (d) the planned opening or closing of any Samuels' Store. Samuels
will furnish such additional information with respect to any of the foregoing as
Bank may request for the purpose of evaluating the effect of such change on the
financial condition and operations of Samuels and on the Plan.
5.2 Financial Statements. Samuels shall furnish to Bank as soon as
available the following information pertaining to Samuels: (a) a consolidated
balance sheet as of the close of each fiscal year; (b) a consolidated statement
of income, retained earnings and paid-in capital to the close of each fiscal
year; (c) a consolidated statement of cash flow to the close of each such
period; (d) a copy of the opinion submitted by Samuels' independent certified
public accountants in connection with such of the financial statements as have
been audited, and (e) on a monthly basis the total volume of sales of Goods and
Services.
5.3 Inspection. Samuels will permit authorized representatives
designated by Bank, at Bank's expense, to visit and inspect its corporate
offices and any of the Samuels' Stores, including its books of account
pertaining to Transaction Records and to make copies and take extracts
therefrom, and to discuss the same with its officers and independent public
accountants, all at such reasonable times during normal business hours, as often
as may be reasonably requested, not more frequently than once per Contract Year,
unless Bank has reasonable cause to do so.
5.4 Samuels' Business. Samuels shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and to comply with all Applicable Laws in connection with its business and the
sale of Goods and Services. Samuels shall provide to Bank annually a copy of
Samuels' operating plan for the next one (1) year or a longer period if
available.
5.5 Samuels' Stores. Samuels shall cause all of Samuels' Stores to
comply with the obligations, restrictions, limitations and prohibitions of this
Agreement as such are applicable at the point of sale of the Goods and Services.
Page 16
<PAGE> 21
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BANK
Bank hereby represents and warrants to Samuels as follows:
6.1 Organization, Power and Qualification. Bank is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States of America and has full corporate power and authority to
enter into this Agreement and to carry out the provisions of this Agreement.
Bank is duly qualified in all jurisdictions where such qualification is
necessary for Bank to carry out its obligations under this Agreement.
6.2 Authorization, Validity and Non-Contravention. (a) This Agreement
has been duly authorized by all necessary corporate proceedings, has been duly
executed and delivered by Bank and is a valid and legally binding agreement of
Bank duly enforceable in accordance with its terms (except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights generally and by general equity
principles).
(b) No consent, approval, authorization, order, registration or
qualification of or with any court or regulatory authority or other governmental
body having jurisdiction over Bank is required for, and the absence of which
would materially adversely affect, the legal and valid execution and delivery of
this Agreement, and the performance of the transactions contemplated by this
Agreement.
(c) The execution and delivery of this Agreement by Bank hereunder and
the compliance by Bank with all provisions of this Agreement (i) will not
conflict with or violate any Applicable Law, (ii) will not conflict with or
result in a breach of the terms or provisions of any indenture, loan agreement
or other contract or agreement under which Bank is an obligor or by which its
property is bound where such conflict, breach or default would have a material
adverse effect on Bank, nor will such execution, delivery or compliance violate
or result in the violation of the Charter or By-Laws of Bank.
6.3 Accuracy of Information. All factual information furnished by Bank
to Samuels in writing at any time pursuant to any requirement of, or furnished
in response to any written request of Samuels under this Agreement or any
transaction contemplated hereby has been, and all such factual information
hereafter furnished by Bank to Samuels will be true and accurate in every
respect material to the transactions contemplated hereby on the date as of which
such information has or will be stated or certified.
6.4 Compliance with Law. The Plan and each Credit Card Agreement comply
and will comply with all Applicable Law except where the failure to so comply:
(i) is caused by some action or inaction of Samuels or Samuels' Stores; or (ii)
would not have an adverse effect on the Bank, Samuels or the Plan.
Page 17
<PAGE> 22
SECTION 7. COVENANTS OF BANK
Bank agrees that during the Term of this Agreement, Bank shall:
7.1 Notices of Changes. Bank will as soon as reasonably possible notify
Samuels of any: (a) actual or planned change in the name or form of business
organization of Bank, change in the location of its chief executive office or
the location of the office where its records concerning the Plan are kept; (b)
actual or planned merger or consolidation of Bank or the sale of a significant
portion of its stock or of any substantial amount of its assets not in the
ordinary course of business or any change in the control of Bank; (c) material
adverse change in its financial condition or operations or the commencement of
any litigation which would have a material adverse effect on the Plan. Bank will
furnish such additional information with respect to any of the foregoing as
Samuels may request for the purpose of evaluating the effect of such transaction
on the financial condition and operations of Bank and on the Plan.
7.2 Inspection. Bank will permit, once per Contract Year unless Samuels
has reasonable cause to do so more frequently, authorized representatives
designated by Samuels, at Samuels' expense, to visit and inspect, to the extent
permitted by Applicable Law, any of Bank's books and records (not including
Bank's internal profit and loss statement) pertaining to the Accounts, the
credit insurance and enhancement services set forth in Section 2.9, and
Purchases and to make copies and take extracts therefrom, and to discuss the
same with its officers and independent public accountants, all at such
reasonable times during normal business hours and as often as may be reasonably
requested. Bank shall permit Samuels, during normal business hours and upon
reasonable notice, and in a manner which does not disrupt the operations, to
visit the offices at which services relating to the Plan are provided, to
monitor the activities of Bank and its subcontractors and to discuss the Plan
and the services with Bank's and its subcontractors' management personnel.
7.3 Bank's Business. Bank shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and to comply with all Applicable Laws in connection with its business and the
issuance of credit by Bank. Bank shall use commercially reasonable efforts to
prevent unauthorized access to its computer systems.
SECTION 8. INDEMNIFICATION
8.1 Indemnification Obligations. (a) Samuels shall be liable to and
shall indemnify and hold Bank and its affiliates, subsidiaries and parent and
their respective officers, directors, employees, subcontractors and their
successors and assigns, harmless from any and all Losses (as hereinafter
defined) to the extent they arise from: (i) Samuels' breach of any
representation, warranty or covenant hereunder, (ii) Samuels' failure to perform
its obligations hereunder, (iii) any Goods or Services charged to an Account,
and (iv) any action or failure to act by Samuels and/or Samuels' Stores and
their respective officers, directors and employees, which results in a claim
against Bank, its officers, employees, affiliates, subsidiaries, and parent,
unless the proximate cause of any such claim is an act or failure to act by
Bank, its officers, directors or employees.
(b) Bank shall be liable to and shall indemnify and hold Samuels and
its affiliates, subsidiaries and parent and their respective officers,
directors, employees, sub-contractors
Page 18
<PAGE> 23
and their successors and assigns, harmless from any and all Losses (as
hereinafter defined) to the extent they arise from: (i) Bank's breach of any
representation, warranty or covenant hereunder, (ii) Bank's failure to perform
its obligations hereunder, and (iii) any action or failure to act by Bank and
its officers, directors, and employees which results in a claim against Samuels,
its officers, employees, affiliates, subsidiaries and parent, unless the
proximate cause of any such claim is an act or failure to act by Samuels or
Samuels' Stores and their respective officers, directors or employees.
(c) For purposes of this Section 8.1 the term "Losses" shall mean any
liability, damage, costs, fees, losses, judgments, penalties, fines, and
expenses, including without limitation, any reasonable attorneys' fees,
disbursements, settlements (which require the other party's consent which shall
not be unreasonably withheld), and court costs, reasonably incurred by Bank or
Samuels, as the case may be, without regard to whether or not such Losses would
be deemed material under this Agreement except that Losses may not include any
overhead costs that either party would normally incur in conducting its everyday
business.
8.2 LIMITATION ON LIABILITY. (a) IN NO EVENT SHALL BANK BE LIABLE FOR
ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT. BANK'S TOTAL ANNUAL LIABILITY TO SAMUELS FOR ALL DAMAGES FOR ANY
CAUSE WHATSOEVER OCCURRING DURING ANY YEAR OF THE TERM OF THIS AGREEMENT, SHALL
NOT EXCEED TEN PERCENT (10%) OF THE ACTUAL DISCOUNT FEES RECEIVED BY BANK FROM
SAMUELS DURING SUCH YEAR. BANK'S TOTAL CUMULATIVE LIABILITY TO SAMUELS FOR ALL
DAMAGES FOR ANY CAUSE WHATSOEVER, SHALL NOT EXCEED TEN PERCENT (10%) OF THE
ACTUAL DISCOUNT FEES RECEIVED BY BANK FROM SAMUELS DURING THE TERM OF THIS
AGREEMENT.
(b) IN NO EVENT SHALL SAMUELS BE LIABLE FOR ANY INCIDENTAL, INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT. SAMUELS' TOTAL
ANNUAL LIABILITY TO BANK FOR ALL DAMAGES FOR ANY CAUSE WHATSOEVER OCCURRING
DURING ANY YEAR OF THE TERM OF THIS AGREEMENT, SHALL NOT EXCEED TEN PERCENT
(10%) OF THE ACTUAL DISCOUNT FEES PAID BY SAMUELS TO BANK DURING SUCH YEAR.
SAMUELS' TOTAL CUMULATIVE LIABILITY TO BANK FOR ALL DAMAGES FOR ANY CAUSE
WHATSOEVER, SHALL NOT EXCEED TEN PERCENT (10%) OF THE ACTUAL DISCOUNT FEES PAID
BY SAMUELS TO BANK DURING THE TERM OF THIS AGREEMENT.
8.3 NO WARRANTIES. EXCEPT AS PROVIDED HEREIN, THERE ARE NO EXPRESS OR
IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, RESPECTING THE SERVICES AND/OR OTHER PRODUCTS
SOLD OR PROVIDED BY BANK PURSUANT TO THIS AGREEMENT. THE REMEDIES SET FORTH IN
THIS SECTION WITH RESPECT TO SUCH SERVICES AND/OR OTHER PRODUCTS ARE THE SOLE
REMEDIES RELATING TO BANK'S LIABILITY TO SAMUELS FOR MONEY DAMAGES.
8.4 Notification of Indemnification; Conduct of Defense. (a) In no case
shall the indemnifying party be liable under Section 8.1 of this Agreement with
respect to any claim or claims made against the indemnified party or any other
person so indemnified unless it shall be notified in writing of the nature of
the claim within a reasonable time after the
Page 19
<PAGE> 24
assertion thereof, but failure to so notify the indemnifying party shall not
relieve it from any liability which it may have under other provisions of this
Agreement.
(b) The indemnifying party shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, within a reasonable time after
receipt of such notice, to assume the defense of any suit brought to enforce any
such claim, but, if it so elects to assume the defense, such defense shall be
conducted by counsel chosen by it and approved by the indemnified party or the
person or persons so indemnified, who are the defendant or defendants in any
suit so brought, which approval shall not be unreasonably withheld. If the
indemnifying party elects to assume the conduct of the defense of any suit
brought to enforce any such claim and retains counsel to do so, the indemnified
party or the person or persons so indemnified who are the defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel thereafter retained by the indemnified party or such other person or
persons.
SECTION 9. TERM AND TERMINATION
9.1 Term. This Agreement shall have an initial term (the "Initial
Term") commencing on the date of execution set forth in the first paragraph on
Page 1 and ending on the fifth anniversary of the Plan Commencement Date and
shall automatically renew for an additional two-year term (the "Renewal Term")
unless Bank provides Samuels with at least six (6) month's written notice of its
intention to terminate the Agreement prior to the expiration of the Initial
Term, or unless otherwise terminated as provided herein. At the end of the
Renewal Term, this Agreement shall continue in full force and effect (the
"Extended Term") until terminated by either Bank or Retailer by giving to the
other at least six (6) month's prior written notice of its intention to
terminate the Agreement, or unless otherwise terminated as provided herein.
9.2 Termination with Cause by Bank; Bank Termination Events. Any of the
following conditions or events shall constitute a "Bank Termination Event"
hereunder, and Bank may terminate this Agreement immediately without further
action if Samuels causes such Bank Termination Event to occur and be continuing:
(a) If Samuels shall (i) generally not pay its debts as they become
due; (ii) file, or consent by answer or otherwise to the filing against it, of a
petition for relief, reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction; (iii) make an assignment for the benefit of its
creditors; (iv) consent to the appointment of a custodian, receiver, trustee or
other officer with similar powers of itself or of any substantial part of its
property; (v) be adjudicated insolvent or be liquidated; (vi) take corporate
action for the purpose of any of the foregoing; (vii) have a materially adverse
change in its financial condition; (viii) receive an adverse opinion by its
auditors or accountants as to its viability as a going concern; or (ix) breach
or fail to perform or observe any covenant or agreement contained in any loan
agreement, debt instrument or any other contract or agreement to which it is
bound, which results in an acceleration of debt in an amount outstanding equal
to or greater than $1,000,000.
(b) If a court or government authority of competent jurisdiction shall
enter an order appointing, without consent by Samuels, a custodian, receiver,
trustee or other officer with similar powers with respect to it or with respect
to any substantial part of its property, or if an order for relief shall be
entered in any case or proceeding for liquidation or
Page 20
<PAGE> 25
reorganization or otherwise to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the dissolution, winding up or liquidation
of Samuels, or if any petition for any such relief shall be filed against
Samuels and such petition shall not be dismissed within 60 days; or
(c) If Samuels shall default in the performance of or compliance with
any term or violates any of the covenants, representations, warranties or
agreements contained in this Agreement and Samuels shall not have remedied such
default within thirty (30) days after written notice thereof shall have been
received by Samuels from Bank; or
(d) If Samuels is acquired by, or merges or consolidates with or into
any other corporation (other than with a subsidiary or affiliate of Samuels)
without the prior written consent of Bank, Samuels terminates or otherwise
ceases its business operations or Samuels sells, transfers, abandons or
otherwise disposes of all or substantially all of its assets.
(e) If Bank exercises its option to terminate pursuant to Section 3.6
(e) and has provided Samuels with the notice required therein.
9.3 Termination with Cause by Samuels; Samuels Termination Events. Any
of the following conditions or events shall constitute a "Samuels Termination
Event" hereunder, and Samuels may terminate this Agreement immediately without
further action if Bank causes such Samuels Termination Event to occur and be
continuing:
(a) If Bank shall (i) generally not be paying its debts as they become
due; (ii) file or consent by answer or otherwise to the filing against it, of a
petition for relief, reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction; (iii) make an assignment for the benefit of its
creditors; (iv) consent to the appointment of a custodian, receiver, trustee or
other officer with similar powers of itself or of any substantial part of its
property; (v) be adjudicated insolvent or be liquidated; (vi) take corporate
action for the purpose of any of the foregoing and such event shall materially
adversely affect the ability of Bank to perform under this Agreement or the
operation of the Plan; (vii) have a materially adverse change in its financial
condition; (viii) receive an adverse opinion by its auditors or accountants as
to its viability as a going concern; or (ix) breach or fail to perform or
observe any covenant or agreement contained in any loan agreement, debt
instrument or any other contract or agreement to which it is bound, which
results in an acceleration of debt in an amount outstanding equal to or greater
than $5,000,000.
(b) If a court or government authority of competent jurisdiction shall
enter an order appointing, without consent by Bank, a custodian, receiver,
trustee or other officer with similar powers with respect to it or with respect
to any substantial part of its property, or if an order for relief shall be
entered in any case or proceeding for liquidation or reorganization or otherwise
to take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding up or liquidation of Bank, or if any petition
for any such relief shall be filed against Bank and such petition shall not be
dismissed within sixty (60) days; or
(c) If Bank shall default in the performance of or compliance with any
term or violates any of the covenants, representations, warranties or agreements
contained in this Agreement and Bank shall not have remedied such default within
thirty (30) days ten (10)
Page 21
<PAGE> 26
days in the case of failure to pay Samuels pursuant to Section 3.6(a)) after
written notice thereof shall have been received by Bank from Samuels; or
(d) [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
(e) [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
9.4 Termination of Particular State. In addition, Bank may terminate
the operation of the Plan in a particular state (immediately in the case of
9.4(i) and upon one- hundred eighty (180) days prior written notice in the case
of 9.4(ii)) (i) if the Applicable Law of the state or jurisdiction is amended or
interpreted in such a manner so as to render all or any material part of the
Plan illegal or unenforceable; or (ii) there is a material change in
circumstances after the date hereof that causes or will cause Bank's operation
and administration of the Plan to become materially burdensome. [INTENTIONALLY
OMITTED FOR PURPOSES OF FILING WITH SEC].
9.5 [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
9.6 Obligations not Affected by Termination. The termination of this
Agreement or termination of the Plan in a particular state pursuant to the
provisions of Section 9 hereof shall not, in any case, affect the obligations of
the parties with respect to Section 8, Section 9.5, Section 3.14, Section 10.9,
Section 10.14 hereof, the obligations of Samuels with respect to complaints and
inquiries concerning billings and merchandise under the provisions of Sections 2
or 3 hereof or with respect to the chargeback provisions of Section 3.9 and 3.10
above, the obligations of Bank under Sections 2.10 and 3.10, and the parties'
respective obligations under these Sections shall continue so long as any
Accounts remain in existence.
SECTION 10. MISCELLANEOUS
10.1 Entire Agreement. This Agreement constitutes the entire Agreement
and supersedes all prior agreements and understandings, whether oral or written,
among the parties hereto with respect to the subject matter hereof and merges
all prior discussions between them.
10.2 Coordination of Public Statements. Neither party will make any
public announcement of the Plan or provide any information concerning the Plan
to any representative of any news, trade or other media without the prior
approval of the other party, and will not respond to any inquiry from any public
or governmental authority, except as required by law, concerning the Plan
without prior consultation and coordination with the other party. This Section
10.2 shall not apply to SEC filings.
10.3 Amendment. Except as otherwise provided for in this Agreement, the
provisions herein may be modified only upon the mutual agreement of the parties,
however, no such modification shall be effective until reduced to writing and
executed by both parties.
10.4 Successors and Assigns. This Agreement and all obligations and
rights arising hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, transferees and assigns. Samuels
may not assign its rights and obligations under this Agreement without the prior
written consent of Bank, which shall not be unreasonably withheld. The transfer
of control of Samuels or a majority of the
Page 22
<PAGE> 27
outstanding capital stock of Samuels, the sale of substantially all of the
assets of Samuels or the merger of Samuels with another corporation or other
entity shall not constitute an assignment of this Agreement or of Samuels'
rights and obligation hereunder.
10.5 Waiver. No waiver of the provisions hereto shall be effective
unless in writing and signed by the party to be charged with such waiver. No
waiver shall be deemed to be a continuing waiver in respect of any subsequent
breach or default either of similar or different nature unless expressly so
stated in writing. No failure or delay on the part of either party in exercising
any power or right under this Agreement shall be deemed to be a waiver, nor does
any single or partial exercise of any power or right preclude any other or
further exercise, or the exercise of any other power or right.
10.6 Severability. If any of the provisions or parts of the Agreement
are determined to be illegal, invalid or unenforceable in any respect under any
applicable statute or rule of law, such provisions or parts shall be deemed
omitted without affecting any other provisions or parts of the Agreement which
shall remain in full force and effect, unless the declaration of the illegality,
invalidity or unenforceability of such provision or provisions substantially
frustrates the continued performance by, or entitlement to benefits of, either
party, in which case this Agreement may be terminated by the affected party,
without penalty.
10.7 Notices. All communications and notices pursuant hereto to either
party shall be in writing and addressed or delivered to it at its address shown
below, or at such other address as may be designated by it by notice to the
other party, and shall be deemed given when delivered by hand, or two (2)
Business Days after being mailed (with postage prepaid) or when sent by
receipted courier service:
If to Bank: If to Samuels:
800 TechCenter Drive 2914 Montopolis, Suite 200
Gahanna, OH 43230 Austin, Texas 78741
Attn.: Daniel T. Groomes, President Attn.: E. Peter Healey
With a Copy to: With a Copy to:
Karen A. Morauski, Counsel Doug Bullock
10.8 Captions and Cross-References. The table of contents and various
captions in this Agreement are included for convenience only and shall not
affect the meaning or interpretation of any provision of this Agreement.
References in this Agreement to any Section are to such Section of this
Agreement.
10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF OHIO, REGARDLESS OF THE DICTATES
OF OHIO CONFLICTS OF LAW, AND THE PARTIES HEREBY SUBMIT TO EXCLUSIVE
JURISDICTION AND VENUE IN THE UNITED STATES FEDERAL DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OHIO OR ANY OF THE STATE COURTS LOCATED IN FRANKLIN COUNTY,
OHIO.
10.10 Counterparts. This Agreement may be signed in one or more
counterparts, all of which shall be taken together as one agreement.
10.11 Force Majeure. Neither party will be responsible for any failure
or delay in performance of its obligations under this Agreement because of
circumstances beyond its
Page 23
<PAGE> 28
control, including, but not limited to, acts of God, flood, criminal acts, fire,
riot, accident, strikes or work stoppage, embargo, sabotage, inability to obtain
material, equipment or phone lines, government action (including any laws,
ordinances, regulations or the like which restrict or prohibit the providing of
the services contemplated by this Agreement), and other causes whether or not of
the same class or kind as specifically named above. In the event a party is
unable to perform substantially for any of the reasons described in this
Section, it will notify the other party promptly of its inability so to perform,
and if the inability continues for at least one-hundred and eighty (180)
consecutive days [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC], the
party so notified may then terminate this Agreement forthwith. This provision
shall not, however, release the party unable to perform from using its best
efforts to avoid or remove such circumstance and such party unable to perform
shall continue performance hereunder with the utmost dispatch whenever such
causes are removed. [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
10.12 Year 2000 Compliance. (a) Bank shall use commercially reasonable
efforts to ensure that software or systems proprietary to Bank and used in the
performance of its Services hereunder shall be Year 2000 Compliant. However,
Bank shall not be responsible for: (i) software or system failures based on
improvements, enhancements, modifications or updates to, and any inaccuracies,
delays, interruptions, or errors caused by any software or systems that are not
proprietary to Bank; (ii) any inaccuracies, delays, interruptions or errors
occurring as a result of incorrect data or data from other systems, software,
hardware, processes or third parties provided in a format that is inconsistent
with the format and protocols established for the Bank software and systems
including date data in two-digit format, even if such data is required for the
operation of the software or systems; and (iii) any inaccuracies, delays,
interruptions or errors occurring, at no fault of Bank, as a result of incorrect
data or data from telecommunication systems.
(b) Samuels shall use commercially reasonable efforts to ensure that
software or systems proprietary to Samuels and used by Samuels in connection
with its business shall be Year 2000 Compliant. However, Samuels shall not be
responsible for: (i) software or system failures based on improvements,
enhancements, modifications or updates to, and any inaccuracies, delays,
interruptions, or errors caused by any software or systems that are not
proprietary to Samuels; (ii) any inaccuracies, delays, interruptions or errors
occurring as a result of incorrect data or data from other systems, software,
hardware, processes or third parties provided in a format that is inconsistent
with the format and protocols established for Samuels' software and systems
including date data in two-digit format, even if such data is required for the
operation of the software or systems; and (iii) any inaccuracies, delays,
interruptions or errors occurring, at no fault of Samuels, as a result of
incorrect data or data from telecommunication systems.
10.13 Relationship of Parties. This Agreement does not constitute the
parties as partners or joint venturers and neither party will so represent
itself.
10.14 Survival. No termination of this Agreement shall in any way
affect or impair the powers, obligations, duties, rights, indemnities,
liabilities, covenants or warranties and/or representations of the parties with
respect to times and/or events occurring prior to such termination, including
the obligation to make payments arising prior to the termination date. No
powers, obligations, duties, rights, indemnities, liabilities, covenants or
warranties and/or representations of the parties with respect to times and/or
events occurring after termination shall survive termination except for the
following Sections: Section 2.8, Section 3.3, Section
Page 24
<PAGE> 29
3.5, Section 3.6, Section 3.8, Section 3.9, Section 3.10, Section 3.14, Section
8, Section 9.5, Section 9.6 and Section 10.
10.15 Mutual Drafting. This Agreement is the joint product of Bank and
Samuels and each provision hereof has been subject to mutual consultation,
negotiation and agreement of Bank and Samuels, and shall not be construed for or
against any party hereto.
10.16 Independent Contractor. The parties hereby declare and agree that
Bank is engaged in an independent business, and shall perform its obligations
under this Agreement as an independent contractor; that any of Bank's personnel
performing the services hereunder are agents, employees, affiliates, or
subcontractors of Bank and are not agents, employees, affiliates, or
subcontractors of Samuels; that Bank has and hereby retains the right to
exercise full control of and supervision over the performance of Bank's
obligations hereunder and full control over the employment, direction,
compensation and discharge of any and all of the Bank's agents, employees,
affiliates, or subcontractors, including compliance with workers' compensation,
unemployment, disability insurance, social security, withholding and all other
federal, state and local laws, rules and regulations governing such matters;
that Bank shall be responsible for Bank's own acts and those of Bank's agents,
employees, affiliates, and subcontractors; and that except as expressly set
forth in this Agreement, Bank does not undertake by this Agreement or otherwise
to perform any obligation of Samuels, whether regulatory or contractual, or to
assume any responsibility for Samuels' business or operations.
10.17 No Third Party Beneficiaries. The provisions of this Agreement
are for the benefit of the parties hereto and not for any other person or
entity.
10.18 Counterparts. This Agreement may be executed in several
counterparts all of which taken together shall constitute one single agreement
between the parties.
10.19 Confidentiality. (a) Neither party shall disclose any information
not of a public nature concerning the business or properties of the other party
which it learns as a result of negotiating or implementing this Agreement,
including, without limitation, the terms and conditions of this Agreement,
Customer names, sales volumes, test results, and results of marketing programs,
trade secrets, business and financial information, source codes, business
methods, procedures, know-how and other information of every kind that relates
to the business of either party except to the extent disclosure is required by
Applicable Law or court order, is necessary for the performance of the
disclosing party's obligation under this Agreement, or is agreed to in writing
by the other party; provided that: (i) prior to disclosing any confidential
information to any third party, the party making the disclosure shall give
notice to the other party of the nature of such disclosure and of the fact that
such disclosure will be made; and (ii) prior to filing a copy of this Agreement
with any governmental authority or agency, the filing party will consult with
the other party with respect to such filing and shall redact such portions of
this Agreement which the other party requests be redacted, unless, in the filing
party's reasonable judgment based on the advice of its counsel (which advice
shall have been discussed with counsel to the other party), the filing party
concludes that such request is inconsistent with the filing party's obligations
under applicable laws. Neither party shall acquire any property or other right,
claim or interest, including any patent right or copyright interest, in any of
the systems, procedures, processes, equipment, computer programs and/or
information of the other by virtue of this
Page 25
<PAGE> 30
Agreement. Neither party shall use the other party's name for advertising or
promotional purposes without such other party's written consent.
(b) The obligations of this Section, shall not apply to any
information:
(i) which is generally known to the trade or to the public at the
time of such disclosure; or
(ii) which becomes generally known to the trade or the public
subsequent to the time of such disclosure; provided, however,
that such general knowledge is not the result of a disclosure
in violation of this Section; or
(iii) which is obtained by a party from a source other than the
other party, without breach of this Agreement or any other
obligation of confidentiality or secrecy owed to such other
party or any other person or organization; or
(iv) which is independently conceived and developed by the
disclosing party and proven by the disclosing party through
tangible evidence not to have been developed as a result of a
disclosure of information to the disclosing party, or any
other person or organization which has entered into a
confidential arrangement with the non-disclosing party.
(c) If any disclosure is made pursuant to the provisions of this
Section, to any parent company, subsidiary, affiliate or third party, the
disclosing party shall be responsible for ensuring that such parent, subsidiary,
affiliate or third party keeps all such information in confidence and that any
third party executes a confidentiality agreement provided by the non-disclosing
party. Each party covenants that at all times it shall have in place procedures
designed to assure that each of its employees who is given access to the other
party's confidential information shall protect the privacy of such information.
Each party acknowledges that any breach of the confidentiality provisions of
this Agreement by it will result in irreparable damage to the other party and
therefore in addition to any other remedy that may be afforded by law any breach
or threatened breach of the confidentiality provisions of this Agreement may be
prohibited by restraining order, injunction or other equitable remedies of any
court. The provisions of this Section will survive termination or expiration of
this Agreement.
10.20 Purchase Agreement. Bank and Samuels shall use good faith efforts
to enter into a purchase and sale agreement in a mutually satisfactory form and
substance, under which Bank will purchase the Existing Accounts from Samuels.
10.21 Additional Documentation. The parties acknowledge that Samuels is
currently evaluating various structural alternatives which may result in
benefits to Samuels. In the event Samuels desires to implement any such
alternatives in the future the parties agree, if such alternatives affect this
Agreement, to evaluate those alternatives in good faith and to negotiate in good
faith any necessary documentation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
manner and form sufficient to bind them as of the date first above written.
Page 26
<PAGE> 31
WORLD FINANCIAL NETWORK
SAMUELS JEWELERS, INC. NATIONAL BANK
By: By:
----------------------------------- ---------------------------------
Title: Title:
-------------------------------- ------------------------------
Date: Date:
--------------------------------- -------------------------------
Page 27
<PAGE> 32
SCHEDULE 1.1
DISCOUNT RATE
[INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
Page 28
<PAGE> 33
SCHEDULE 2.1
SERVICE STANDARDS
[INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
Page 29
<PAGE> 34
SCHEDULE 2.4
[INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
Page 30
<PAGE> 35
SCHEDULE 2.8
MONTHLY MASTER FILE INFORMATION
[INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
Page 31
<PAGE> 36
SCHEDULE 3.13
REPORTS
[INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH SEC].
Page 32
<PAGE> 1
EXHIBIT 10.8
PURCHASE AND SALE AGREEMENT
between
WORLD FINANCIAL NETWORK NATIONAL BANK,
as Purchaser
and
SAMUELS JEWELERS, INC.
as Seller
Dated as of July __, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS 1
1.1 Definition of Terms 1
ARTICLE 2 PURCHASE AND SALE 5
2.1 Purchase and Sale 5
2.2 Assumption of Rights and Liabilities 5
2.3 Repurchase of Ineligible Accounts 6
ARTICLE 3 THE CLOSING 6
3.1 Time and Place of the Closing 6
3.2 Delivery of Instruments at the Closing 6
3.3 Purchase Price 7
3.4 Payments at Closing 7
3.5 Post-Closing Reconciliation 7
3.6 Audit Adjustment 7
3.7 Payment of Taxes and Other Charges 8
3.8 Other Adjustments 8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER 9
4.1 Organization 9
4.2 Capacity; Authorization; Validity 9
4.3 Conflicts; Defaults; Etc. 9
4.4 Title to Subject Assets 9
4.5 Receivables and Accounts 10
4.6 Litigation and Claims 11
4.7 Conduct 11
4.8 Executive Offices 11
4.9 Solvency 11
4.10 Permits, Licenses, Etc. 11
4.11 Compliance with Applicable Laws 12
4.12 Absence of Undisclosed Liabilities 12
4.13 Agreements 12
4.14 Consents 12
4.15 Contracts With Third Parties 13
4.16 Finders or Brokers 13
4.17 Books and Records 13
4.18 Accuracy of Information 13
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER 13
5.1 Organization 13
5.2 Capacity; Authority; Validity 13
5.3 Conflicts; Defaults; Etc. 14
5.4 Litigation 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.5 Finders or Brokers 14
5.6 Compliance with Applicable Laws 14
ARTICLE 6 CERTAIN COVENANTS 14
6.1 Mutual Covenants and Agreements 16
6.2 Certain Covenants of Seller 16
ARTICLE 7 CONDITIONS OF CLOSING 17
7.1 Conditions to Obligations of Purchaser and Seller 17
7.2 Conditions Applicable to Purchaser 17
7.3 Conditions Applicable to Seller 19
ARTICLE 8 INDEMNIFICATION 20
8.1 Indemnification by Seller 20
8.2 Indemnification by Purchaser 21
8.3 Procedures 21
ARTICLE 9 TERMINATION 21
9.1 Termination 21
9.2 Expenses 21
ARTICLE 10 MISCELLANEOUS 22
10.1 Survival of Representations and Warranties 22
10.2 Notices 22
10.3 Assignment 22
10.4 Waiver 22
10.5 Entire Agreement 23
10.6 Amendments and Supplements 23
10.7 Captions 23
10.8 Counterparts 23
10.9 Governing Law 23
10.10 Binding Effect 23
10.11 Severability 23
10.12 Waiver of Jury Trial 23
10.13 Consent to Jurisdiction 24
10.14 Mutual Drafting 24
EXHIBITS:
EXHIBIT 1.1 INELIGIBLE ACCOUNTS 25
EXHIBIT 3.2 ASSIGNMENT AND ASSUMPTION AGREEMENT 26
</TABLE>
<PAGE> 4
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is made and entered into this ___ day of July,
1999 (this "Agreement"), between World Financial Network National Bank
("Purchaser") and Samuels Jewelers, Inc. ("Seller"). All capitalized terms
contained in this Agreement that are not otherwise defined in this Agreement
shall have the respective meanings assigned to such terms in Article 1.
Recitals
WHEREAS, Seller is currently the owner of the Subject Assets. Purchaser
desires to purchase, and Seller desires to sell, the Subject Assets on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
various agreements, promises and covenants contained in this Agreement, the
parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1. Definition of Terms. As used in this Agreement:
"Account" shall mean (i) a Credit Card accessed open-end consumer
credit account established by Seller, (ii) the numbers associated with such
accounts, and (iii) any and all rights, remedies, benefits, interests and
titles, both legal and equitable, to which Seller may be entitled with respect
to any of the foregoing. "Account" shall exclude any Ineligible Accounts.
"Account Balance" shall mean, with respect to any Account, the
outstanding balance of such Account at the time of determination, which shall
consist of, without limitation (i) the sum of (A) the aggregate outstanding
amount of Receivables posted to such Account at such time, and (B) the aggregate
amount of any and all fees and charges posted to such Account at such time,
including, without limitation, interest and finance charges, returned check
charges, late charges, insurance premiums and attorneys' fees, MINUS (ii) the
aggregate amount of all credits, other adjustments and credit balances posted to
such Account at such time.
"Account Documentation" shall mean, with respect to an Account, any and
all documentation from time to time relating to such Account, including, without
limitation, Cardholder Agreements, applications and all legally required forms,
notices and disclosures relating to such applications and Accounts, historical
statements and microfilm records thereof, paper and systemic records of customer
service and collection notes and letters, all computer master file records and
any records of whatever form or nature related to any of the foregoing, all
Transaction Records and all
1
<PAGE> 5
tangible and intangible information, arising from any of the foregoing or
pertaining thereto.
"Affiliate" shall mean any Person that, directly or indirectly, through
one or more entities controls or is controlled by or is under common control
with the Person specified.
"Ancillary Documents" shall mean any agreement, certificate or other
document delivered at or prior to the Closing in connection herewith.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"Books and Records" shall mean all books, records, files, credit or
collection information, periodic statement applications, business records,
reports, correspondence, and other financial and computer data owned by Seller
for use in connection with, or relating to, the Credit Card Business or the
Subject Assets whether in documentary form or on microfilm, microfiche, magnetic
tape, computer disk or other form and whether maintained by Seller or an agent
or servicer of Seller.
"Business Day" shall mean any day, other than a Saturday or Sunday, on
which banking institutions in the State of Ohio are not authorized or obligated
by applicable Law, regulation or executive order, to close.
"Cardholder" shall mean an individual (i) to whom a Credit Card has
been issued pursuant to a Cardholder Agreement, (ii) in whose name an Account,
in connection with which the Credit Card may be used, is established, or (iii)
who is or may become an obligor on the Account.
"Cardholder Agreement" shall mean an agreement between Seller, on the
one hand, and a Cardholder, on the other hand, under which Credit Cards are
issued, containing the terms and conditions applicable to an Account as such
agreement may be amended, modified and supplemented from time to time.
"Cardholder Lists" shall mean all lists of names and/or addresses of
Cardholders.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall have the meaning set forth in Section 3.1.
"Closing Date Statement" shall mean a statement prepared by Seller on
or before the Closing Date, a copy of which shall be delivered to Purchaser
which contains a computation of the Purchase Price as of the Cut-Off Time.
"Credit Card" shall mean the plastic card or temporary card with the
name "Jewelcard" on it which card is owned by Seller in respect of an Account
and evidences a Cardholder's right to purchase goods and services on credit.
2
<PAGE> 6
"Credit Card Business" shall mean, collectively, all the Accounts and
Receivables and all of the elements of Seller's business of operating the
open-ended credit card revolving retail credit plan.
"Cut-Off Time" shall mean the end of Seller's processing on the
Business Day immediately preceding the Closing Date.
"GAAP" shall mean generally accepted accounting principles in the
United States applied on a basis consistent with the prior accounting practices
of the applicable party or parties.
"Governmental Authority" shall mean any government, any state, or any
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, in each case whether national, state or local.
"Ineligible Account" shall mean any account as defined in Exhibit 1.1.
"Law" shall mean all laws, codes, statutes, ordinances, rules,
regulations, decrees and orders of any Governmental Authority.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
claim, lien (statutory or other), right of first refusal, charge or encumbrance,
imperfection of title or other matters affecting title, and any rights of third
parties whatsoever, including, without limitation, any liens or encumbrances
arising in respect of taxes.
"Master File" means, at the time of determination, the computer files
containing the most recently-posted financial, Account status and demographic
information with respect to any of the Accounts, including, without limitation,
active, inactive and recovery Accounts, which computer files represent the
aggregate amount of Account Balances on such date, together with corresponding
control reports.
"Materials and Information" shall have the meaning set forth in Section
4.18.
"Permit" shall mean any license, permit, certificate, consent,
authorization, franchise or other approval from any Governmental Authority.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, entity or
Governmental Authority.
"Prime Rate" means, on the date of determination, the bank prime loan
rate reported in the "Money Rates" section of The Wall Street Journal (or, if
such publication is discontinued, such other publication of similar type
mutually agreed upon by the parties) as the "Prime Rate" on such date, whether
or not such rate is ever actually charged or paid by any Person.
3
<PAGE> 7
"Private Label Program Agreement" shall mean that certain Private Label
Program Agreement entered into by and between Purchaser and Seller, dated July
16, 1999.
"Purchaser" shall have the meaning set forth in the first paragraph of
this Agreement.
"Receivables" shall mean any and all amounts owing by Cardholders on
Accounts, including, without limitation, amounts owed due to outstanding
extensions of credit, interest and finance charges (whether billed or accrued)
and fees for returned checks, late payments or otherwise.
"Scorecards" shall mean with respect to any Account, authorization or
collection, the statistical model which uses customized risk quantification to
assign numeric values or scores for each credit applicant, Cardholder or
prospect and which the Seller has used in evaluation of credit granting and
control.
"Seller" shall have the meaning set forth in the first paragraph of
this Agreement.
"Settlement Master File" means the Master File as of the Cut-Off Time.
"Solvent" shall mean, when used with respect to any Person on a
particular date, that on such date (i) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (ii) the present fair
salable value of the assets of such Person is not less than the amount that will
be required to pay the probable liability of such Person on its debts as they
become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"Subject Assets" shall have the meaning set forth in Section 2.1.
"Subsidiary" shall mean any corporation or other Person of which more
than 50% of the outstanding capital stock, or other equitable interests having
ordinary voting or other power to elect or appoint a majority of the Board of
Directors or other governing body of such corporation or Person, is at the time
directly or indirectly owned by the Person specified.
"Transaction Records" shall mean all records (in any form, paper,
electronic, magnetic or otherwise) of charges, credits, adjustments, payments or
other items, received by Seller for posting to Cardholder's Accounts, including
but not limited to charge slips and credit or adjustment slips.
4
<PAGE> 8
"UCC" shall mean the Uniform Commercial Code in effect in the state of
Ohio and in any other State where the filing of a financing statement is deemed
necessary by Purchaser.
ARTICLE 2
PURCHASE AND SALE
2.1. Purchase and Sale. (a) At the Closing, on the terms and subject to
the conditions set forth in this Agreement, Seller shall sell, transfer, assign,
convey and deliver to Purchaser in exchange for the Purchase Price, and
Purchaser shall purchase and acquire from Seller, free and clear of all Liens,
all of Seller's right, title and interest in and to all of the following:
(i) all of the Accounts and the Receivables (excluding
all Ineligible Accounts) as of the Cut-Off Time;
(ii) all Account Documentation;
(iii) all Books and Records;
(iv) all pending Credit Card applications and Seller's
rights with respect to applications for new Accounts;
and
(v) the Cardholder List;
(b) The items to be sold, transferred, assigned and conveyed to
Purchaser pursuant to Section 2.1(a) are collectively referred to herein as the
"Subject Assets".
2.2. Assumption of Rights and Liabilities. (a) As of the Cut-Off Time,
Purchaser shall assume all of Seller's rights and perform or discharge (or cause
to be performed or discharged), Seller's obligations arising after the Cut-Off
Time with respect to the Subject Assets conveyed to Purchaser at the Closing,
including, but not limited to, (i) the right to receive all payments on Accounts
due from Cardholders after the Cut-Off Time, and (ii) the obligations of Seller
after the Cut-Off Time under the terms of the Cardholder Agreements, but
excluding Seller's obligations related to any breach of such Cardholder
Agreements occurring before the Closing Date.
(b) Except as expressly provided herein, Purchaser does not assume,
agree to pay, perform or discharge or otherwise have, any liability or
obligation of any nature (whether fixed, contingent, accrued, unliquidated,
absolute or otherwise) of Seller or any other Person, whether arising or to be
paid, performed or discharged prior to, at, or after the Cut-Off Time.
2.3. Repurchase of Ineligible and Other Accounts. If Seller transfers
any Ineligible Accounts or related Receivables to Purchaser, during the 180 day
period
5
<PAGE> 9
following the Closing Date, Seller shall promptly, following written notice to
Seller by Purchaser, repurchase all such Ineligible Accounts. Seller shall pay
to Purchaser, for any such repurchases, an amount equal to the Purchase Price of
the Accounts and/or Receivables (excluding the Contingent Purchase Price related
to such Accounts and/or Receivables) together with interest at the Prime Rate on
such amount from the Closing Date to the date of payment, and Purchaser will
reassign such Accounts and/or Receivables to Seller and Purchaser will promptly
credit against Seller's payment all Cardholders' payments received for such
Accounts. Seller will assume any obligations of Purchaser to refund such
Cardholder payments credited against the Ineligible Accounts.
ARTICLE 3
THE CLOSING
3.1. Time and Place of the Closing. The closing of the transactions
contemplated hereby (the "Closing") shall take place after all of the conditions
contained in Article 7 are satisfied or waived by the appropriate party, but in
no event later than August 27, 1999,or at such other time and/or date as the
parties hereto may agree (the date of the Closing being referred to herein as
the "Closing Date").
3.2. Delivery of Instruments at the Closing. At the Closing, Seller
shall execute and deliver to Purchaser and Purchaser shall deliver to Seller an
Assignment and Assumption Agreement (the "Assignment Agreement"), which conveys
to Purchaser on the Closing Date all of Seller's rights, title and interest in
and to the Subject Assets, free and clear of all Liens, and under which
Purchaser shall assume the liabilities to be assumed by Purchaser hereunder.
Said Assignment Agreement shall be in the form of Exhibit 3.2 attached hereto,
dated the Closing Date, and shall be appropriately completed and duly executed.
Seller shall deliver to Purchaser Form UCC-1 financing statements under the
Uniform Commercial Code as in effect in the jurisdictions of the principal
executive offices of Seller and Purchaser, executed by Seller and Form UCC-3
executed by the secured party in whose favor Seller has executed a financing
statement with respect to the Subject Assets and/or their proceeds, terminating
such financing statement or releasing the Subject Assets from the property
described therein, and a separate release executed by such secured party of all
of its right, title and interest in or to the Subject Assets. Purchaser and
Seller shall, at or prior to the Closing, execute and deliver all such
additional instruments, documents or certificates as may be necessary for the
consummation of the Closing of the transactions contemplated by this Agreement.
Seller shall have also delivered such other documents and instruments as
required under Article 7.
3.3. Purchase Price. [INTENTIONALLY OMITTED FOR PURPOSES OF FILING WITH
SEC]
3.4. Payments at Closing. [INTENTIONALLY OMITTED FOR PURPOSES OF FILING
WITH SEC]
6
<PAGE> 10
3.5. Post-Closing Reconciliation. (a) As soon as practicable after the
Closing Date, but in no event more than thirty (30) days thereafter, Purchaser
and Seller shall recompute the Purchase Price based on the Settlement Master
File, and if there shall be a difference between the Purchase Price as stated in
the Closing Date Statement and the Purchase Price as recomputed based on the
Settlement Master File, the Seller shall pay to the Purchaser any deficiency or
the Purchaser shall repay to the Seller any excess amount paid by Seller.
(b) If Purchaser and Seller are unable in good faith to reach agreement
with respect to the Purchase Price they shall jointly select and engage a
nationally recognized firm of independent certified public accountants (the
"Third-Party Accountants") to calculate the final Purchase Price based on the
Settlement Master File and the terms of this Agreement. The Third-Party
Accountants' determination of the final Purchase Price shall be conclusive and
binding upon the parties hereto. In determining the final Purchase Price, the
Third Party Accountants shall have no authority to resolve any disagreement
which does not relate directly to the determination of the final Purchase Price.
(c) Purchaser and Seller shall cooperate with any and all reasonable
requests by the Third-Party Accountants made in connection with the Third-Party
Accountants' determination of the Purchase Price, as described in Section
3.5(b).
3.6. Audit Adjustment. (a) In the event the determination of the final
Purchase Price requires either party to make payment to the other of any
additional amount, such party shall make such payment no later than five (5)
Business Days following determination of the final Purchase Price plus interest
on any amount due at the Prime Rate for each day during such period.
(b) Purchaser and Seller shall each be responsible for the fees and
expenses of their respective personnel incurred in connection with the
examination and review described in this Article 3. The fees and expenses of the
Third-Party Accountants, if any, shall be paid equally by Purchaser and Seller.
3.7. Payment of Taxes and Other Charges. Seller shall pay, or cause to
be paid, promptly when due, (a) all taxes arising out of or relating to the
operations and conduct of the Credit Card Business and/or the Subject Assets
prior to the Cut-Off Time, (b) all taxes imposed on Seller and payable by reason
of the transactions contemplated hereby and (c) use or transfer taxes imposed on
Purchaser with respect to the sale of the Subject Assets hereunder. Purchaser
shall pay all taxes arising out of or in connection with the operations and
conduct of the Credit Card Business and/or the Subject Assets after the Cut-Off
Time, other than taxes for which Seller is responsible under the first sentence
of this Section 3.7.
3.8. Other Adjustments. (a) Payments Received Before Cut-Off Time.
Seller shall be entitled to retain all payments on Accounts from Cardholders
received and posted to Accounts by Seller prior to the Cut-Off Time.
7
<PAGE> 11
(b) Payments Received After Cut-Off Time. Seller shall instruct the
U.S. Postal Service to forward, beginning on the Closing Date, all payments from
Seller's lockbox to Purchaser's lockbox. All payments received by Seller prior
to or after the Cut-Off Time, which were not posted to Accounts prior to the
Cut-Off Time and which constitute Account Balances or payments thereon for any
Account shall be deposited by Seller in its own account and thereafter settled
with Purchaser in accordance with the provisions of this Section 3.8(b).
Purchaser hereby authorizes and empowers Seller to sign and endorse (without
recourse by Purchaser against Seller with respect to such endorsement)
Purchaser's name as Purchaser's attorney-in-fact on all checks, drafts, money
orders or other forms of payment relating to such Account so received by Seller
but payable to the order of Purchaser. Within 24 hours after the end of each
Business Day, Seller will provide Purchaser with a computer tape listing all
said payments containing the amount and Account number for each payment so
received by Seller. Seller will transfer via wire transmission said funds to
Purchaser, without cost to Purchaser, for the first 30 days after the Closing
Date, on each Friday following the Closing and monthly thereafter. If Purchaser
receives any checks, drafts, money orders or other forms of payment relating to
the Accounts subsequent to the Cut-Off Time, which instruments are payable to
the order of Seller, Seller hereby authorizes and empowers Purchaser to sign and
endorse (without recourse by Seller against Purchaser with respect to such
endorsement) Seller's name as Seller's attorney-in-fact on such Accounts to
facilitate the deposit thereof. If any such payment is sent to Purchaser later
than specified above, such payment shall be accompanied by interest on such
amount calculated on the basis of an interest rate equal to the Prime Rate for
each day during the period between the date of receipt of such payment by Seller
and the date Seller pays Purchaser.
(c) Credits Received After Cut-Off Time. If a credit is posted to an
Account after the Cut-Off Time with respect to a Receivable arising prior to the
Cut-Off Time, Purchaser shall notify Seller and Seller shall send to Purchaser
the amount of such credit. Such payments shall be transmitted to Purchaser on
each Friday following the Closing Date. If any such payment is sent to Purchaser
later than specified above, such payment shall be accompanied by interest on
such amount calculated on the basis of an interest rate equal to the Prime Rate
for each day during the period between the date of such credit and the date
Seller pays Purchaser.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as of the date
hereof and as of the Closing Date as follows:
4.1. Organization. Seller is a corporation duly organized, validly
existing and in good standing under the Laws of the state of Delaware.
4.2. Capacity; Authorization; Validity. Seller has all necessary power
and authority to enter into this Agreement and Ancillary Documents and to
perform all of the
8
<PAGE> 12
obligations to be performed by it under this Agreement and Ancillary Documents.
This Agreement and the consummation by Seller of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
of Seller, and this Agreement and Ancillary Documents have been duly executed
and delivered by Seller and this Agreement constitutes a legal, valid and
binding obligation of Seller, enforceable in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, receivership, conservatorship, and other laws relating to or
affecting creditors' rights generally and by general equity principles.
4.3. Conflicts; Defaults; Etc. Except for the consents required under
the Samuels Loan Agreement (as defined below) which Samuels shall use its best
efforts to obtain, neither the execution and delivery of this Agreement and
Ancillary Documents by Seller nor the consummation of the transactions
contemplated hereby by Seller will (i) conflict with, result in the breach of,
constitute an event which would, or with the lapse of time or action by a third
party or both would, result in a default under, or accelerate the performance
required by, the terms of any contract, instrument or commitment to which Seller
is a party or by which it is bound; (ii) violate the articles of incorporation
or by-laws, or any other equivalent organizational document, of Seller; (iii)
result in the creation of any Lien upon any of the Subject Assets; (iv) to
Seller's knowledge result in the creation of any Purchaser tax liability on the
purchase of the Subject Assets; or (v) require any consent or approval of any
regulatory authority, or under any judgment, order, writ, decree, permit or
license to which Seller is a party or bound or to which any of the Subject
Assets are subject.
4.4. Title to Subject Assets. Except for Liens existing and/or arising
under that certain Loan and Security Agreement, dated as of October 2, 1998,
between Samuels Jewelers, Inc., as Borrower, and Foothill Capital Corporation,
as Agent (the "Samuels Loan Agreement"), which Liens Seller shall cause to be
released on or before the Closing Date, Seller has good and valid title to all
of the Subject Assets, free and clear of any Lien. No person other than Seller
has owned at any time, or had any right, title or interest in at any time, any
of the Receivables or Accounts. The Assignment Agreement and the consummation of
the transactions contemplated hereby will vest in the Purchaser all right, title
and interest of Seller in and to the Subject Assets, free and clear of any Lien.
4.5. Receivables and Accounts. (a) All underwriting and origination of
Accounts were performed in accordance with the then applicable written policies
and procedures of Seller, true and complete copies of which have previously been
furnished to Purchaser. The Credit Card Business has been operated as a part of
the business of Seller and under the control of Seller. All aspects of the
Credit Card Business have been operated solely by Seller. There are no
Receivables that have been criticized by any Governmental Authority, regulatory
authority or any internal auditor in any written communication to Seller, or
classified by any regulatory authority as "Other Assets Specially Mentioned,"
"Substandard," "Doubtful," "Loss" or any similar classifications.
9
<PAGE> 13
(b) (i) Each of the Receivables and Accounts and the interest rates,
fees and charges in connection therewith comply, and have at all times complied
with, all applicable Laws; (ii) each Account, Receivable and the related
Cardholder Agreement is the legal, valid and binding obligation of the
Cardholder-obligor and any guarantor named therein and each is enforceable and
legally collectible (not including the ability of the Cardholder to pay) in
accordance with its terms under all applicable Laws, and to Seller's knowledge
is subject to no defense, including without limitation, bankruptcy, offset or
counterclaim; (iii) a Credit Card has been issued in connection with each
Account; (iv) all Accounts are with natural persons for use primarily for
personal, family or household purposes, and no Account has been entered into
with any corporation, partnership, association or other similar entity; (v) to
Seller's knowledge, no Receivable is a "commercial loan", as that term is used
in the BHCA; (vi) each Receivable is free and clear of any and all Liens
incurred or existing by, through or on behalf of, or in favor of any Person;
(vii) each Receivable arose in connection with a bona fide sale and delivery of
merchandise or Services by Seller; (viii) each Receivable is for an amount
payable in U.S. dollars, subject to returns, allowances and other adjustments in
the ordinary course of business; (ix) to the best of Seller's knowledge none of
the Receivables arose out of any fraud or malfeasance of any Cardholder,
customer of Seller, or any other person, or any fraud, malfeasance or negligence
of any employee or agent of Seller; (x) each Receivable is collectible in the
ordinary course of business (not including the ability of the Carholder to pay);
(xi) each Receivable consists of an "account", "chattel paper" or a "general
intangible", and is not an "instrument", under and as defined in Article or
Division 9 of the UCC; (xii) each Cardholder Agreement constitutes the entire
agreement of the Seller and the Cardholder and Seller has made no amendment,
modification or supplement to any Cardholder Agreement which is not reflected in
writing in such agreement; and (xiii) the Credit Card Business has been
conducted by Seller in all material respects in compliance with all applicable
Laws.
4.6. Litigation and Claims. To the best of Seller's knowledge, there is
no litigation, proceeding, or arbitration pending against or to which Seller is
a party. To the best of Seller's knowledge, there is no claim, investigation or
material controversy pending against or affecting Seller or to which Seller is a
party, materially and adversely affecting or which could materially and
adversely affect the Subject Assets, the Credit Card Business or the ability of
Seller to consummate the transactions contemplated hereby or under the Ancillary
Documents; (b) to the best of Seller's knowledge, no such claim, litigation,
proceeding, arbitration, investigation or controversy has been threatened or is
contemplated and no facts exist which would provide a basis for any such claim
or proceeding; (c) the Subject Assets and Credit Card Business are subject to no
proceeding pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940; (d)
Seller is not subject to any agreement with any regulatory authority with
respect to its operations affecting the Subject Assets, the Credit Card Business
or the ability of Seller to consummate the transactions contemplated hereby or
under the Ancillary Documents; and (e) there are no violations, with respect to
which refunds or restitutions on any Account may be required, cited in any
compliance report relating to the Credit Card Business as a result of an
examination or review by any regulatory authority.
10
<PAGE> 14
4.7. Conduct. Since April 9, 1999, (a) there has been no material and
adverse change in the results of operations of the Credit Card Business
jeopardizing the collectibility of the Accounts and there has been no material
and adverse change with respect to the Subject Assets; Seller has not effected
any change in its policies, practices or procedures relating to the Accounts,
Seller has not amended the Cardholder Agreements except for the amendments
provided to Purchaser; (b) Seller has carried on the Credit Card Business in the
ordinary course of business, diligently and in a manner consistent with its past
practices, and (c) except in the ordinary course of business, Seller has not
disposed of or discontinued any portion of its Credit Card Business or any
Receivables. Seller has performed all obligations required to be performed by it
to date under the Cardholder Agreements and is not in default under, and no
event has occurred which, with the lapse of time or action by a third party,
could result in a default under, any such agreements. All such agreements are
legal, valid and binding obligations of Seller, the Cardholder and any guarantor
named therein, fully enforceable by the respective parties thereto in accordance
with their respective terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws relating to or affecting creditors' rights
generally and by general equity principles.
4.8. Executive Offices. The chief executive office and principal place
of business of Seller is 2914 Montopolis, Suite 200, Austin, Texas 78741.
4.9. Solvency. Seller is, and immediately after the consummation of the
transactions contemplated by this Agreement, will be, Solvent.
4.10. Permits, Licenses, Etc. Seller has all Permits that are required
in order to carry on the Credit Card Business (including, without limitation,
Permits relating to consumer finance) and to consummate the transactions
contemplated by this Agreement (collectively, the "Business Permits"). Seller is
not in violation or default of any of the Business Permits. All the Business
Permits are in full force and effect, and, to the knowledge of Seller, no
suspension, cancellation or non-renewal of any Business Permit is threatened,
nor does any basis for such suspension, cancellation or non-renewal exist.
4.11. Compliance with Applicable Laws. Neither (a) the origination,
establishment, maintenance, servicing or use of any Account, any Receivable or
any of the other Subject Assets by Seller; (b) any of the Account Documentation;
(c) the conduct of the Credit Card Business by Seller, nor (d) the consummation
of the transactions contemplated by this Agreement or any Ancillary Document,
violates or has violated any Law now in effect or in effect when any Account,
Receivable, or any other Subject Asset was established or used. Seller has not
received any notice of any violation of Law applicable to the Credit Card
Business, any Account, any Receivable or any other Subject Asset, and to
Seller's knowledge no basis for the allegation of any such violation exists. No
Governmental Authority has placed any restriction on the Credit Card Business or
any of the Accounts, the Receivables or the other Subject Assets, or the
consummation of the transactions contemplated by this Agreement or any Ancillary
Document. No investigation or review by any Governmental Authority with
11
<PAGE> 15
respect to the Credit Card Business or any of the Accounts, the Receivables, the
other Subject Assets or the consummation of the transactions contemplated by
this Agreement or any Ancillary Document is pending or, to Seller's knowledge,
threatened, nor to Sellers' knowledge has any Governmental Authority indicated
an intention to conduct such an investigation or review.
4.12. Absence of Undisclosed Liabilities. Seller has no liability or
obligation of any nature, secured or unsecured (whether accrued, absolute,
contingent or otherwise) which are reasonably likely to have an adverse effect
on the Subject Assets. To the best of Seller's knowledge, there is no basis, for
assertion against it as of the Closing Date of any liability or obligation of
any nature which are reasonably likely to have an adverse effect on the Subject
Assets.
4.13. Agreements. Seller has furnished to Purchaser true and complete
copies of the form of Cardholder Agreement, periodic statement, application form
and all notices relating to any change of terms regarding any Credit Card.
4.14. Consents. Except for the consents required under the Samuels Loan
Agreement, which Seller shall obtain prior to the Closing Date, no consent,
authorization or approval of, or exemption by, or filing with, any Governmental
Authority or any other Person is required to be obtained by Seller in connection
with the execution, delivery and performance by Seller of this Agreement or any
other Ancillary Document to which Seller is a party or the consummation by
Seller of the transactions contemplated hereby or thereby.
4.15. Contracts With Third Parties. Purchaser will not be assuming any
contracts of Seller.
4.16. Finders or Brokers. Seller has not agreed to pay any fee or
commission to any agent, broker, finder, or other person for or on account of
services rendered as a broker or finder in connection with this Agreement or the
transactions contemplated hereby which would give rise to any claim against
Purchaser for any brokerage commission or finder's fee or like payment.
4.17. Books and Records. All of Seller's Books and Records are in all
material respects, complete and correct, and are and have been maintained in
accordance with GAAP and all Laws applicable to the Credit Card Business and/or
all of the Subject Assets.
4.18. Accuracy of Information. This Agreement, the Master File of
Accounts and all reports, statements, lists, certificates and other documents
delivered, and any information heretofore or hereafter furnished, by Seller in
writing to Purchaser in connection with this Agreement or any of the
transactions contemplated hereby, and all written information supplied by Seller
in the due diligence review by Purchaser (collectively, the "Materials and
Information"), are materially true and complete with respect to all such
information presented therein and materially accurate and do not omit to state a
material fact required to be stated therein or necessary to make the
12
<PAGE> 16
statements herein or therein, in the light of the circumstances under which they
were made, not misleading. Such Materials and Information shall be deemed to
constitute representations and warranties of Seller under this Agreement to the
same extent as if set forth in this Agreement in full. Seller has provided in
writing all information requested from it in writing by Purchaser.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as of the date
hereof and of the Closing Date as follows:
5.1. Organization. Purchaser is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States.
5.2. Capacity; Authority; Validity. Purchaser has all necessary power
and authority to enter into this Agreement and the Ancillary Documents and to
perform all the obligations to be performed by it under this Agreement and the
Ancillary Documents. This Agreement and the Ancillary Documents and the
consummation by Purchaser of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action of
Purchaser, and this Agreement and the Ancillary Documents have been duly
executed and delivered by Purchaser and this Agreement constitutes a legal,
valid and binding obligation of Purchaser, enforceable in accordance with its
terms, and except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship, and other laws
relating to or affecting creditors' rights generally and by general equity
principles.
5.3. Conflicts; Defaults; Etc. Neither the execution and delivery of
this Agreement by Purchaser nor the consummation of the transactions
contemplated hereby by Purchaser will: (i) conflict with, result in the breach
of, constitute an event which would, or with the lapse of time or action by a
third party or both would, result in a default under, or accelerate the
performance required by, the terms of any contract, instrument or commitment to
which Purchaser is a party or by which it is bound; (ii) violate the articles of
incorporation or by-laws of Purchaser; (iii) require any consent or approval
under any judgment, order, writ, decrees, permit or license, to which Purchaser
is a party or by which it is bound; or (iv) require the consent or approval of
any Governmental Authority or other Person.
5.4. Litigation. There is no claim, or any litigation, proceeding,
arbitration, investigation or controversy pending against or affecting Purchaser
and by which it is bound, which adversely affects in any material respect
Purchaser's ability to consummate the transactions contemplated hereby; to
Purchaser's knowledge, no such claim, litigation, proceeding, arbitration,
investigation or controversy has been threatened or is contemplated; to
Purchaser's knowledge, no facts exist which would provide a basis for any such
claim, litigation, proceeding, arbitration, investigation, or
13
<PAGE> 17
controversy; and Purchaser is not subject to any agreement with any regulatory
authority which would prevent the consummation of the transactions contemplated
by this Agreement or the Ancillary Documents by the Purchaser.
5.5. Finders or Brokers. Purchaser has not agreed to pay any fee or
commission to any agent, broker, finder or other person for or on account of
services rendered as a broker or finder in connection with this Agreement or the
transactions contemplated hereby which would give rise to any claim against
Seller for any brokerage commission or finder's fee or like payment.
5.6 Compliance with Applicable Laws. The consummation of the
transactions contemplated by this Agreement or any Ancillary Document does not
violate nor has violated any Law now in effect.
ARTICLE 6
CERTAIN COVENANTS
6.1. Mutual Covenants and Agreements. Seller and Purchaser each hereby
covenant and agree that:
(a) Cooperation. It shall cooperate fully with the other party hereto
in furnishing any information or performing any action reasonably requested by
such party, which information or action is necessary to the speedy and
successful consummation of the transactions contemplated by this Agreement.
Subject to its further rights under this Agreement, it shall promptly cause the
Closing to occur at the earliest practicable time, with time being of the
essence.
(b) Confidentiality. All information furnished by one party (the
"Protected Party") to the other party in connection with this Agreement and the
transactions contemplated hereby shall be received in confidence and kept
confidential by such other party and shall be used by it only in connection with
this Agreement and the transactions contemplated hereby except to the extent
that such information: (i) is necessary or required to be disclosed to
Affiliates, auditors, investment advisors, legal counsel or rating agencies,
provided that such party is advised of the confidential nature of the
information; (ii) is already lawfully known to such other party when received;
(iii) thereafter becomes lawfully obtainable from other sources; (iv) is
required to be disclosed to, or by, a Governmental Authority; or (v) is, based
on the advice of counsel, required by Law to be disclosed by such other party;
provided, however, that notice of such disclosure has been given to the
Protected Party, when legally permissible, and that such other party making the
disclosure uses its best efforts to provide notice to permit a Protected Party
to take legal action to prevent the disclosure; or (vi) is required by court
order.
(c) Press Releases. Except as may be required by Law or a court or
Governmental Authority, neither Seller nor Purchaser, nor any of their
respective Affiliates, shall, prior to, on or after the Closing, issue a press
release or make a public
14
<PAGE> 18
announcement related to the transactions contemplated hereby without the prior
consent of the other party hereto, which consent shall not be unreasonably
withheld or delayed.
(d) Notice to Cardholders. Seller and Purchaser shall cooperate with
each other in good faith, consistent with applicable Law, to prepare, print and
mail on a timely basis to each Cardholder a notice notifying each Cardholder of
(i) the purchase of the Accounts by Purchaser; (ii) matters of which Cardholders
are required, in Purchaser's good faith judgment, by applicable Law to be
notified as a result of the transactions contemplated by this Agreement, and
(iii) other matters which Purchaser reasonably determines to be appropriate.
Each such notice shall be prepared, printed and mailed by Purchaser in such
manner and at such time as determined by Purchaser.
(e) Advice of Changes. Between the date hereof and the Closing Date,
each party shall promptly advise the other in writing of any fact which, if
existing or known at the date hereof, would have been required to be set forth
or disclosed in or pursuant to this Agreement or of any fact which, if existing
or known at the date hereof, would have made any of the representations
contained herein untrue in any material respect; provided, however, that for the
purposes of determining whether the conditions set forth in Section 7.2.(b) and
Section 7.3.(b) are satisfied, the representations and warranties set forth in
Article 4 and Article 5 shall be unaffected by any update provided pursuant to
this Section 6.1.(e).
6.2. Certain Covenants of Seller. Seller hereby agrees with Purchaser
as follows:
(a) Preservation of Credit Card Business. From the date of this
Agreement and continuing until the Closing Date, Seller shall: (i) maintain and
service the Accounts in substantially the same manner as previously maintained
and serviced and in compliance with applicable Law; (ii) not pledge (other than
the existing Lien created by Samuels Loan Agreement), sell or transfer any
Account without the prior written consent of the Purchaser; (iii) not make any
change to their policies and procedures that could have an adverse effect on the
Accounts except as required by Law or without Purchaser's prior written consent,
including without limitation their write-off policy, credit scoring criteria and
new account approval criteria; (iv) not send a change in terms notice to
Cardholders without the prior written approval of Purchaser; (v) take no action
or fail to take any action which impairs any rights of Purchaser under this
Agreement; (vi) not amend any Cardholder Agreements; and (vii) not close any
Accounts, except in accordance with established policies and procedures in
existence at the date of this Agreement.
(b) Other Negotiations. During the period from the date of this
Agreement to the Closing Date, Seller shall not, directly or indirectly, (i)
initiate, solicit or encourage discussions with; (ii) provide (or permit access
to) information to, or (iii) approve or enter into a transaction with, any
Person or group of Persons concerning any proposed or possible transfer of any
of the Subject Assets (all such transactions being referred to herein as
"Acquisition Transactions"). Seller shall promptly communicate to Purchaser
15
<PAGE> 19
the terms of any proposal which they may receive in respect of an Acquisition
Transaction and any request by or indication of interest on the part of any
third party with respect to initiation of any Acquisition Transaction or
discussions with respect thereto.
(c) Access. Seller shall permit Purchaser and its representatives full
access to its Books and Records. Seller shall furnish (or cause to be furnished)
Purchaser with true, accurate and complete copies of properties, books, records,
files, contracts and other records related to the Subject Assets as Purchaser
may reasonably request. Seller shall cause its personnel to provide Purchaser
assistance in Purchaser's investigation of matters related to the Subject
Assets; provided, however, that Purchaser's investigation shall be conducted in
a manner which does not unreasonably interfere with Seller's normal operations,
customer and employee relations. Seller shall permit Purchaser (or its designee)
to review all Accounts to verify none of the Accounts is subject to a bankruptcy
proceeding.
(d) Further Assistance. On and after the Closing Date, Seller (i) shall
give such further assurances to Purchaser, execute, acknowledge and deliver all
such acknowledgments and other instruments and take such further action as may
be necessary and appropriate to carry out fully and effectively the transactions
contemplated hereby, including, without limitation, the conveyance of the
Subject Assets and full legal and equitable title to such Subject Assets, and to
discharge Purchaser from any obligations not otherwise assumed by Purchaser on
the Closing Date relating to the Subject Assets; and (ii) shall execute and
deliver such documents as are reasonable necessary in Purchaser's opinion to
vest in Purchaser, good and valid title to the Accounts and Receivables,
including, without limitation, UCC financing statements and amendments to
existing UCC financing statements.
(e) Books and Records. At or prior to the Closing, Seller shall deliver
(or cause to be delivered), at its expense, to Purchaser, the originals and all
copies of all notices, Cardholder Lists, Books and Records. Such documents, when
delivered shall be organized in substantially the same manner as organized by
Seller in the normal conduct of the Credit Card Business. Any such documents not
delivered at or prior to the Closing, shall be delivered by Seller within 24
hours (except in the case in the case of credit card applications and agreements
which shall be provided as soon as practicable, but in no event later than 10
Business Days) of any request for such documentation by Purchaser.
(f) Limited Right to Use Marks. Seller hereby grants Purchaser a
royalty-free license to use, after the Closing, the name "Jewelcard" and such
other marks of Seller as have been used in connection with the Accounts and the
Receivables for identification purposes, to the extent permitted by Law, in any
collection efforts or other Cardholder communications and for the purpose of
otherwise enforcing all of Purchaser's rights in the Subject Assets. Purchaser
shall cease all use of the Marks when Purchaser no longer owns any Accounts.
16
<PAGE> 20
ARTICLE 7
CONDITIONS OF CLOSING
7.1. Conditions to Obligations of Purchaser and Seller. The obligations
of Purchaser and Seller under this Agreement to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions as of the Closing Date:
(a) Approvals and Authorizations. All necessary approvals and
authorizations of, filings and registrations with and notifications to, all
Governmental Authorities with respect to the transactions contemplated by this
Agreement shall have been duly obtained or made and shall be in full force and
effect at the Closing Date.
7.2. Conditions Applicable to Purchaser. The obligations of Purchaser
under this Agreement to consummate the transactions contemplated by this
Agreement are, in addition to the condition contained in Section 7.1, subject to
the satisfaction of the following conditions as of the Closing Date:
(a) Performance of This Agreement. Each of the terms, covenants and
conditions of this Agreement to be complied with and performed by the Seller at
or prior to the Closing Date shall have been fully complied with and performed
in all material respects.
(b) Accuracy of Representations and Warranties. There shall be no
material inaccuracy in any of the representations and warranties of Seller set
forth in Article 4 as of the date of this Agreement or as of the Closing Date,
assuming that such representations and warranties are made anew with the same
force and effect on and as of the Closing Date.
(c) No Material and Adverse Change. Since the date of this Agreement,
there shall have been no material and adverse change in the condition (financial
or otherwise, including no material increase in the percentage of delinquent
accounts) of the Subject Assets or the Credit Card Business.
(d) Litigation. No action, suit, litigation, proceeding or
investigation related to any of the transactions contemplated hereby shall have
been threatened or instituted which in the opinion of the Purchaser is
reasonably likely to (i) materially restrict or prohibit or otherwise have a
material and adverse effect on the consummation of any of the transactions
contemplated hereby, or (ii) have a material and adverse effect on Purchaser,
the Subject Assets or the Credit Card Business.
(e) Seller's Certificate Concerning Agreement. Seller shall have
furnished to Purchaser a certificate dated the Closing Date, signed by an
authorized officer of Seller (no less senior than a Vice President) that, the
conditions set forth in Sections 7.2(a), 7.2(b) 7.2(c), and 7.2(d) have been
satisfied with respect to the Seller. Seller shall have
17
<PAGE> 21
furnished a Certificate of Incumbency, signed by the Secretary of Seller, as to
the title and status of the authorized officers signing the above-referenced
certificate.
(f) Effect of Acquisition. The acquisition of the Subject Assets shall
(i) be lawful for Purchaser under all applicable Laws; (ii) shall not cause
Purchaser or any of its parent companies or other Affiliates to lose any rights
or privileges, or have imposed on them any obligations, under the BHCA or to be
in any respect not in compliance with any Law, and (iii) not cause Purchaser or
any of its Affiliates to become a "bank holding company", as that term is
defined in Section 2(a) of the BHCA. Neither Purchaser nor any of its
Affiliates, as a result of a change in any Law applicable thereto, shall be
subject or face a significant possibility of being subjected to any requirement,
restriction or condition with respect to its structure or operations which, in
the judgment of Purchaser exercised in good faith, will have a material and
adverse effect upon, or will be materially burdensome with respect to Purchaser
or any of its Affiliates.
(g) Financing Statements. Seller shall have executed and delivered to
Purchaser for filing all such UCC financing statements, in a form reasonably
acceptable to Purchaser, as are reasonably required by Purchaser.
(h) Perfection. Purchaser shall have received evidence, in form and
substance reasonably satisfactory to it, that all actions necessary to perfect
its interest in and to the Accounts, the Receivables and the other Subject
Assets, and to ensure that Purchaser has good and valid title in and to the
Accounts, the Receivables and the other Subject Assets, have been taken.
(i) Licenses and Consents. Purchaser shall have received evidence, in
form and substance reasonably satisfactory to it, that all licenses and consents
required by or necessary for the consummation of the transactions contemplated
by this Agreement have been obtained.
(j) Governmental Authority. Purchaser shall have received evidence, in
form and substance reasonably satisfactory to it, that all registrations and
filings required by or with any Governmental Authority for the consummation of
the transactions contemplated by this Agreement have been taken.
(k) Identification of Accounts. The Accounts shall have been identified
and all Ineligible Accounts shall have been separately identified. Purchaser and
Seller are able to process such Accounts and Ineligible Accounts separately.
Separate lockboxes shall have been established for the remittance of payments
under the Accounts and the Ineligible Accounts.
7.3. Conditions Applicable to Seller. The obligations of Seller under
this Agreement to consummate the transactions contemplated hereby are, in
addition to the conditions contained in Section 7.1, subject to the satisfaction
of the following conditions as of the Closing Date:
(a) Performance of This Agreement. Each of the terms, covenants and
conditions of this Agreement to be complied with and performed by the Purchaser
at or
18
<PAGE> 22
prior to the Closing Date shall have been fully complied with and performed in
all material respects.
(b) Accuracy of Representations and Warranties. There shall be no
material inaccuracy in the representations and warranties of Purchaser set forth
in Article 5 as of the date of this Agreement or as of the Closing Date,
assuming that such representations and warranties are made anew with the same
force and effect on and as of the Closing Date.
(c) Purchaser's Certificate Concerning Agreement. Purchaser shall have
furnished to Seller a certificate dated the Closing Date, signed by an
authorized officer of Purchaser (no less senior than a Vice President) that, to
the best of the knowledge and information of such officer, the conditions set
forth in Sections 7.3(a) and 7.3(b) have been satisfied with respect to
Purchaser.
(d) No Material and Adverse Change. Since the date of this Agreement,
there shall have been no material and adverse change in the condition (financial
or otherwise) of Bank.
(e) Litigation. No action, suit, litigation, proceeding or
investigation related to any of the transactions contemplated hereby shall have
been threatened or instituted which in the opinion of the Seller is reasonably
likely to (i) materially restrict or prohibit or otherwise have a material and
adverse effect on the consummation of any of the transactions contemplated
hereby, or (ii) have a material and adverse effect on Seller.
(f) Licenses and Consents. Seller shall have received evidence, in form
and substance reasonably satisfactory to it, that all licenses and consents
required by or necessary for the consummation of the transactions contemplated
by this Agreement have been obtained.
(g) Governmental Authority. Seller shall have received evidence, in
form and substance reasonably satisfactory to it, that all registrations and
filings required by or with any Governmental Authority for the consummation of
the transactions contemplated by this Agreement have been taken.
ARTICLE 8
INDEMNIFICATION
8.1. Indemnification by Seller. Seller shall indemnify and hold
harmless Purchaser, its Affiliates, their respective officers, directors,
employees and agents from and against any and all claims, losses, liabilities,
actions or causes of action, assessments, damages, fines, penalties, costs and
expenses (including, without limitation, reasonable fees and disbursements of
counsel) (collectively, "Losses"), based upon, in connection with, arising out
of, or resulting from, any of the following:
(a) any inaccuracy of any of the representations or warranties made by
Seller in this Agreement or in any Ancillary Document;
19
<PAGE> 23
(b) any breach or failure by Seller to perform any of its covenants or
agreements contained in this Agreement or in any Ancillary Document;
(c) any act or omission of Seller and its agents and dealers with
respect to any of the Subject Assets prior to the Closing Date; or
(d) any liability or obligation of any nature of Seller whether arising
or to be paid, performed or discharged prior to, at or after the Cut-Off Time.
8.2. Indemnification by Purchaser. Purchaser shall indemnify and hold
harmless Seller, its Affiliates, their respective officers, directors, employees
and agents, from and against, any and all Losses based upon, in connection with,
arising out of, or resulting from any of the following:
(a) any inaccuracy of any of the representations or warranties made by
Purchaser in this Agreement or in any Ancillary Document;
(b) any breach or failure by Purchaser to perform any of its covenants
or agreements contained in this Agreement or in any Ancillary Document;
(c) all of Purchaser's liabilities and obligations under the Cardholder
Agreements to be performed by Purchaser after the Cut-Off Time; or
(d) any act or omission of Purchaser and its agents with respect to any
of the Subject Assets on or after the Closing Date.
8.3. Procedures. Each party shall promptly notify the other party of
any claim, demand, suit or threat of suit of which that party becomes aware
(except with respect to a threat of suit either party might institute against
the other) which may give rise to a right of indemnification pursuant to this
Agreement. The indemnifying party will be entitled to participate in the
settlement or defense thereof and, if the indemnifying party elects, to take
over and control the settlement or defense thereof with counsel satisfactory to
the indemnified party. In any case, the indemnifying party and the indemnified
party shall cooperate (at no cost to the indemnified party) in the settlement or
defense of any such claim, demand, suit or proceeding.
ARTICLE 9
TERMINATION
9.1. Termination. (a) In the event the requirements of Sections 7.2 or
7.3 are not satisfied or waived by August 27, 1999, either party may terminate
this Agreement without any further obligation or liability (except for
obligations which expressly survive) to the party who did not satisfy the
conditions of Section 7.2 or 7.3, as the case may be, effective upon filing
notice of such termination to such other party.
(b) Effect of Termination. If this Agreement is terminated, the
agreements of the parties hereto contained in Section 6.1(b), Section 6.1(c),
Section 9.2 and Article 8
20
<PAGE> 24
shall survive such termination. Termination of this Agreement will not relieve
either party of liability for breaches of this Agreement.
9.2. Expenses. Each party shall pay all of its own fees and expenses
incurred in connection with the transactions contemplated in this Agreement,
except as otherwise provided expressly herein.
ARTICLE 10
MISCELLANEOUS
10.1. Survival of Representations and Warranties. Notwithstanding any
investigation made by or on behalf of any party at any time, each representation
and warranty shall survive the Closing Date.
10.2. Notices. All notices, consents, approvals and other
communications to be given hereunder shall be in writing, shall be deemed to
have been duly given upon receipt, and shall be delivered (i) in person, (ii) by
United States registered or certified mail, with postage prepaid, return receipt
requested, or (iii) by a nationally recognized overnight courier service that
provides written evidence of receipt, and addressed as follows:
(a) If to Purchaser:
World Financial Network With a Copy to:
National Bank Attn: Karen A. Morauski, Counsel
800 TechCenter Drive Fax: (614) 729-4949
Gahanna, OH 43230
Attn: Daniel T. Groomes, President
Fax: (614) 729-4899
(b) If to Seller:
Samuels Jewelers, Inc.
2914 Montopolis, Suite 200
Austin, Texas 78741
Attn: E. Peter Healey
Fax: (512) 369-1515
or to such other address or addresses as Purchaser and Seller may from time to
time designate by notice as provided herein, except that notices of change of
address shall be effective only upon receipt.
10.3. Assignment. No party hereto shall assign or delegate this
Agreement or any rights or obligations hereunder without the prior written
consent of the other party, except that either party shall be permitted to
assign its rights hereunder to any of its Affiliates without the other party's
consent.
21
<PAGE> 25
10.4. Waiver. One party hereto may, by written notice to the other
party hereto, (a) extend the time for the performance of any of the obligations
or other actions of the other party under this Agreement; (b) waive any
inaccuracies in the representations or warranties of the other party contained
in this Agreement or in any document delivered pursuant to this Agreement; (c)
waive compliance with any of the conditions or covenants of the other party
contained in this Agreement; or (d) waive or modify performance of any of the
obligations of the other party under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of one party, shall be
deemed to constitute a waiver by such party of compliance with any of the
representations, warranties, covenants, conditions or agreements contained in
this Agreement. The waiver by one party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
10.5. Entire Agreement. This Agreement (including the Exhibits hereto)
supersedes any other agreement, whether written or oral, that may have been made
or entered into by Seller and Purchaser relating to the matters contemplated
hereby, and together with the Private Label Credit Card Program Agreement
between Purchaser and Seller constitutes the entire agreement of the parties.
10.6. Amendments and Supplements. This Agreement may be amended,
modified or supplemented only by the written agreement of the parties hereto.
10.7. Captions. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
10.8. Counterparts. This Agreement may be executed with counterpart
signature pages or in two or more counterparts, each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
10.9. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Ohio without regard to internal
principles of conflict of laws.
10.10. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, and the provisions of Article 8 shall inure to the benefit of
the indemnified parties referred to therein.
10.11. Severability. If any provision of this Agreement is held to be
invalid, void or unenforceable, all other provisions shall remain valid and be
enforced and construed as if such invalid provision were never a part of this
Agreement.
10.12. Waiver of Jury Trial. Each of the parties hereto shall, and
hereby does, waive trial by jury in any action or proceeding involving any of
the parties hereto on any matters whatsoever arising out of or in any way
connected with this Agreement; provided that such waiver shall not apply to
cross claims in any bona fide action
22
<PAGE> 26
originally involving a third-party and a jury trial or any bona fide action
brought by a third-party against one or more of the parties hereto and involving
a jury trial.
10.13. Consent to Jurisdiction. Each party (i) consents and submits to
the jurisdiction of the Courts of the State of Ohio and of the Courts of the
United States for the Eastern Division of the Southern District of Ohio for all
purposes of this Agreement, including, without limitation, any action or
proceeding instituted for the enforcement of any right, remedy, obligation or
liability arising under or by reason hereof or thereof.
10.14. Mutual Drafting. This Agreement is the joint product of Seller
and Purchaser and each provision hereof has been subject to mutual consultation,
negotiation and agreement of Seller and Purchaser and shall not be construed for
or against any party hereto.
IN WITNESS WHEREOF, each of Seller and Purchaser have caused this
Agreement to be duly executed and delivered as of the date first above written.
WORLD FINANCIAL NETWORK
SAMUELS JEWELERS, INC. NATIONAL BANK
By: By:
-------------------------------- --------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
----------------------------- -----------------------------
23
<PAGE> 27
EXHIBIT 1.1 TO PURCHASE AND SALE AGREEMENT
INELIGIBLE ACCOUNTS
An open-end credit card account shall be deemed an "Ineligible Account" if as of
the Cut-Off Time one or more of the following criteria shall be applicable,
whether or not the revelant facts are then known to Seller or Purchaser:
1) as to which any Receivable has been written off by Seller or has not
been written off but was required to have been written off according to
GAAP or the normal operating policies of Seller or has been referred to
a collection agency or an attorney for collection;
2) as to which the Cardholder is deceased or has been declared incompetent;
3) as to which the Cardholder is the subject of any petition under the
United States Bankruptcy Code of 1978, as amended, or is a party to any
other insolvency proceedings under state law, or as to which Seller has
executed a reaffirmation agreement with a Cardholder who filed a
petition for protection under any chapter of the United States
Bankruptcy Code of 1978, as amended;
4) as to which the Cardholder's Account does not have in effect a valid
written Cardholder Agreement enforceable in accordance with its terms,
or is subject to a dispute by the Cardholder or is subject to defense,
offset, claim or counterclaim as a result of Seller's action or
inaction;
5) which has been identified in the exercise of diligence and good faith by
Seller on its books and records as being fraudulent;
6) as to which the Cardholder is under the age of 18 years;
7) which is a non-Credit Card accessed account;
8) as to which the Cardholder is not an individual, or the account is
maintained in a corporate or other business name;
9) as to which the account is one-hundred eighty (180) or more days past
due;
10) any account which was opened prior to January 1, 1996 which has no
outstanding balance and which has had no financial activity including
purchases, payments or credits within the prior 12 month period; or
11) as to which there is pending litigation, proceeding or arbitration
against or affecting Seller.
24
<PAGE> 28
EXHIBIT 3.2 TO PURCHASE AND SALE AGREEMENT
[FORM OF] ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement is made and delivered this
day of July, 1999 by and between Samuels Jewelers, Inc. ("Seller") and World
Financial Network National Bank ("Purchaser"), pursuant to the Purchase and Sale
Agreement between the parties dated July , 1999 (the "Purchase Agreement"),
and for the consideration and on the terms stated therein, the terms defined
therein being used herein shall have the meaning as defined in the Purchase
Agreement.
1. Assignment. Seller does hereby sell, convey, transfer and assign to
Purchaser, its successors and assigns, for its own use and benefit forever, and
not as security for any indebtedness, all of the Subject Assets.
2. Assumption. Purchaser does hereby assume each of Seller's obligations
under the Cardholder Agreements relating to Accounts including the liability for
Credit Balances and the obligation to refund them, but excluding Seller's
obligations for any breach of such Cardholder Agreements occurring before the
Closing Date or arising from any act or omission of Seller or its dealers, all
subject to the terms and conditions of the Purchase Agreement.
3. Assignments; Governing Law. This Assignment and Assumption Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto, and shall be governed by and construed and
interpreted in accordance with the Purchase Agreement, the internal laws of the
State of Ohio without reference to rules of conflicts of laws, and applicable
federal law.
4. Purchase Agreement Continued. Nothing herein shall be deemed to
supersede any of the obligations, agreements, covenants, representations or
warranties of Seller or Purchaser contained in the Purchase Agreement.
WORLD FINANCIAL NETWORK
NATIONAL BANK SAMUELS JEWELERS, INC.
By: By:
-------------------------------- --------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
----------------------------- -----------------------------
25
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-80199 on Form S-8 of Samuels Jewelers, Inc. ("Successor Company") of our
report dated September 10, 1999, which report expresses an unqualified opinion
and includes an explanatory paragraph regarding AICPA Statement of Position
90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy
Code," for the Successor Company as a new entity with assets, liabilities, and a
capital structure having carrying values not comparable with prior periods,
appearing in and incorporated by reference in this Annual Report on Form 10-K of
Samuels Jewelers, Inc. for the year ended May 29, 1999.
Deloitte & Touche LLP
Dallas, Texas
September 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-29-1999
<PERIOD-START> MAY-31-1998
<PERIOD-END> MAY-29-1999
<CASH> 1,456
<SECURITIES> 0
<RECEIVABLES> 50,218
<ALLOWANCES> 5,120
<INVENTORY> 32,684
<CURRENT-ASSETS> 80,445
<PP&E> 19,730
<DEPRECIATION> 2,109
<TOTAL-ASSETS> 115,209
<CURRENT-LIABILITIES> 71,354
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 43,850
<TOTAL-LIABILITY-AND-EQUITY> 115,209
<SALES> 108,537
<TOTAL-REVENUES> 118,451
<CGS> 71,289
<TOTAL-COSTS> 115,486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,509
<INTEREST-EXPENSE> 4,569
<INCOME-PRETAX> 54,092
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (11,545)
<CHANGES> 0
<NET-INCOME> 68,111
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
</TABLE>
