<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT to SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 27, 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 (IRS Employer
incorporation or organization) Identification No.)
2914 Montopolis Dr., Suite 200, Austin, Texas 78741
(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. [ ]
As of January 7, 2000, the Registrant had 5,058,900 shares of common stock, par
value $.001 per share, outstanding.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a
court. [X] Yes. [ ] No.
<PAGE> 2
SAMUELS JEWELERS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGES
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 6
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 16
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities and Use of Proceeds 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 18
</TABLE>
<PAGE> 3
PART I
Item 1
SAMUELS JEWELERS, INC.
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Successor Successor
November 27, May 29,
1999 1999
----------- ---------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,706 $ 1,456
Customer receivables, net of allowance for doubtful accounts of
$3,737 at November 27, 1999, and $5,120 at May 29, 1999 5,732 45,098
Merchandise inventories 58,651 32,684
Prepaid expenses and other current assets 3,448 1,207
--------- ---------
Total current assets 71,537 80,445
Property and equipment:
Leasehold improvements, furniture and fixtures 22,023 15,396
Computers and equipment 4,916 4,334
--------- ---------
26,939 19,730
Less: accumulated depreciation (3,961) (2,109)
--------- ---------
Net property and equipment 22,978 17,621
Other assets 694 631
Goodwill, net 5,090 --
Reorganization value in excess of amounts allocated to
identifiable assets, net 15,630 16,512
--------- ---------
Total assets $ 115,929 $ 115,209
========= =========
Liabilities and Shareholders' Equity Current liabilities:
Notes payable $ 31,175 $ 45,893
Accounts payable - trade 26,698 12,157
Other accrued liabilities 17,175 13,304
--------- ---------
Total current liabilities 75,048 71,354
Notes payable 4,000 --
Shareholders' equity:
Common stock; $.001 par value; authorized 20,000,000 shares; issued and
outstanding, 5,058,900 shares at November 27, 1999,
5,001,800 at May 29, 1999 5 5
Additional paid-in capital 48,616 48,346
Deferred compensation (834) (1,251)
Notes receivable (609) (771)
Accumulated deficit (10,297) (2,474)
--------- ---------
Total shareholders' equity 36,881 43,855
--------- ---------
Total liabilities and shareholders' equity $ 115,929 $ 115,209
========= =========
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 4
SAMUELS JEWELERS, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Successor Successor Predecessor
Three Months Two Months One Month
Ended Ended Ended
November 27, November 28, October 2,
1999 1998 1998
----------- ----------- ----------
<S> <C> <C> <C>
Net sales $ 26,470 $ 13,595 $ 7,546
Finance and credit insurance fees 75 1,565 813
-------- -------- --------
26,545 15,160 8,359
Costs and expenses:
Cost of goods sold, buying and occupancy 18,717 9,726 5,135
Selling, general and administrative expenses 11,892 7,051 3,735
Provision for doubtful accounts -- 850 356
-------- -------- --------
30,609 17,627 9,226
Operating loss (4,064) (2,467) (867)
Interest expense, net 455 550 643
-------- -------- --------
Loss before reorganization items, income
taxes and extraordinary item (4,519) (3,017) (1,510)
Reorganization items:
Fresh-Start adjustments -- -- (67,853)
Reorganization costs -- -- 4,439
-------- -------- --------
Income (loss) before income taxes and
extraordinary item (4,519) (3,017) 61,904
Income taxes -- -- --
-------- -------- --------
Net income (loss) before extraordinary item (4,519) (3,017) 61,904
Gain on forgiveness of debt -- -- (11,545)
-------- -------- --------
Net loss $ (4,519) $ (3,017) $ 73,449
======== ======== ========
Basic and diluted loss per share (a) $ (.89) $ (.60) n/a
======== ======== ========
Weighted-average number of common shares
outstanding, in thousands (a) 5,062 5,002 n/a
======== ======== ========
</TABLE>
(a) The basic and diluted loss per share and weighted average number of common
shares outstanding for the Predecessor Company have not been presented because,
due to the reorganization and implementation of Fresh-Start Reporting, they are
not comparable to subsequent periods.
See Notes to Financial Statements.
4
<PAGE> 5
SAMUELS JEWELERS, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Successor Successor Predecessor
Six Months Two Months Four Months
Ended Ended Ended
November 27, November 28, October 2,
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 47,601 $ 13,595 $ 27,494
Finance and credit insurance fees 2,331 1,565 3,397
-------- -------- --------
49,932 15,160 30,891
Costs and expenses:
Cost of goods sold, buying and occupancy 34,130 9,726 19,091
Selling, general and administrative expenses 21,362 7,051 12,980
Provision for doubtful accounts 839 850 1,492
-------- -------- --------
56,331 17,627 33,563
Operating loss (6,399) (2,467) (2,672)
Interest expense, net 1,424 550 2,367
-------- -------- --------
Loss before reorganization items, income
taxes and extraordinary item (7,823) (3,017) (5,039)
Reorganization items:
Fresh-Start adjustments -- -- (67,853)
Reorganization costs -- -- 6,248
-------- -------- --------
Income (loss) before income taxes and
extraordinary item (7,823) (3,017) 56,566
Income taxes -- -- --
-------- -------- --------
Net income (loss) before extraordinary item (7,823) (3,017) 56,566
Gain on forgiveness of debt -- -- (11,545)
-------- -------- --------
Net loss $ (7,823) $ (3,017) $ 68,111
======== ======== ========
Basic and diluted loss per share (a) $ (1.55) $ (.60) n/a
======== ======== ========
Weighted-average number of common shares
outstanding, in thousands (a) 5,045 5,002 n/a
======== ======== ========
</TABLE>
(a) The basic and diluted loss per share and weighted average number of common
shares outstanding for the Predecessor Company have not been presented because,
due to the reorganization and implementation of Fresh-Start Reporting, they are
not comparable to subsequent periods.
See Notes to Financial Statements.
5
<PAGE> 6
Samuels Jewelers, Inc.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Successor Successor Predecessor
Six Months Two Months Four Months
Ended Ended Ended
November 27, November 28, October 2,
1999 1998 1998
----------- ----------- ------------
<S> <C> <C> <C>
Operating activities:
Net earnings (loss) $ (7,823) $ (3,017) $ 68,111
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Fresh-Start adjustments -- -- (67,853)
Extraordinary item - gain on forgiveness of debt -- -- (11,545)
Depreciation and amortization 2,734 899 1,341
Provision for doubtful accounts 839 850 1,492
Loss on disposal of assets -- 315 --
Management stock grant -- -- 2,228
Change in operating assets and liabilities:
Customer receivables 38,867 (133) 2,652
Merchandise inventories (15,214) (8,278) (4,592)
Prepaid expenses and other current assets (413) (1,876) 552
Other assets 14 (154) (21)
Accounts payable - trade 9,311 4,149 3,616
Accrued liabilities 2,590 1,907 1,921
-------- -------- --------
Net cash provided by (used in) operating activities 30,905 (5,338) (2,098)
Investing activities:
Purchase of property and equipment (5,930) (2,512) (2,641)
Proceeds from sale of assets -- 100 --
Acquisition of stores (Note 2) (1,274) -- --
-------- -------- --------
Net cash used in investing activities (7,204) (2,412) (2,641)
Financing activities:
Net borrowings under revolving credit facility (22,030) (4,934) (11,397)
Issuance of common stock -- 15,012 --
Deferred compensation 417 -- --
Notes receivable 162 -- --
-------- -------- --------
Net cash provided by (used in) financing activities (21,451) 10,078 (11,397)
-------- -------- --------
Increase (decrease) in cash 2,250 2,328 (16,136)
Cash at beginning of period 1,456 3,165 19,301
-------- -------- --------
Cash at end of period $ 3,706 $ 5,493 $ 3,165
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,517 $ 306 $ 2,060
Income taxes -- -- --
Notes payable issued for acquired stores 6,000 -- --
</TABLE>
6
<PAGE> 7
SAMUELS JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. REORGANIZATION AND BASIS OF PRESENTATION
REORGANIZATION
Samuels Jewelers, Inc. ("Samuels" or "Successor") was created in August 1998 for
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 their $50 million of Barry's
bonds into equity of Samuels.
On October 2, 1998, the Predecessor was merged into Samuels under the Plan as
part of the Reorganization.
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 lends a rich tradition of outstanding customer service and of
providing an excellent selection of fine jewelry.
Samuels operates a chain of specialty retail jewelry stores located in regional
shopping malls, power centers and stand alone stores. Its stores offer fine
jewelry items in a wide range of styles and prices, with a principal emphasis on
diamond and gemstone jewelry. As of January 7, 2000, Samuels operated 182 retail
jewelry stores, in twenty-five states, principally California, Texas, Kentucky,
Colorado, Ohio, Indiana, Utah, Arizona, Idaho, Montana and New Mexico. As
measured by the number of retail locations, Samuels is one of the larger
specialty retailers of fine jewelry in the country. Samuels' corporate office is
located at 2914 Montopolis Drive, Suite 200, Austin, Texas 78741, and its
telephone number is (512) 369-1400.
BASIS OF PRESENTATION
The accompanying unaudited financial statements of Samuels have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. The Plan, which became effective October 2, 1998, has materially changed
the amounts reported in the accompanying financial statements, which give effect
to adjustments to the carrying values of assets and liabilities as a consequence
of the Plan. The results of operations and cash flows for the quarter and six
months ended November 28, 1998 have been split into two reporting periods. The
first four months ended October 2, 1998 reflect operations prior to the
Reorganization. The latest two months ended November 28, 1998 reflect operations
after the Reorganization and reflect the effects of Fresh-Start Reporting. The
quarter and six months ended November 27, 1999 reflect the results of operations
and cash flows after the Reorganization and reflect the effects of Fresh-Start
Reporting. Therefore, the results of operations and cash flows for the quarter
and six months ended November 27, 1999 are not comparable with results and cash
flows for the same periods of the prior year. As used herein, Samuels refers to
results for periods after October 2, 1998 and to results for the Predecessor for
those periods through October 2, 1998.
The financial statements included herein do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, Samuels has included all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation for the interim periods. However, and as stated above, the
periods are not comparable and Samuels includes the financial statements only as
required by Securities and Exchange Act regulations to describe the general
development of the business.
7
<PAGE> 8
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending June 3, 2000.
For further information, you should refer to the financial statements and
footnotes thereto that are included in Samuels' Annual Report on Form 10-K for
the year ended May 29, 1999.
Samuels' fiscal year ends on the Saturday closest to May 31. The quarter and six
months ended November 27, 1999 consisted of the thirteen and twenty-six weeks
then ended, respectively. The one month ended October 2, 1998 consists of the
five weeks then ended for the 1999 fiscal year, the two months ended November
28, 1998 consist of the eight weeks then ended for the 1999 fiscal year and the
four months ended October 2, 1998 consist of the eighteen weeks then ended for
the 1999 fiscal year.
Certain previously reported amounts were reclassified to conform to current year
presentations.
2. ACQUISITIONS AND NEW STORES
On July 27, 1999, Samuels entered into a purchase agreement with Henry Silverman
Jewelers, Inc. ("Silverman's") to acquire all its trade names, customer lists,
fixtures and the lease rights for up to seventeen Silverman's stores. Samuels'
purchase price for these assets was 60,000 shares of its common stock, the
delivery of which was contingent upon the delivery of the Silverman's assets to
Samuels. Samuels did not assume any of Silverman's liabilities and did not
acquire any of Silverman's other assets as part of the purchase agreement. The
60,000 shares were issued and registered under Samuels' shelf registration on
Form S-1, declared effective by the SEC on June 9, 1999. As of January 7, 2000,
Samuels consummated the takeover of twelve of Silverman's lease agreements.
Samuels has abandoned lease assignments on three Silverman's stores, to which
the purchase agreement had allocated 5,400 shares. Samuels completed the return
of the 5,400 shares related to these stores on or about November 15, 1999.
Samuels is currently negotiating the remaining two lease assignments covered by
the purchase agreement. Nevertheless, Samuels is currently operating in these
two stores and expects the lease rights to be assigned. As part of the
acquisition, Samuels also issued 2,500 shares of its common stock as a finder's
fee.
Samuels has accounted for the former Silverman's stores using the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the assets acquired and the liabilities assumed based upon their preliminary
fair values at the date of acquisition. Samuels has included the results of
operations for these stores in its Statement of Operations as each store was
opened.
In November 1999, Samuels acquired substantially all of the assets of C & H
Rauch, Inc. ("Rauch"), a Kentucky corporation, through the purchase of all of
the outstanding stock of Rauch. The total cost of the acquisition, including
liabilities assumed, was $19.9 million. The acquisition of Rauch added
operations in 40 new stores for Samuels, including new operations in the states
of Kentucky, Ohio, Indiana, West Virginia, and Virginia. Prior to the
acquisition, Rauch had operated as a privately owned corporation. Upon
completion of the acquisition, Rauch was merged with and into Samuels.
Samuels has accounted for the Rauch acquisition using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based upon their preliminary fair values at
the date of acquisition. The excess of the purchase price over the fair value of
the net assets acquired was approximately $5.1 million, which Samuels has
recorded as goodwill and is amortizing on a straight line basis over ten years.
Samuels has included the results of operations for the Rauch acquisition in its
Statement of Operations beginning November 1999. The current Rauch home office
will be closed at the end of January 2000, the lease on the home office has been
cancelled and the functions performed in Lexington have been or soon will be
absorbed by Samuels' home office in Austin.
8
<PAGE> 9
The net purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents $ 726
Accounts receivables
339
Merchandise inventories 10,753
Prepaid expenses and other current assets
2,501
Leasehold improvements, furniture and fixtures
455
Goodwill 5,090
-------
Total purchase price $19,864
=======
</TABLE>
In addition to the above acquisitions, Samuels opened twelve stores during the
six months ended November 27, 1999. Samuels also opened one new store during
December 1999 and is in various stages of negotiation for several other new
locations.
3. NOTES PAYABLE
On October 2, 1998, Samuels entered into a three-year, $50.0 million financing
agreement with Foothill Capital Corporation as a lender and as agent for the
lender group (the "Lenders"). Under the terms of the financing agreement, the
lenders make revolving advances to Samuels in amounts that are based on
percentages of eligible accounts receivable and inventory. The annual rate of
interest is, at Samuels' 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, Samuels 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 also
contains quarterly covenants which include its meeting a minimum level of
tangible net worth and prohibits the payment of dividends. Samuels has entered
into three amendments to the Loan and Security Agreement with the Lenders. As
part of the amendments, Samuels and the Lenders adjusted some of the covenants
required of Samuels under this financing agreement, allowed for the sale to
World Financial Network National Bank ("WFN") of Samuels' existing credit card
accounts (see Note 4) and reduced the total commitment under the financing
agreement from $50.0 million to $40.0 million.
As of November 27, 1999, Samuels had direct borrowings of $29.2 million
outstanding, with additional credit available of approximately $7.4 million
based upon existing collateral. As of November 27, 1999, Samuels was in
compliance with its obligations under the financing agreement.
In conjunction with Samuels' acquisition of Rauch (see Note 2), Samuels issued
three promissory notes due and payable for $2.0 million each in January 2000,
2001 and 2002, respectively. The notes have a stated interest rate of 7% per
annum with interest due and payable beginning January 15, 2000 and on each
successive six-month anniversary thereafter. Samuels may offset its payment
obligations under these notes, in part or in full, to the extent and in the
event any liabilities arise that were not accounted for and undisclosed in the
unaudited balance sheet of Rauch as of October 31, 1999, which Samuels required
to be delivered as part of its completing the transaction. Upon the occurrence
and during the continuation of any event of default under the notes, Samuels'
payment obligations may bear interest at a per annum rate of 15%.
4. ACCOUNTS RECEIVABLE
On July 27, 1999, Samuels entered into agreements with WFN to sell its existing
credit card accounts to WFN and to have WFN provide a third-party credit card
program for the benefit of Samuels' customers. Samuels and WFN effected the
transactions set out in the agreements on August 30, 1999. Upon closing the
sale, Samuels sold its approximately $46.8 million outstanding accounts
receivable to WFN at face value, less a hold back reserve of approximately $9.4
million. Samuels used the net proceeds of
9
<PAGE> 10
approximately $37.4 million to reduce the balances outstanding under Samuels'
financing agreement with the Lenders (see Note 3).
The sale of Samuels' existing credit card accounts has affected the presentation
of Samuels' financial statements. Samuels is no longer recording finance revenue
or credit insurance fees. The discount fee paid to WFN is included in selling,
general and administrative expenses. Samuels previously included expenses from
the operation of its credit operations in selling, general and administrative
expenses. Additionally, Samuels is no longer recording a provision for bad debt.
Similarly, Samuels' interest expense has been reduced as a result of the
reduction of the balances outstanding under its financing agreement with its
Lenders (see Note 3).
10
<PAGE> 11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT. This Quarterly Report on Form 10-Q
contains certain 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 and Samuels intends that such forward-looking statements be subject to the
safe harbors created thereby.
OVERVIEW. The following discussion presents information about the financial
condition, liquidity and capital resources, and results of operations of Samuels
as of and for the quarters and six months ended November 27, 1999 and November
28, 1998. This information should be read in conjunction with the audited
consolidated financial statements of Samuels and the notes thereto as reported
on Samuels' Annual Report on Form 10-K for the fiscal year ended May 29, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 27, 1999 COMPARED TO THE THREE MONTHS ENDED NOVEMBER
28, 1998 (COMBINING BOTH THE PREDECESSOR AND SUCCESSOR COMPANIES)
The following table sets forth selected store data with respect to the quarters
ended November 27, 1999 and November 28, 1998:
<TABLE>
<CAPTION>
November November
1999 1998
-------- --------
<S> <C> <C>
Number of stores at beginning of ....... 123 116
quarter
Acquired during the quarter ........ 48 --
Opened during the quarter .......... 10 2
Closed during the quarter .......... -- (4)
------- -------
Total at quarter end ......... 181 114
======= =======
Percentage increase (decrease) in
sales of comparable stores............ 4.0%
Quarterly average sales per comparable
store (in thousands).................. $ 195 $ 187
Equivalent store weeks ................. 1,874 1,489
</TABLE>
Net sales for the quarter ended November 27, 1999, were $26.5 million, an
increase of 25.6% or $5.4 million, as compared to net sales of $21.1 million for
the quarter ended November 28, 1998. Equivalent store weeks were 1,874 for the
second quarter this year as compared to 1,489 for the second quarter last year,
as Samuels opened ten new stores, acquired an additional eight Silverman's
stores and acquired forty C&H Rauch stores during the second quarter this year.
Equivalent weekly sales were $14.1 thousand for the second quarter ended
November 27, 1999 as compared to $14.2 thousand for the second quarter ended
November 28, 1998. The decrease in equivalent weekly sales is due to the
acquisition of the Rauch stores that operate in smaller markets and have a lower
average sales volume. Comparable store sales increased 4.0% during the quarter
ended November 27, 1999. The increase in comparable store sales for the second
quarter this year as compared to the second quarter last year was due to the
factors described below as well as the change in the comparable store base
resulting from the closure of eight stores during the preceding twelve months.
Samuels attributes the overall increase in sales to several key factors, mainly
the remodeling of stores, a continuation of the upgrading of the quality of its
merchandise to offer an expanded assortment of higher ticket price merchandise
and continued efforts to refine its marketing by targeting a more mature,
financially sound customer, with a more discretionary spending ability. These
factors were offset somewhat by reduced credit sales (representing 44.6% of
sales during the quarter ended November 27, 1999 as compared to 54.2% in the
quarter ended November 28, 1998) resulting from changes to the credit
underwriting criteria in order to maintain a portfolio consisting of more
creditworthy customers and marketing which targeted a less credit dependant
customer.
Finance and credit insurance fees decreased to $0.1 million during the quarter
ended November 27, 1999, from $2.4 million during the quarter ended November 28,
1998. This decrease was primarily due to the sale of our existing credit card
accounts to a third party as of August 30, 1999 (see Note 4. Accounts
Receivable).
11
<PAGE> 12
Cost of goods sold, buying and occupancy expenses were $18.7 million for the
quarter ended November 27, 1999, as compared to $14.8 million for the same
quarter last year. Cost of goods sold, buying and occupancy expenses were 70.6%
of net sales for the quarter ended November 27, 1999 and 70.1% of net sales for
the same quarter last year. Excluding amortization of Samuels' reorganization
value in excess of amounts allocated to identifiable assets of $0.4 million for
the second quarter this year and $0.3 million for the second quarter last year,
cost of goods sold, buying and occupancy expenses were 69.1% and 68.7% of sales,
respectively. The increase in cost of goods sold, buying and occupancy expenses
resulted primarily from the overall increase in the number of stores in
operation and increased sales. The increase in cost of goods sold, buying and
occupancy expenses as a percentage of sales resulted primarily from moderate
discounting focused on reducing slow moving merchandise, a shift in the mix of
products being sold to higher ticket lower margin items, grand opening
promotions which targeted former customers and pre-opening startup costs in the
newly acquired stores.
Selling, general and administrative expenses were $11.9 million for the quarter
ended November 27, 1999, as compared to $10.8 million in the same quarter last
year. The increase was primarily due to the overall increase in the number of
stores in operation offset by a net reduction in credit expenses related to the
sale of the our existing credit card accounts to WFN as of August 30, 1999 (see
Note 4. Accounts Receivable). Selling, general and administrative expenses as a
percentage of net sales were 44.9% for the quarter ended November 27, 1999 and
51.2% for the quarter ended November 28, 1998. The improvement as a percentage
of net sales resulted primarily from the general and administrative expenses
being spread over the larger sales volume as well as the reduction in credit
operations costs.
The provision for doubtful accounts is no longer being recorded as Samuels'
existing credit card accounts have been sold (see Note 4. Accounts Receivable).
Net interest expense was $0.5 million for the quarter ended November 27, 1999, a
decrease of $0.7 million, or 58.3% from $1.2 million for the quarter ended
November 28, 1998. Proceeds from the sale of Samuels' existing credit card
accounts on August 30, 1999 (see Note 4. Accounts Receivable) were used to
reduce the amounts outstanding under Samuels' revolving line of credit.
Additionally, upon completion of the Reorganization, Samuels entered into a
revolving line of credit under a new financing agreement, which resulted in
reduced amounts outstanding as well as a lower rate of interest on amounts
outstanding after October 2, 1998. (See Note 3. Notes Payable).
Reorganization costs incurred by the Predecessor consisted primarily of
professional fees directly related to the Chapter 11 proceedings, offset by
interest earned on accumulated cash during the pendency of the Chapter 11
proceedings.
SIX MONTHS ENDED NOVEMBER 27, 1999 COMPARED TO THE SIX MONTHS ENDED NOVEMBER 28,
1998 (COMBINING BOTH THE PREDECESSOR AND SUCCESSOR COMPANIES)
The following table sets forth selected store data with respect to the six
months ended November 27, 1999 and November 28, 1998:
<TABLE>
<CAPTION>
November November
1999 1998
-------- --------
<S> <C> <C>
Number of stores at beginning of period...... 116 117
Acquired during the period ................ 54 --
Opened during the period .................. 12 2
Closed during the period .................. (1) (5)
------- -------
Total at period end ............... 181 114
======= =======
Percentage increase (decrease) in
sales of comparable stores ................ 3.5%
Period average sales per comparable
store (in thousands) ...................... $ 381 $ 364
Equivalent store weeks ...................... 3,397 2,997
</TABLE>
Net sales for the six months ended November 27, 1999, were $47.6 million, an
increase of 15.8% or $6.5 million, as compared to net sales of $41.1 million for
the six months ended November 28, 1998. Equivalent
12
<PAGE> 13
store weeks were 3,397 for the six months this year as compared to 2,997 for the
six months last year, as Samuels opened twelve new stores, acquired fourteen
Silverman's stores and acquired forty C&H Rauch stores during the first six
months of this year. Equivalent weekly sales were $14.0 thousand for the six
months ended November 27, 1999 as compared to $13.7 thousand for the six months
ended November 28, 1998. Comparable store sales increased 4.8%. Samuels
attributes the overall increase in sales to several key factors, mainly the
remodeling of stores, a continuation of the upgrading of the quality of its
merchandise to offer an expanded assortment of higher ticket price merchandise
and continued efforts to refine its marketing by targeting a more mature,
financially sound customer, with more discretionary spending ability. These
factors were offset somewhat by reduced credit sales (representing 46.7% of
sales during the six months ended November 27, 1999 as compared to 54.2% in the
six months ended November 28, 1998) resulting from changes to the credit
underwriting criteria in order to maintain a portfolio consisting of more
creditworthy customers and marketing which targeted a less credit dependant
customer.
Finance and credit insurance fees decreased to $2.3 million during the six
months ended November 27, 1999, from $5.0 million during the six months ended
November 28, 1998. This decrease was primarily due to the sale of our existing
credit card accounts to WFN as of August 30, 1999.
Cost of goods sold, buying and occupancy expenses were $34.1 million for the six
months ended November 27, 1999, as compared to $28.8 million for the same six
months last year. Cost of goods sold, buying and occupancy expenses were 71.6%
of net sales for the six months ended November 27, 1999 and 70.1% of net sales
for the same six months last year. Excluding amortization of Samuels'
reorganization value in excess of amounts allocated to identifiable assets of
$0.9 million for the six months this year and $0.3 million for the six months
last year, cost of goods sold, buying and occupancy expenses were 69.7% and
69.3% of sales, respectively. The increase in cost of goods sold, buying and
occupancy expenses resulted primarily from the overall increase in the number of
stores in operation, increased sales, understaffing in Samuels' buying and
distribution departments while it was in the process of relocating its home
office during the first six months of fiscal 1998, and depreciation associated
with our expenditures on new computer systems during the first six months of
fiscal 1999. The increase in cost of goods sold, buying and occupancy expenses
as a percentage of sales resulted primarily from moderate discounting focused on
reducing slow moving merchandise, a shift in the mix of products being sold to
higher ticket lower margin items, grand opening promotions which targeted former
customers and pre-opening startup costs in the newly acquired stores.
Selling, general and administrative expenses were $21.4 million for the six
months ended November 27, 1999, as compared to $20.0 million in the same six
months last year. The increase was primarily due to the overall increase in the
number of stores in operation offset by a net reduction in credit expenses
related to the sale of our existing credit card accounts to WFN as of August 30,
1999 (see Note 4. Accounts Receivable). Selling, general and administrative
expenses as a percentage of net sales were 45.0% for the six months ended
November 27, 1999 and 48.7% for the six months ended November 28, 1998. The
improvement as a percentage of net sales resulted primarily from the general and
administrative expenses being spread over the larger sales volume as well as the
reduction in credit operations costs.
The provision for doubtful accounts was $0.8 million for the six months ended
November 27, 1999. This was a decrease of $1.5 million, or 65.2% from $2.3
million for the six months ended November 28, 1998. The decrease in the
provision was primarily due the fact that the provision for doubtful accounts is
now no longer being recorded because Samuels' existing credit card accounts were
sold on August 30, 1999 (see Note 4. Accounts Receivable).
Net interest expense was $1.4 million for the six months ended November 27,
1999, a decrease of $1.5 million, or 51.7% from $2.9 million for the six months
ended November 28, 1998. Proceeds from the sale of our existing credit card
accounts on August 30, 1999 (see Note 4. Accounts Receivable) were used to
reduce the amounts outstanding under our revolving line of credit. Additionally,
upon completion of the Reorganization, Samuels entered into that revolving line
of credit under a new financing agreement, which resulted in reduced amounts
outstanding as well as a lower rate of interest on amounts outstanding after
October 2, 1998. (See Note 3. Notes Payable).
13
<PAGE> 14
Reorganization costs incurred by the Predecessor consisted primarily of
professional fees directly related to the Chapter 11 proceedings, offset by
interest earned on accumulated cash during the pendency of the Chapter 11
proceedings.
FINANCIAL CONDITION
CREDIT PROGRAM. On July 27, 1999, Samuels agreed with WFN to sell its existing
credit card accounts to WFN and to have WFN provide a third-party credit card
program for the benefit of Samuels' customers. Samuels and WFN effected the
transactions set out in the agreements on August 30, 1999. Upon closing the
sale, Samuels sold its approximately $46.8 million outstanding accounts
receivable to WFN at face value, less a hold back reserve of approximately $9.4
million. Samuels used the net proceeds of approximately $37.4 million to reduce
the balances outstanding under Samuels' financing agreement with the Lenders
(see Note 3).
INVENTORY. At November 27, 1999, Samuels' inventories (net of reserves and not
including consignment inventory) were approximately $58.7 million, an increase
of approximately $26.0 million from $32.7 million at May 29, 1999. This increase
is primarily due to merchandise purchased in preparation for the Christmas
selling season and for the opening of newly acquired stores.
Liquidity and Capital Resources
General. Samuels' operations require working capital to fund the purchase of
inventory and to meet normal operating expenses. The seasonality of Samuels'
business requires a significant build-up of inventory for the Christmas holiday
selling period. Samuels generally must fund these seasonal inventory needs
during the late summer and fall months because of the necessary lead-time to
obtain additional inventory. Management currently believes that cash flow from
operating activities and funds available under its existing financing agreement
should be sufficient to support its working capital needs as well as its current
store expansion program.
Samuels reported cash flow provided by operating activities of approximately
$30.9 million for the six months ended November 27, 1999, as compared to cash
flow used in operating activities of approximately $7.4 million for the
comparable period last year. The change in cash flow from operating activities
is primarily due to the sale of our existing credit card accounts (see Note 4.
Accounts Receivable). Samuels acquired $5.9 million in new property and
equipment during the six months consisting mostly of leasehold improvements
associated with the remodeling of existing stores and the acquisition of new
stores. Additionally, Samuels recorded cash payments of $1.3 million for the
acquisition of C&H Rauch, Inc. Samuels financed the acquisition in part through
the issuance of notes payable totaling $6.0 million (see Note 3. Notes Payable).
As of November 27, 1999, Samuels had $3.7 million of cash and cash equivalents
as compared to $1.5 million as of May 29, 1999. Cash levels traditionally
increase during the last week of November as Samuels enters its Christmas
selling season.
FINANCING TRANSACTIONS
To replace the DIP Financing agreement and to provide for longer term financing
on October 2, 1998, Samuels entered into a three year, $50.0 million financing
agreement with Foothill Capital Corporation as a lender and as agent for the
Lenders. Under the terms of the financing agreement, the Lenders make revolving
advances to Samuels in amounts based on percentages of eligible accounts
receivable and inventory. The annual rate of interest is, at Samuels' 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, Samuels' 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 of Samuels' obligations
to the Lenders under the financing agreement, it granted a first priority
perfected security interest in and to substantially all of its
14
<PAGE> 15
owned or thereafter acquired assets, both tangible and intangible. The financing
agreement also contains quarterly covenants that include requiring Samuels to
meet a minimum level of tangible net worth and prohibiting its payment of
dividends. Samuels has entered into three amendments to the Loan and Security
Agreement with the Lenders. As part of the amendments, Samuels and the Lenders
adjusted some of the covenants required of Samuels under this financing
agreement, allowed for the sale to World Financial Network National Bank ("WFN")
of Samuels' existing credit card accounts (see Note 4) and reduced the total
commitment under the financing agreement from $50.0 million to $40.0 million.
As of November 27, 1999, Samuels had direct borrowings of $29.2 million
outstanding with additional credit available of approximately $7.4 million based
upon existing collateral. As of November 27, 1999, Samuels was in compliance
with its obligations under the financing agreement.
In conjunction with Samuels' acquisition of Rauch (see Note 2), Samuels issued
three promissory notes due and payable for $2.0 million each in January 2000,
2001 and 2002, respectively. The notes have a stated interest rate of 7% per
annum with interest due and payable beginning January 15, 2000 and on each
successive six-month anniversary thereafter. Upon the occurrence and during the
continuation of any event of default under the notes, Samuels' payment
obligations may bear interest at a per annum rate of 15%.
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. As a
result of the change to the year 2000, such systems and applications could fail
or create erroneous results unless corrected so that they can process data
related to that year and beyond.
Samuels 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.
Samuels obtained a new integrated management information system that included a
system processor and operating system, applications software, point of sale
hardware and additional microcomputers. Samuels addressed the year 2000 issue
during the planning process, and all new system technology was believed to be
year 2000 compliant.
Through December 31, 1999, Samuels 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 that Samuels met all requirements to be year 2000 compliant.
Samuels believes that all of the internal operating systems it currently uses
are, and have been shown to be, year 2000 compliant.
Samuels 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.
Samuels received assurances from most of the parties with which it interacts
that their systems are currently year 2000 compliant. We have no assurances that
their representations are correct, and although the year 2000 issue may not
materially affect Samuels' internal systems, it possibly could be affected
through disruptions in the operations of the parties with which it interacts.
To date, Samuels has experienced no significant disruptions due to the change to
year 2000.
15
<PAGE> 16
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Samuels is exposed to market risk in the form of interest rate risk. As of
November 27, 1999, Samuels had $29.2 million outstanding under its revolving
line of credit under its financing agreement with the Lenders. This revolving
line of credit is priced with a variable rate based on LIBOR or a base rate,
plus, in each case an applicable margin. An increase or decrease in interest
rates would affect the interest costs relating this revolving line of credit.
Samuels has no interest rate swaps or other hedging facilities relating to its
revolving line of credit.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Samuels is involved from time to time in legal proceedings of a
character normally incident to its business. Samuels 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 Samuels.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Samuels held its annual meeting of shareholders on November 3, 1999.
Proxies were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. At the meeting, Samuels' shareholders
voted on the election of directors and the ratification of its
appointment of certified public accountants.
David Barr, David J. Breazzano, David H. Eisenberg, E. Peter Healey,
Wendy T. Landon, Randy N. McCullough and Jerry Winston were elected to
serve until the 2000 annual meeting of shareholders. Voting by proxy or
in person, Samuels' shareholders elected the above seven directors with
4,479,270 votes cast for, and 3,800 votes abstaining for David Barr,
David J. Breazzano, David H. Eisenberg, Wendy T. Landon, Randy N.
McCullough and 4,478,270 votes cast for, and 4,800 votes abstaining for
E. Peter Healey and Jerry Winston.
The shareholders voted on and approved the ratification of appointment
of certified public accountants with 4,480,370 votes cast for
ratification, no votes against ratification and 2,700 votes abstaining.
Item 5. Other Information
On July 27, 1999, Samuels entered into a purchase agreement with Henry
Silverman Jewelers, Inc. ("Silverman's") to acquire all its trade
names, customer lists, fixtures and the lease rights for up to
seventeen Silverman's stores. Samuels' purchase price for these assets
was 60,000 shares of its common stock, the delivery of which was
contingent upon the delivery of the Silverman's assets to Samuels.
Samuels did not assume any of Silverman's liabilities and acquired none
of Silverman's other assets as part of the purchase agreement. The
60,000 shares were issued and registered under Samuels' shelf
registration on Form S-1, declared effective by the SEC on June 9,
1999. As of January 7, 2000, Samuels has consummated the takeover on
twelve of the Silverman's lease agreements. Samuels has abandoned lease
assignments on three Silverman's stores, to which the purchase
agreement had allocated 5,400 shares. Samuels completed the return of
the 5,400 shares related to these stores on or about November 15, 1999.
Samuels has the remaining two lease assignments covered by the purchase
agreement under negotiation. Nevertheless, Samuels is currently
operating in these two stores and expects the lease rights to be
assigned. As part of the acquisition, Samuels also issued 2,500 shares
of its common stock as a finder's fee.
Samuels has accounted for the former Silverman's stores using the
purchase method of accounting and, accordingly, the purchase price has
been allocated to the assets acquired and the liabilities
17
<PAGE> 18
assumed based upon their preliminary fair values at the date of
acquisition. Samuels has included the results of operations for these
stores in its Statement of Operations as each store was opened.
In November 1999, Samuels acquired substantially all of the assets of C
& H Rauch, Inc., a Kentucky corporation ("Rauch"), through a purchase
of all of the outstanding stock of Rauch. The total cost of the
acquisition, including liabilities assumed, was $19.9 million. The
acquisition of Rauch added operations in 40 new stores for Samuels,
including new operations in the states of Kentucky, Ohio, Indiana, West
Virginia, and Virginia. Prior to the acquisition, Rauch had operated as
a privately owned corporation. Upon completion of the acquisition,
Rauch was merged with and into Samuels.
Samuels has accounted for the Rauch acquisition using the purchase
method of accounting and, accordingly, the purchase price has been
allocated to the assets purchased and the liabilities assumed based
upon their preliminary fair values at the date of acquisition. The
excess of the purchase price over the fair value of the net assets
acquired was approximately $5.1 million, which Samuels has recorded as
goodwill and is amortizing on a straight line basis over ten years.
Samuels has included the results of operations for the acquisition in
its Statement of Operations beginning November 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Description
------- -----------
3.1 Certificate of Incorporation of Samuels Jewelers, Inc. (1)
3.2 Bylaws of Samuels Jewelers, Inc. (1)
10.1 Amendment Number Three to Loan and Security Agreement
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Not applicable
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
October 6, 1998.
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.
January 10, 1999 By: /s/ RANDY N. MCCULLOUGH
---------------------------------
Randy N. McCullough
President and Chief Executive Officer
January 10, 1999 By: /s/ E. PETER HEALEY
---------------------------------
E. Peter Healey
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
January 10, 1999 By: /s/ ROBERT J. HERMAN
---------------------------------
Robert J. Herman
Vice President and Controller
(Principal Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1 Certificate of Incorporation of Samuels Jewelers, Inc. (1)
3.2 Bylaws of Samuels Jewelers, Inc. (1)
10.1 Amendment Number Three to Loan and Security Agreement
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
October 6, 1998.
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT
This Amendment Number Three to Loan and Security Agreement
("Amendment") is entered into as of November 24, 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, as amended as
of April 15, 1999 and August 30, 1999 (the "Agreement").
B. Borrower has entered into that certain Stock Purchase Agreement,
dated October 20, 1999, with Harry S. Cohen and Steven D. Singleton (as amended,
the "Purchase Agreement") pursuant to which Borrower is acquiring all of the
outstanding shares of capital stock of C&H Rauch, Inc., a Kentucky corporation
("Rauch").
C. Concurrently with the closing of Borrower's purchase of Rauch
pursuant to the Purchase Agreement, Borrower intends to merge Rauch with and
into Borrower (the "Merger").
D. Borrower, Lenders and Agent desire to consent to Borrower's purchase
of Rauch and the Merger and 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 The following new definitions are added to Section 1.1 of
the Agreement in appropriate alphabetical order:
"Excess Availability" means, as of the date of
determination: Borrower's unrestricted cash and cash
equivalents, plus Availability, less accounts payable that are
aged in excess of levels approved by Foothill.
1
<PAGE> 2
"Permitted Rauch Notes Payments" means payments of
regularly scheduled interest under the Rauch Notes as provided
under the terms of such notes in effect on November 24, 1999,
plus payments of principal pursuant to the terms of such notes
(including at the regularly scheduled maturity thereof) in
effect on November 24, 1999, so long as at the time of such
payment (a) no Event of Default is currently in existence, and
(b) after taking such payment into account Borrower would have
(and would have had at all times during the 30 days preceding
such payment) Excess Availability of not less than $5,000,000.
"Rauch Notes" means, collectively, those certain 3
promissory notes, each dated as of November 24, 1999, by
Borrower in favor of Harry S. Cohen and Steven D. Singleton,
in the aggregate outstanding principal amounts of
[$6,000,000].
2.2 Section 7.1 (b) of the Agreement is amended to read as
follows:
"(b) Indebtedness set forth on Schedule 7.1 and the
Rauch Notes;"
2.3 Section 7.8 (a) of the Agreement is amended to read as
follows:
"(a) Prepay, redeem, retire, defease, purchase or
otherwise acquire any Indebtedness owing to any third Person
other than (i) Permitted Rauch Notes Payments, and (ii) the
Obligations, in accordance with this Agreement, and"
2.4 Section 7.20 (b) of the Agreement is 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>
November 1999 $14,500,000
February 2000 $24,000,000
May 2000 $23,000,000
August 2000 $21,000,000
November 2000 $20,000,000
February 2001 $31,500,000
May 2001 $31,500,000
August 2001 $29,500,000
</TABLE>
2
<PAGE> 3
2.5 Section 7.21 of the Agreement is amended to read as
follows:
7.21 CAPITAL EXPENDITURES. Make capital expenditures
in any fiscal year in excess of the following amounts for the
following Fiscal Years (each a "Capital Budget"):
(a) $11,500,000 in Borrower's Fiscal Year
ending 2000; and
(b) for each of Borrower's Fiscal Years
commencing with its Fiscal Year ending 2001, $7,500,000 plus
50% of the unused portion of the prior Fiscal Year's Capital
Budget.
2.6 Section 8.11 of the Agreement is hereby amended to read as
follows:
"If Borrower makes any payment on the Rauch Notes
other than a Permitted Rauch Notes Payment, or if Borrower
makes any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the payment
of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions
applicable to such Indebtedness;"
2.7 Schedule E-1 of the Agreement is amended in its entirety
as set forth on Schedule E-1 to this Amendment.
2.8 Agent and Lenders hereby consent to Borrower's purchase of
Rauch in accordance with the terms of the Purchase Agreement and the Merger of
Rauch into Borrower.
2.9 Borrower agrees to do each of the following within 45 days
of the completion of the Merger of Rauch into Borrower: (i) deliver to Agent a
reviewed opening balance sheet for the Borrower reflecting the combined
entities; and (ii) terminate any depositary or cash collection accounts
maintained with BankBoston respecting Collections for any of the C. H. Rauch
retail store locations, and commence forwarding all such Collections through the
cash management system currently in place with respect to the other retail store
locations of Borrower, and in conformity with Section 2.8 of the Loan Agreement.
Failure to comply with either of these conditions shall be an Event of Default
under the Loan Agreement.
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
no Default or Event of Default exists as of the date hereof.
3
<PAGE> 4
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 evidence satisfactory to Agent that:
(i) the purchase of Rauch by Borrower has been consummated in accordance with
the Purchase Agreement and (ii) the Merger has been completed; and
(c) Payment of a fee to Agent, for the pro rata account of
Lenders, in the amount of $50,000.
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.
4
<PAGE> 5
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, 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/ DOUG BULLOCK
--------------------------------------------
Title: Vice President
--------------------------------------------
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 M. KIDD, II
--------------------------------------------
Title: S. V. P.
--------------------------------------------
SUNROCK CAPITAL CORP.,
a Delaware corporation
By: /s/ JOHN D. ERWIN
--------------------------------------------
Title: S. V. P.
--------------------------------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-03-2000
<PERIOD-START> MAY-30-1999
<PERIOD-END> NOV-27-1999
<CASH> 3,706
<SECURITIES> 0
<RECEIVABLES> 5,732
<ALLOWANCES> 3,737
<INVENTORY> 58,651
<CURRENT-ASSETS> 3,448
<PP&E> 26,939
<DEPRECIATION> 3,961
<TOTAL-ASSETS> 115,929
<CURRENT-LIABILITIES> 75,048
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 36,876
<TOTAL-LIABILITY-AND-EQUITY> 115,929
<SALES> 47,601
<TOTAL-REVENUES> 2,331
<CGS> 34,130
<TOTAL-COSTS> 21,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 839
<INTEREST-EXPENSE> 1,424
<INCOME-PRETAX> (7,823)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,823)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,823)
<EPS-BASIC> (1.55)
<EPS-DILUTED> (1.55)
</TABLE>
