<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 28, 1995 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
COMMISSION FILE NUMBER 1-9647
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-2290953
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13801 N.W. 14th Street Sunrise, Florida 33323
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 846-2705
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.0001 par value
Securities registered pursuant to Section 12(g) of the Act: None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
/ /
As of April 28, 1995, the aggregate market value of the voting stock
beneficially held by non-affiliates of the registrant was $70,339,272.50. The
aggregate market value was computed with reference to the closing price on the
American Stock Exchange on such date. Affiliates are considered to be
executive officers and directors of the registrant and their affiliates for
which beneficial ownership is not disclaimed.
<PAGE>
As of April 28 1995, 25,748,358 shares of Common Stock ($.0001 par value) were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PART III: Portions of the definitive Proxy Statement for the 1995 Annual
Shareholders' meeting (to be filed).
LOCATION OF EXHIBIT INDEX: The index of exhibits is contained in Part IV
herein on page number 52.
<PAGE>
JAN BELL MARKETING, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page No.
<C> <S> <C>
Item 1 Business............................. 4
Item 2 Properties........................... 11
Item 3 Legal Proceedings.................... 11
Item 4 Submission of Matters to a Vote
of Security Holders................ 11
PART II
Item 5 Market for the Registrant's Common
Stock and Related Stockholder
Matters........................... 12
Item 6 Selected Financial Data.............. 12
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 14
Item 8 Financial Statements and
Supplementary Data................ 24
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.............. 47
PART III
Item 10 Directors and Executive Officers
of the Registrant................. 47
Item 11 Executive Compensation............... 47
Item 12 Security Ownership of Certain
Beneficial Owners and
Management........................ 47
Item 13 Certain Relationships and Related
Transactions...................... 47
PART IV
Item 14 Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K.......................... 48
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Jan Bell provides fine jewelry, watches and certain other select
non-jewelry consumer products to the value-conscious fashion consumer.
The Company markets its products principally through Sam's Club, a division of
Wal-Mart, Inc. ("Sam's"), pursuant to an arrangement whereby the Company
operates an exclusive leased department at all of Sam's existing and future
domestic locations through February 1, 2001. In Fiscal 1994, sales through
Sam's accounted for approximately 85% of the Company's net sales. The Company
offers products ranging from fine jewelry, watches, fragrances, fine writing
instruments, sunglasses and certain collectibles and accessories. See
"WAREHOUSE MEMBERSHIP CLUBS."
Prior to Fiscal 1993, the Company operated principally as a jewelry,
watch and fragrance wholesaler to the warehouse membership club industry.
Following the Company's transition to retailing as a leased department
operator at Sam's in the fourth quarter of 1993, the Company recognized
the need for additional retail management expertise. New Board members were
recruited from senior department and specialty store executives, who in turn
hired a new C.E.O. New management then began addressing the Company's
strategic strengths and direction.
In late 1994, as part of the Fiscal 1995 planning process, management and
the new Board reviewed the Fiscal 1994 results of all lines of business and
their attendant cost structures. This process resulted in the following
decisions.
First the Company's domestic manufacturing operations engaged in the
manufacturing of fixtures for the Company's retail locations and the other
manufactured various gem and gold products were closed.
Second, staffing levels were reduced at the Company's headquarters,
other operational expenses were reduced and merchandising programs were
designed to better manage retail sales, gross profit and the replenishment
function.
Third, management also addressed the Company's wholesale watch division,
which had evolved into a low end, watch business with sourcing in the parallel
markets and which contributed disproportionately to expense. With no perceived
opportunity to improve the performance of this division, management has
closed the wholesale watch operations, other than selected sales and continued
balancing of inventory.
For a description of the Company's recent financing events, see "RECENT
EVENTS" in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
The terms "Jan Bell" and the "Company" when used herein refer to Jan Bell
Marketing, Inc. and its consolidated subsidiaries, as required by the context.
The Company's principal offices are located at 13801 Northwest 14th Street,
Sunrise, Florida 33323 (telephone: (305) 846-2705). The Company's fiscal year
ended on January 28, 1995 and is referred to herein as "Fiscal 1994."
4
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PRODUCTS
The following table sets forth the approximate percentage of net sales for
the Company's principal products for the periods specified:
<TABLE>
<CAPTION>
Fifty-two weeks
ended
January 28, Years Ended December 31,
----------- -------------------------------------
1995 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gold jewelry with diamonds
and/or other precious and
semi-precious stones 35% 39% 29% 25% 37%
Gold jewelry 19 25 28 26 32
Watches 22 26 38 34 29
Other consumer products 24 10 5 15 2
</TABLE>
The Company's principal products are gold jewelry set with diamonds and/or
other precious and semi-precious gemstones, gold chain, other forms of gold and
silver jewelry and watches. The Company's jewelry product line includes
chains, pendants, bracelets, watches, rings and earrings. Other consumer
products sold by the Company include perfumes and fragrances, sunglasses,
writing instruments, and collectible and giftware products.
The Company's products are classically designed to offer broad consumer
appeal. Following the warehouse club philosophy of limiting the assortment in
each product category, a typical location will be merchandised at any one time
with approximately 300 jewelry items, 100 watches and 200 other consumer
products. This assortment is more focused than the average number of items
typically stocked by jewelry counters in department stores and other jewelry
retailers.
WAREHOUSE MEMBERSHIP CLUBS
The Company's principal customers during Fiscal 1994 were members of Sam's
Club. In Fiscal 1994, 1993, 1992, 1991 and 1990 approximately 85%, 85%, 81%,
71%, and 64%, respectively, of the Company's net sales originated from the
warehouse membership clubs. The Company's sole warehouse membership club
relationship in Fiscal 1994 was with Sam's. Prior to May 1993, the Company
had an agreement to be the primary supplier of fine jewelry, watches and
fragrances to all present and future Sam's club locations until February 1997.
In May 1993, the arrangement was changed to provide that the Company would
operate an exclusive leased department at all Sam's existing and future
domestic locations through February 1, 1999. In March 1994, the arrangement
was extended through February 1, 2001.
Warehouse membership clubs offer a variety of product categories to
targeted consumers. By limiting the assortment in each product category and
operating on a no-frills basis, warehouse membership clubs generally provide
name brand products at prices significantly below conventional retailers and
department, discount and catalog stores. Warehouse club members, the majority
of whom pay a nominal annual membership fee, include businesses, credit unions,
employee groups, schools, churches and other organizations, as well as eligible
individuals. In addition to jewelry, merchandise offered by warehouse
membership clubs typically includes groceries, health and beauty aids,
computers, cellular telephones, clothing, sporting goods, automotive
accessories, hardware, electronics and office equipment. Successful execution
of the warehouse membership club concept requires high sales volumes, rapid
inventory turnover, low merchandise returns and strict control of operating
costs.
Each Sam's location is staffed by Jan Bell employees with the inventory
owned by Jan Bell until sold to Sam's members. In exchange for the right to
operate the department and the use of the retail space, Jan Bell pays a
5
<PAGE>
tenancy fee of 9% of net sales. While Sam's is responsible for paying utility
costs, maintenance and certain other expenses associated with operation of the
departments, the Company provides and maintains all fixtures and other
equipment necessary to operate the departments.
In 1992, the Company signed an agreement to be the primary supplier of
fine jewelry, watches and fragrances with Club Aurrera, a warehouse club joint
venture in Mexico between Wal-Mart Stores and Cifra S.A. Due to the peso
devaluation, the Company anticipates that sales by its Mexican subsidiary will
be significantly lower in 1995 than in 1994 reflecting the overall reduction in
the Mexican consumer's disposable income.
SPECIAL CONSIDERATIONS
The Company's retail operation requires expertise in the areas of
merchandising, sourcing, selling, personnel, training, systems and accounting.
At the present time, the Company is dependent on Sam's to conduct its business.
Accordingly, the loss of the Company's leased department arrangement with Sam's
or a material reduction of sales at Sam's would have a material adverse effect
on the business of the Company. Moreover, the Company must look to increases
in the number of retail locations to occur, thereby increasing the Company's
customer base, for expansion. Further consolidation of the warehouse club
industry due to geographic constraints and market consolidation might also
adversely affect the Company's existing relationship and the Company's business.
The opening and success of the leased locations and locations to be opened in
later years, if any, will depend on various factors, including general economic
and business conditions affecting consumer spending, the performance of the
Company's retail operations, the acceptance by consumers of the Company's
retail programs and concepts, and the ability of the Company to manage the
leased operations and future expansion and hire and train personnel.
OTHER CUSTOMERS
The Company also sells to a limited number of department stores,
supermarkets, discount stores, drug stores, wholesalers and jewelry chains. In
Fiscal 1994, sales to these customers aggregated approximately 10% of net
sales. Due to the closing of the wholesale watch division in late 1994 and the
focus on the retail operations at Sam's, it is not anticipated that sales to
other customers will continue in any significant manner other than the
continued balancing of inventory and selected sales of goods.
PURCHASING
DIAMONDS AND GEMSTONES
The Company purchases diamonds and other gemstones directly in
international markets located in Tel Aviv, New York, Antwerp, and elsewhere.
The Company buys cut and polished gemstones in various sizes. During 1990, the
Company acquired a purchasing and trading unit based in Israel. The Company
seeks to meet its diamond requirements with purchases on a systematic basis
throughout the year.
Hedging is not available with respect to possible fluctuations in the
price of gemstones. If such fluctuations should be unusually large or rapid
and result in prolonged higher or lower prices, there is no assurance that the
necessary price adjustments could be made quickly enough to prevent the Company
from being adversely affected.
The world supply and price of diamonds is influenced considerably by the
Central Selling Organization ("CSO"), which is the marketing arm of DeBeers
Consolidated Mines, Ltd. ("DeBeers"), a South African company. Through CSO,
6
<PAGE>
DeBeers, over the past several years, has supplied approximately 80% of the
world demand for rough diamonds, selling to gem cutters and polishers at
controlled prices periodically throughout the year.
The continued availability of diamonds to the Company is dependent, to
some degree, upon the political and economic situation in South Africa and
Russia, which have been unstable. Several other countries are also major
suppliers of diamonds, including Botswana and Zaire. In the event of an
interruption of diamond supplies, or a material or prolonged reduction in the
world supply of finished diamonds, the Company could be adversely affected.
GOLD PRODUCTS
Finished gold products and gold castings are purchased from a relatively
small number of manufacturers in Israel, Italy, New York and California. The
Company believes that there are numerous alternative sources for gold chain and
castings, and the failure of any of its current manufacturers would not have a
material adverse effect on the Company.
WATCHES
From May 1990 through Fiscal 1994, the Company actively marketed watches.
Featuring Seiko and Citizen watches as well as other select name brands,
private label and designer watches (such as Givenchy, Mathey Tissot and Ted
Lapidus watches), the Company sold its watch inventory through Sam's and at
wholesale to a variety of retail outlets. During late 1994, the Company
decided to close the wholesale watch operations, so the watch program going
forward is anticipated to be a part of the Company's retail operations other
than selected sales and continued balancing of inventory.
During 1994, the Company purchased approximately 29.0% of watches directly
from certain manufacturers as well as approximately 71.0% of watches through
parallel marketed means. Parallel marketed goods are products to which
trademarks are legitimately applied but which were not necessarily intended by
their foreign manufacturers to be imported and sold in the United States. See
"REGULATION."
OTHER PRODUCTS
The Company purchases sunglasses, fine writing instruments, fragrances and
collectibles directly from manufacturers as well as from parallel marketed
means. See "REGULATION."
AVAILABILITY
Although purchases of several critical raw materials, notably gold and
gemstones, are made from a limited number of sources, the Company believes that
there are numerous alternative sources for all raw materials used in the
manufacture of its finished jewelry, and that the failure of any principal
supplier would not have a material adverse effect on operations. Any changes
in foreign or domestic laws and policies affecting international trade may
have a material adverse effect on the availability or price of the diamonds,
other gemstones, precious metals and non-jewelry products purchased by the
Company.
Because supplies of parallel marketed products are not always readily
available, it can be a difficult process to match the customer demand to market
availability. Management plans to reduce its parallel market purchases in
Fiscal 1995. See "REGULATION."
7
<PAGE>
SEASONALITY
The Company's jewelry business is highly seasonal, with the fourth
calendar quarter (which includes the Christmas shopping season) historically
contributing significantly higher sales than any other quarter during the
year. Approximately 37% of the Company's Fiscal 1994 net sales were made during
the fourth quarter.
MANUFACTURING
The Company currently performs all quality control functions at its
headquarters in Sunrise, Florida and performs certain jewelry manufacturing in
Israel.
All gold and watch products are manufactured by third parties. During
Fiscal 1994, approximately 35.1% and 10.6% of gemstone products received were
manufactured by the Company in Israel and Florida, respectively. The
manufacturing operations in Florida were closed in late Fiscal 1994. The
remaining portion of gemstone products were manufactured or purchased complete
from third parties.
RETAIL OPERATIONS, MERCHANDISING AND MARKETING
GENERAL
Each retail department is supervised by a manager whose primary duties
include member sales and service, scheduling and training of associates, and
maintaining loss prevention and visual presentation standards. The departments
are generally staffed by the manager and a minimum of two staff associates
depending on sales volume. The departments employ temporary associates during
peak selling seasons such as Christmas. Each department is open for business
during the same hours as the warehouse club in which it operates. Except for
extended hours during certain holiday seasons, Sam's is generally open Monday
through Friday from 10:00 a.m. to 8:30 p.m., 9:30 a.m. to 7:00 p.m. on
Saturdays and 11:00 a.m. to 6:00 p.m. on Sundays.
The department manager reports to a district manager. A district manager
supervises on average 13 clubs and reports to a regional director. The Company
presently has three regional directors who report to the Vice President of
Field Operations.
The fixtures and equipment located in the Company's departments generally
consist of six to ten showcases, four corner towers, a safe, a POS terminal,
storage cabinets for merchandise and supplies, display elements, signage and
miscellaneous equipment such as telephones, scales, calculators and diamond
testers. In certain larger volume clubs, the department will have additional
showcases and towers.
The Sam's Clubs are membership only, cash and carry operations. The
Company's departments are required to accept only the forms of payment accepted
by Sam's which presently includes cash, checks and Discover Card.
8
<PAGE>
DEPARTMENT COUNT
The following table sets forth data regarding the number of departments
which the Company operated:
<TABLE>
<CAPTION>
Fiscal
1994 1993(b) 1992 1991(a)
---- ------ ---- -------
<S> <C> <C> <C> <C>
Departments:
- ------------
Operated, beginning of period 418 114 87 -0-
Opened during period 22 339 28 91
Closed during period 12 35 1 4
Operated, end of period 428 418 114 87
--- --- --- ---
Net increase 10 304 27 87
=== === === ===
<FN>
(a) In April, 1991, the lease arrangement with Pace commenced. Includes the
initial conversion of 62 Pace locations and the subsequent acquisition of
19 Price Savers Clubs by Pace.
(b) Includes the initial conversion of 315 Sam's retail departments and the
closing of 30 locations as a result of Pace ceasing operations.
</TABLE>
Generally, the Company's departments are between 260 and 275 square feet
of selling space usually located in higher traffic areas of the clubs near or
adjacent to the cart rails, front entrances or check out areas of the clubs.
PERSONNEL AND TRAINING
The Company considers its associates to be one of the most important
aspects of its ability to successfully carry out its business objectives. The
Company intends to devote a substantial amount of resources to support its
associates with training programs, technology and facilities. The Company has
implemented a comprehensive training program covering its relationship selling
techniques, member service skills, product knowledge and operational
procedures. The Company compensates its associates at rates it believes are
competitive in the discount retail industry and seeks to motivate its
associates through a flexible incentive program. The flexible incentive
program is not based on the typical commission system (i.e., % of sales
revenue), but rewards the associate for exceeding target sales levels or
meeting other criteria which the Company establishes from time to time.
ADVERTISING AND PROMOTION
In accordance with Sam's philosophy, the Company does not promote its
products sold in the departments by newspaper or other periodical advertising
or the broadcast media. To support seasonal activities, the Company promotes
its products through direct mail catalogues to Sam's members. The Company does
utilize promotional materials such as signage, banners and takeaway brochures
within the clubs to promote its products. The Company also advertises in
connection with its licensed products.
DISTRIBUTION
The Company's retail departments receive the majority of their merchandise
directly from distribution warehouses located in Sunrise, Florida. Merchandise
is shipped from the distribution warehouses utilizing various air and ground
carriers. Presently, a small portion of merchandise is delivered directly to
the retail locations from suppliers. The Company transfers merchandise
between retail departments to balance inventory levels and to fulfill customer
requests. The Company's wholesale shipments are processed through its
distribution warehouse in Sunrise, Florida.
The Company operates a distribution facility in Mexico City, Mexico; this
facility warehouses and distributes merchandise sold to Club Aurrera.
9
<PAGE>
The Company does not believe that the dollar amount of unfilled orders is
significant to an understanding of the Company's business due to the relatively
short time between receipt of a customer order and shipment of the product.
COMPETITION
The Company's competitors include foreign and domestic jewelry retailers,
national and regional jewelry chains, department stores, catalog showrooms,
discounters, direct mail suppliers, televised home shopping networks,
manufacturers, distributors and large wholesalers and importers, some of whom
have greater resources than the Company. The Company believes that competition
in its markets is based primarily on price, design, product quality and
service. With the consolidation of the retail industry that is occurring, the
Company believes that competition both within the warehouse club industry and
with other competing general and specialty retailers and discounters will
continue to increase.
REGULATION
The Company utilizes the services of independent customs agents to comply
with U.S. customs laws in connection with its purchases of gold, diamonds and
other raw materials from foreign sources.
Jan Bell bears certain risks in purchasing parallel marketed goods which
include a substantial portion of watches and other accessories. Parallel
marketed goods are products to which trademarks are legitimately applied but
which were not necessarily intended by their foreign manufacturers to be
imported and sold in the United States. The laws and regulations governing
transactions involving such goods lack clarity in significant respects. From
time to time, trademark holders and their licensees initiate private suits or
administrative agency proceedings seeking damages or injunctive relief based on
alleged trademark infringement by purchasers and sellers of parallel marketed
goods. While Jan Bell believes that its practices and procedures with respect
to the purchase of parallel marketed goods lessen the risk of significant
litigation or liability, Jan Bell is from time to time involved in such
proceedings and there can be no assurance that additional claims or suits will
not be initiated against Jan Bell or any of its affiliates, or, if any such
claims or suits are initiated, as to the results thereof. Further, legislation
has been introduced in Congress in recent years and is currently pending
regarding parallel marketed goods. Certain legislative or regulatory
proposals, if enacted, could materially limit Jan Bell's ability to sell
parallel marketed goods in the United States. For instance, a court recently
issued an order enjoining the customs service from enforcing a regulatory
exception regarding foreign made goods that bear a trademark identical to a
valid United States trademark but which are materially physically different.
There can be no assurances as to whether or when any such proposals might be
acted upon by Congress or that future judicial, legislative or administrative
agency action will restrict or eliminate these sources of supply. Jan Bell has
identified alternate sources of supply, although the cost of certain products
may increase or their availability may be lessened.
EMPLOYEES
As of April 28, 1995, the Company employed approximately 1031 persons on a
full-time basis, including approximately 688 in regional and local sales
(primarily the Sam's retail locations), 194 in inventory and distribution and
149 in administrative and support functions. In addition, the Company also
employed approximately 785 persons on a part-time basis which varies with the
seasonal nature of its business. None of its employees are governed by a
collective bargaining agreement, and the Company believes that its relations
with employees are good.
10
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ITEM 2. PROPERTIES
PROPERTIES AND LEASES
The Company's corporate headquarters are owned by the Company and located
on 3.7 acres in a 60,000 square foot building in Sunrise, Florida. The Company
owns an additional 11.1 acres adjacent to the headquarters facility, on which a
123,000 square foot building for use primarily in distribution and shipping
was completed during 1994.
The Company leases one distribution and one office facility with an
aggregate of approximately 7,000 square feet in Mexico City pursuant to a lease
which expires in May 1996. The Company leases facilities in Israel of 3,800
square feet for manufacturing and 1,140 square feet for production and offices.
As of May 9, 1995, the Company had leased department operations at 419
Sam's club locations in 48 states throughout the United States and Puerto Rico.
The typical leased department consists of approximately 260 to 275 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incident to the
conduct of its business. There are no pending legal proceedings reportable
pursuant to this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in
the fourth quarter of the fiscal year ending January 28, 1995.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been listed on the American Stock Exchange
since the Company's initial public offering in August 1987. The following
table sets forth for the periods indicated the range of sales prices per share
on the American Stock Exchange Composite Tape as furnished by the National
Quotation Bureau, Inc.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Year Ending December 31, 1993
First Quarter .............................. $20.63 $14.88
Second Quarter ............................. 18.38 13.25
Third Quarter .............................. 14.00 8.50
Fourth Quarter ............................. 13.13 8.63
Year Ending January 28, 1995
First Quarter .............................. $ 7.38 $ 5.38
Second Quarter ............................. 6.50 4.75
Third Quarter .............................. 7.50 4.88
Fourth Quarter ............................. 5.75 2.31
</TABLE>
The last reported sales price of the Common Stock on the American Exchange
Composite Tape on April 28, 1995 was $2.75. On April 28, 1995, the Company had
942 stockholders of record.
The Company has never paid a cash dividend on its Common Stock. The
Company currently anticipates that all of its earnings will be retained for use
in the operation and expansion of its business and does not intend to pay any
cash dividends on its Common Stock in the foreseeable future. Any future
determination as to cash dividends will depend upon the earnings, capital
requirements and financial condition of the Company at that time, applicable
legal restrictions and such other factors as the Board of Directors may deem
appropriate. Currently, the Company's credit facility and senior debt prohibit
dividend payments.
ITEM 6. SELECTED FINANCIAL DATA
The following selected data should be read in conjunction with the
Consolidated Financial Statements and Related Notes thereto appearing elsewhere
in this Form 10-K and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
12
<PAGE>
<TABLE>
<CAPTION>
Fifty-two
weeks ended
January 28, Years Ended December 31,
----------- -------------------------------------------
1995 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales $305,685 $275,177 $333,521 $224,261 $177,246
Less: Effect of Sam's agreement (1) --- 99,718 --- --- ---
-------- -------- -------- -------- --------
305,685 175,459 333,521 224,261 177,246
-------- -------- -------- -------- --------
Cost of Sales 263,979 245,310 276,872 184,447 151,466
Less: Effect of Sam's agreement (1) --- 79,687 --- --- ---
-------- -------- -------- -------- --------
263,979 165,623 276,872 184,447 151,466
-------- -------- -------- -------- --------
Gross profit 41,706 9,836 56,649 39,814 25,780
Selling, general and administrative expenses 60,048 44,492 34,826 23,685 15,093
Other charges (2) 47,773 10,217 --- 6,440 ---
Currency devaluation 5,474 --- --- --- ---
-------- -------- -------- -------- --------
Operating income (loss) (71,589) (44,873) 21,823 9,689 10,687
Interest expense 3,534 3,195 916 2,419 757
Interest and other income 419 635 550 3,033 3,444
-------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interest (74,704) (47,433) 21,457 10,303 13,374
Income tax provision (benefit) 353 (11,709) 6,682 2,674 4,052
Minority interest in consolidated
joint venture --- --- --- 684 2,569
-------- -------- -------- -------- --------
Net income (loss) $(75,057) $(35,724) $ 14,775 $ 6,945 $ 6,753
======== ======== ======== ======== ========
Net income (loss) per common share $ (2.92) $ (1.40) $ .59 $ .31 $ .30
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 88,742 $174,496 $198,043 $140,855 $154,148
Total assets 186,752 312,254 301,958 228,833 208,898
Notes payable, less amounts classified as current --- 33,496 33,047 --- 18,001
Stockholders' equity 127,335 205,382 234,974 208,248 172,940
<FN>
- ---------------------------
(1) As a result of the new agreement with Sam's, the Company recorded a sales
reversal of $99.7 million for the amount of inventory previously sold by
Jan Bell to Sam's which was subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time
charge to pre-tax earnings. (See Note B to the Consolidated Financial
Statements.)
(2) Other charges in the fifty-two weeks ended January 28, 1995, include (a)
$23.8 million write-off of Goodwill associated with the 1991
acquisition of the minority interest in the Big Ben '90 joint venture; (b)
$17.7 million to provide for liquidation of inventory predominantly sold
in the wholesale watch division, which the Company has decided to close,
and certain other inventory in order to raise cash for liquidity purposes
as a result of the uncertain status of credit availability due to the
Company's failure to comply with certain covenants in its debt agreements,
and $2.7 million for obligations under licensing agreements for the use of
trade names on watches previously sold in the wholesale
division; (c) $3.0 million in payments to and provisions for severance for
terminated employees and the settlement of certain employment contracts in
connection with the closing of the wholesale watch division and the
buy-out of the unvested portions of bonus stock awards; and (d) other
costs of $.6 million, consisting of financing costs incurred primarily in
connection with the senior notes and bank credit facility agreements which
contain certain covenants with which the Company failed to comply, less a
recovery of previously accrued expenses resulting from the settlement of
the terminated lease department agreement with Pace Membership Club,
Inc. (See Note K to the Consolidated Financial Statements.)
Other charges in 1993 are approximately $6.0 million in one-time charges
related to the Sam's agreement and other retail transition costs, and
charges of $4.2 million related to compensation costs in connection with
the departure of the former Chairman of the Board of Directors. Other
charges in 1991 include expenses
13
<PAGE>
of $2.0 million incurred as a result of the terminated acquisition of
Michael Anthony Jewelers, Inc. in August of that year, and $4.4 million
for the settlement of certain class action litigation. (See Note K to the
Consolidated Financial Statements.)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1993 AND 1994 - AN OVERVIEW
The year 1993 was one of transition for the Company. Prior to 1993, the
Company was contractually the primary supplier of fine jewelry, watches and
fragrances to all present and future Sam's Wholesale Clubs ("Sam's"). In May
1993, the Company entered into an agreement with Sam's to operate an exclusive
leased jewelry department at all existing and future Sam's locations through
February 1, 1999, later extended to February 1, 2001. The operational rollout
began on September 21, 1993 and was completed on October 28, 1993, during which
time the Company took over the operations of the then existing 331 jewelry
departments at Sam's.
Under the terms of the agreement, the Company purchased Sam's existing
inventory including goods that Sam's had previously purchased from the Company
as well as from other vendors. In addition, as consideration for this
agreement, the Company paid to Sam's a one-time fee of $7.0 million which is
being amortized by the Company over the term of the contract. The Company pays
a tenancy fee to Sam's of 9% of net sales (9.25% prior to April 1994).
As a result of this new agreement with Sam's, the Company recorded a sales
reversal of $99.7 million in 1993 for the amount of inventory previously sold
by Jan Bell to Sam's which became subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time charge
to 1993 pre-tax earnings. In connection with the transition to become a
fully-integrated retailer, Jan Bell also incurred approximately $6.0 million
(included in "Other Charges") additional one-time charges. (See Note B to the
Financial Statements.)
When the Company began operating the departments, its operating expenses
increased significantly for items such as payroll, tenancy and other costs
typically associated with retail operations, as well as interest costs
associated with the inventory repurchase.
In November 1993, Wal-Mart Stores, Inc. announced that it would purchase
most of the Pace locations and would operate them as Sam's. The Pace locations
not being acquired would be closed. As of the date of the announcement, Jan
Bell was operating the jewelry department at all 117 Pace locations, of which
30 were closed after the Christmas selling season and 87 were converted to
Sam's during January 1994. Jan Bell continues to operate its jewelry
departments in the converted locations in accordance with the terms of the
leased department arrangement with Sam's.
Following the operational transition at the field level, the Company
recognized the need for additional retail management expertise. In the second
quarter of Fiscal 1994, senior department and specialty store executives were
recruited as new Board members, and the Board hired a new C.E.O. New
management then began assessing the Company's strategic strengths and direction.
In the Company's retail operations, merchandising flexibility was limited
in Fiscal 1994 by the effects of the Sam's repurchase agreement. The Company
began the fifty-two week period ended January 28, 1995 with an
14
<PAGE>
excessive inventory level of $177.5 million, and a remaining financial
obligation to Sam's of $42.5 million, the final payment for which was due in
May 1994. To generate cash for this payment, the Company reduced inventory by
not replenishing stock as it was sold. New merchandise was brought in during
the third and fourth quarters.
In late Fiscal 1994, as part of the fiscal 1995 planning process,
management and the new Board reviewed the 1994 results of all lines of business
and their attendant cost structures. This process resulted in the following
decisions.
First, the Company's domestic manufacturing operations engaged in the
manufacturing of fixtures for the Company's retail locations and various gem
and gold products were closed.
Second, staffing levels were reduced at the Company's headquarters, other
operational expenses were reduced, and merchandising programs were designed to
better manage retail sales, gross profit and the replenishment function.
Third, management also addressed the Company's wholesale watch division
which had evolved primarily into a low end watch business with product sourcing
in the parallel markets and which contributed disproportionately to expense.
With no perceived opportunity to improve the performance of this division,
management closed the wholesale watch operations, made the decision to
liquidate the existing wholesale watch inventory on an expedited basis,
established reserves against inventory based upon its estimated net
realizable value, accrued the obligations of terminating contractual
obligations and wrote off the remaining Goodwill associated with the
1991 acquisition of the minority interest in Big Ben 90. (See Note K
to Financial Statements.)
CHANGE IN FISCAL YEAR
In February 1994, the Company determined to change its fiscal year from
December 31 to a retail 52/53 week fiscal year ending on the last Sunday of
each January. This was subsequently changed to the last Saturday of each
January. The fifty-two weeks ended January 28, 1995 is referred to as Fiscal
1994 and the years ended December 31, 1993 and 1992 as Fiscal 1993 and Fiscal
1992, respectively.
RECENT EVENTS
In the fall of 1994, the Company notified its three senior noteholders,
(collectively, the "Noteholders") that the Company would not be in compliance
with certain financial covenants contained in its senior note agreement
relating to the Company's 6.99% Senior Notes due October 8, 1999 (the "Notes").
The Company entered into a forbearance agreement with the Noteholders which
contemplated restructuring these covenants by late February, 1995. In light of
the foregoing and a parallel default under the Company's working capital
facility, the Company's working capital lender also sought to restructure
the Company's $50 million unsecured revolving bank credit facility. Discussions
with its working capital lender and with alternative potential working capital
lenders led the Company to conclude that a secured facility would be required.
A secured working capital facility raised priority issues with the Noteholders,
who subsequently indicated that they would also need to be secured. After
reviewing proposals from its existing and alternative lending institutions, the
Company decided to enter into a new working capital facility (the "Working
Capital Facility") with GBFC, Inc. ("GBFC"), an affiliate of Gordon Brothers,
Inc., and Foothill Capital Corporation ("Foothill" and, together with GBFC, the
"Working Capital Lenders"). Based upon the Company's anticipated consummation
of the Working
15
<PAGE>
Capital Facility, the Noteholders then proposed terms for restating and amending
the Notes.
Although the transactions with each of the Noteholders and the Working
Capital Lenders (collectively, the "Transactions") are still being negotiated,
the Company is in the process of completing documentation which would provide,
among other things, for the Company to prepay $8.5 million in principal amount
of the Notes and to restructure the remaining $26.5 million in principal amount
of the Notes. The Notes (as amended, the "Amended Notes") would mature on
February 1, 1998, would be secured and would bear interest for the period (a)
from closing to January 31, 1997, at a fixed amount equal to the greater of (i)
an annual rate of 12% and (ii) the rate applicable to the Working Capital
Facility plus 200 basis points and (b) from February 1, 1997 to maturity, at an
annual rate of 16%. Two principal prepayments in the amounts of $9 million
and $10 million, respectively, would be payable on February 1, 1996 and
February 1, 1997.
The Company is also completing documentation for the Working Capital
Facility, and has already entered into a commitment letter with the Working
Capital Lenders dated as of April 14, 1995, which provides for a $30 million
secured revolving bank credit facility. Availability under the Working Capital
Facility would be determined based upon a percentage formula applied to
inventory and accounts receivable. The Working Capital Facility would terminate
on May 31, 1997 and would bear interest at an annual rate of The First
National Bank of Boston's base rate plus 1.5%.
The Company's liability under the Amended Notes will be unconditionally
guarantied by all of its material direct and indirect 51% (or greater)
subsidiaries (the "Subsidiaries"). The liability under the Working
Capital Facility will be unconditionally guarantied by the Company and by the
Subsidiaries. Each of the Noteholders and the Working Capital Lenders would
receive a blanket lien on all tangible and intangible assets of the Company and
the Subsidiaries. An Intercreditor Agreement among the Noteholders
and the Working Capital Lenders would provide that their respective security
interests in such collateral will be subject to certain relative priorities.
Further, the Company has agreed to grant to the Noteholders warrants (the
"Noteholder Warrants") to purchase shares equal to 5% of its fully diluted
voting common stock at an initial purchase price per share equal to the closing
market price on the date preceding the consummation of the Transactions (the
"Closing Date"). The Noteholder Warrants would vest as follows: 20% on the
Closing Date, 20% on February 2, 1996, 30% on February 2, 1997 and 30% on July
31, 1997 if any obligations under the Amended Notes remain outstanding on
such respective dates. Any vested Noteholder Warrants
would expire on May 1, 2005. The Company has agreed to grant to the Working
Capital Lenders warrants to purchase up to 175,000 shares of the Company's
voting common stock on terms substantially similar to the Noteholder Warrants.
The documentation reflecting each of the Transactions is in the
process of being finalized, but certain business, intercreditor and legal
issues remain outstanding and are being actively negotiated among the parties.
While the Company believes that such issues will soon be resolved, in the event
that the Transactions are not consummated, the Company would be required to seek
alternative financing arrangements. In the event that the Transactions are not
consummated, the Company, in light of the seasonal nature of its business,
would nevertheless be able to meet its financial requirements (assuming
forebearance by the Noteholders) through the second quarter of 1995. However,
the Company would be required to consummate alternative financing arrangements
within said time period in order to meet its capital requirements for the 1995
Christmas season.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales for certain items in the Company's Statements of Operations:
17
<PAGE>
<TABLE>
<CAPTION>
Income and Expense Items as a
Percentage of Net Sales (1)
------------------------------------------
52 Weeks Ended Years Ended December 31,
January 28,1995 1993 1992
--------------- ---- ----
<S> <C> <C> <C>
Net sales (1) 100.0% 100.0% 100.0%
Cost of sales (1) 86.4 89.1 83.0
----- ----- -----
Gross profit (1) 13.6 10.9 17.0
Net effect of Sam's agreement --- (7.3) ---
----- ----- -----
Gross profit 13.6 3.6 17.0
Selling, general and administrative expenses 19.6 16.2 10.5
Other charges 15.6 3.7 ---
Currency devaluation 1.8 --- ---
----- ----- -----
Income (loss) before interest and taxes (23.4) (16.3) 6.5
Interest expense 1.2 1.2 .3
Interest and other income .1 .2 .2
----- ----- -----
Income (loss) before income taxes (24.5) (17.3) 6.4
Provision (benefit) for income taxes .1 ( 4.3) 2.0
----- ----- -----
Net income (loss) (24.6)% (13.0)% 4.4%
===== ===== =====
<FN>
(1) Excluding effect of Sam's agreement.
</TABLE>
SALES
In Fiscal 1994, net sales were $305.7 million, an increase of $30.5 million
or 11.1% over Fiscal 1993. A significant portion of the sales increase is due
to Fiscal 1994 sales being recorded at retail prices to the club member as
opposed to Fiscal 1993, when for the first nine months of the year, sales were
recorded at wholesale prices to Sam's. The Company began Fiscal 1994 with
inventories significantly in excess of desired levels and curtailed its
merchandise purchases during Fiscal 1994 in order to reduce and rebalance
inventory levels. As a result, the Company experienced both sales and margin
pressures during Fiscal 1994. Management recognizes that a significant
improvement in both retail sales and margins must be achieved for the Company
to return to profitability in fiscal 1995.
Wholesale sales to customers other than Sam's were $43.8 million in 1994
compared to $42.0 million in Fiscal 1993. Due to the devaluation of the Mexican
peso in late Fiscal 1994, the Company anticipates that sales by its Mexican
subsidiary will be significantly lower in fiscal 1995 than in Fiscal 1994
reflecting the reduction in the Mexican consumer's disposable income.
In Fiscal 1993, net sales (excluding the effect of the Sam's agreement)
decreased $58.3 million. Approximately 85% of Fiscal 1993 net sales were
derived from the combined retail operations of Sam's and Pace. The remaining
15% was from the Company's wholesale operations in Mexico, Israel and the
United States.
The operational rollout at Sam's commenced on September 21, 1993 and was
completed on October 28, 1993. Until such time as the Company began operating
the departments, the Company continued to ship and bill Sam's under the same
terms as it did prior to the new agreement. However, beginning with the second
quarter of Fiscal 1993, Jan Bell recognized sales and costs of sales as goods
were sold to the club member rather than when goods were shipped to Sam's. The
sales continued to be recorded at Jan Bell's selling price to Sam's until such
time as Jan Bell began operating the departments at which point sales began to
be recorded at retail prices to the club member.
The transition period had a significant adverse impact on the Company
financially. Sales prior to the rollout were lost due to various factors,
including reduced merchandise levels, lower staffing levels by Sam's personnel
and a decline in the number of promotional events. These factors, when
18
<PAGE>
combined with the closing of 30 Pace locations and the resultant loss of sales
even prior to the closings and the overall decline in same store sales at the
warehouse clubs, were the primary factors contributing to the Fiscal 1993
sales decline.
Sales in the future may be adversely impacted by general economic
conditions, the level of spending in the wholesale club environment and changes
to the Company's existing relationship with Sam's. The retail jewelry market is
particularly subject to the level of consumer discretionary income and the
subsequent impact on the type and value of goods purchased. With the
consolidation of the retail industry, the Company believes that competition
both within the warehouse club industry and with other competing general and
specialty retailers and discounters will continue to increase.
COST OF SALES AND GROSS PROFIT
Gross margin in Fiscal 1994 was 13.6% compared to 10.9% and 17.0% in
Fiscal 1993 and Fiscal 1992, respectively. The primary reason for the
improvement in gross margin in Fiscal 1994 can be attributed to an increase
in margins at the Company's retail locations and a reduction in inventory
shrinkage which was 1.9% of net sales in Fiscal 1994 compared to 3.5%
in Fiscal 1993.
Gross margin in Fiscal 1993 was primarily impacted by a number of
significant factors including the following. First, as a result of purchasing
more inventory than anticipated under the Sam's agreement, the Company had to
liquidate third party merchandise at below normal margin levels. Second, during
the fourth quarter, the Company recorded a provision for shrinkage which
approximated 5% of sales. Third, as a result of the inventory repurchase from
Sam's, the Company's normal fourth quarter purchases and manufacturing of
inventory were significantly curtailed. Due to the lower than normal level of
inventory production, certain costs which would normally relate to inventory
production were charged directly to cost of sales. Finally, due to the high
inventory levels, the Company determined that reserves had to be established
during the fourth quarter to address slow moving, valuation and damaged
inventory issues.
To reduce its exposure to the effects of changes in the price of its gold
inventories, the Company hedges its gold positions and commitments with gold
futures contracts. Accordingly, changes in the market value of gold during the
holding period are generally offset by changes in the market value of the
futures contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $15.6 million in
Fiscal 1994 from Fiscal 1993 and $9.7 million in Fiscal 1993 from Fiscal 1992.
The increase in Fiscal 1994 is primarily reflective of the payroll and other
costs related to operating the Sam's leased departments for the entire Fiscal
1994 as opposed to only the fourth quarter of Fiscal 1993. The Fiscal 1993
increase reflected the higher costs associated with servicing approximately 100
additional retail locations in Fiscal 1993 versus Fiscal 1992 and the payroll
and other costs related to the Sam's leased department operation during the
fourth quarter of Fiscal 1993.
Future expenses will continue to be impacted by costs associated with the
Sam's leased department operation, systems and controls, and costs associated
with new marketing concepts, other promotional events and product development.
However, as a result of the closing of the wholesale and U.S. manufacturing
operations combined with reductions in staffing at the corporate
headquarters, management
19
<PAGE>
believes that significant reductions in its selling, general and administrative
expenses will be achieved in 1995.
OTHER CHARGES
In Fiscal 1994, the Company recorded the following other charges,
aggregating $47.8 million. (See Note K to the Consolidated Financial
Statements.)
As a result of the decision to close the wholesale watch division and
other related factors, the Company concluded that it has not retained any of
the valuable elements obtained in the 1991 acquisition of the minority interest
of the Big Ben '90 joint venture. Also, the Company projects, based on
management's best estimate of future operating results for its remaining watch
business, that none of the balance of goodwill arising from the Big Ben '90
acquisition will be recovered. Accordingly, the remaining balance of goodwill
of $23.8 million as of January 28, 1995, has been written off.
In the fourth quarter of 1994, the Company made the decision to sell
certain inventory at significantly less than normal prices, resulting in an
estimated net realizable value below the cost of such inventory. This decision
was made (a) to liquidate the merchandise that was predominantly sold in the
wholesale watch division which was being closed in order to focus management's
attention on the Company's retail operations, and (b) to liquidate certain other
inventory on an expedited basis in order to raise cash for liquidity purposes as
a result of the uncertain status of credit availability due to the Company's
failure to comply with certain covenants in its debt agreements. As a result,
the Company recorded losses of $17.7 million to reflect such inventory at its
estimated net realizable value. Additionally, the Company provided $2.7 million
for obligations under licensing agreements for the use of trade names on watches
previously sold in the wholesale division.
In connection with the closing of the wholesale watch division, changes in
executive management and the reduction in the number of personnel, the Company
made payments to and provided for severance for terminated employees and the
settlement of certain employment contracts, aggregating $3.0 million.
As further discussed below, in Fiscal 1994 the Company did not comply with
certain covenants in the agreements related to its senior notes payable and bank
credit facility. As a result, the senior notes are callable at the discretion
of the noteholders and are classified as a current liability, and the Company
cannot borrow under the bank credit facility. The Company expensed $2.3
million in financing costs, which were incurred primarily in connection with
these agreements. Also, the Company was in the process of settling the
termination of the lease department agreement with Pace Membership Warehouse,
Inc., which resulted in a $1.7 million recovery of previously accrued expenses.
Included in Other Charges for 1993 are the previously mentioned $6.0
million of charges related to the Sam's agreement and retail transition and $4.2
million related to the compensation costs in connection with the departure of
the former Chairman of the Board of Directors, consisting primarily of the
acceleration of vesting of previously granted stock bonus awards and amounts due
under his employment contract.
CURRENCY EXCHANGE LOSS
The significant devaluation of the peso during the fourth quarter of
Fiscal 1994 resulted in a $5.5 million currency exchange loss.
20
<PAGE>
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Interest and other income was $419,000 in Fiscal 1994, $635,000 in Fiscal
1993 and $550,000 in Fiscal 1992. The changes are not deemed to be significant.
Interest expense was $3.5 million in Fiscal 1994, $3.2 million in Fiscal
1993 and $900,000 in Fiscal 1992. The increase in Fiscal 1993 primarily is
attributable to the $35 million of Senior Notes payable which was outstanding
for all of Fiscal 1993 and Fiscal 1994, and only for three months in Fiscal
1992. In addition, average short-term borrowings were $9.2 million in Fiscal
1994 and $5.6 million in Fiscal 1993, and $4.1 million in Fiscal 1992.
INCOME TAXES
The Company's income tax provision/benefit was (0.5%), 24.7% and
31.1% of income (loss) before income taxes for Fiscal 1994, Fiscal 1993 and
Fiscal 1992, respectively. The Company has a Federal net operating loss
carryforward of approximately $30.2 million, and a state net operating loss
carryforward of approximately $69.9 million. The Federal net operating loss
carryforward expires beginning in 2008 and the state net operating loss
carryforward expires beginning in 1998 through 2008. The Company also has
an alternative minimum tax credit carryforward of approximately $847,000 to
offset future Federal income taxes. The changes in the effective rates
primarily relate to the valuation allowance on the net operating loss
carryforwards in Fiscal 1994 and Fiscal 1993, and the earnings in
Fiscal 1992 of the Company's subsidiaries in Israel.
When the Company purchased Exclusive Diamonds International, Limited
("EDI") in August of 1990, EDI applied to and received from the Israeli
government under the Encouragement of Capital Investments Law of 1959 "approved
enterprise" status, which results in reduced tax rates given to foreign owned
corporations to stimulate the export of Israeli manufactured products. This
benefit allows a favorable tax rate ranging from zero to ten percent during the
first ten years in which the subsidiary recognizes a profit. The "approved
enterprise" benefit is available to the Company until the year 2000.
Additionally, the Company has not provided for Federal and state income taxes
on earnings of foreign subsidiaries which are considered indefinitely invested.
Such adoption did not have a material effect on the financial statements. (See
Note H to the Consolidated Financial Statements.)
TRANSITION PERIOD
During the 30 day transition period of January 1 to January 30, 1994, the
Company incurred a net loss of approximately $4.5 million, which reflects the
historically weakest sales period without a corresponding decrease in general
and administrative expenses. The $27.5 million decrease in cash and
equivalents primarily resulted from the operating loss, payment to Sam's for
amounts owed on the inventory repurchased and payment of other liabilities
after the peak season.
LIQUIDITY AND CAPITAL RESOURCES
As of January 28, 1995, cash and cash equivalents totalled $28.2 million
and the Company had no short-term borrowings outstanding under its revolving
credit facility.
The Company's working capital requirements are directly related to the
amount of inventory required to support its retail, and formerly, its wholesale
operations. The Company began Fiscal 1994 with retail inventory in excess of
its needs, primarily due to the inventory purchased under the Sam's Club
agreement as previously discussed. Over the course of the year, inventory was
reduced providing the liquidity to fund its repurchase obligations to Sam's and
the Company's operating losses.
During fiscal 1995, based on discussions with Sam's Club, the Company
expects a very limited increase in the number of leased departments it operates,
and consequently does not foresee a need for a significant increase
21
<PAGE>
in retail inventory. Capital expenditures for Fiscal 1995 are projected not to
exceed $2 million.
The Company's business is highly seasonal, with seasonal working capital
needs peaking in October and November, before the holiday shopping season. The
Company anticipates lower seasonal needs in Fiscal 1995 than in Fiscal 1994
because it will not be purchasing wholesale inventory.
In September 1994, the Company finalized a two year $50 million unsecured
revolving bank credit facility with an interest rate at the bank's prime rate
plus two percent, or two and one-half percent over LIBOR (London Interbank
Offered Rate) or the applicable secondary CD rate. No borrowings were
outstanding at January 28, 1995. During the fourth quarter of Fiscal 1994, the
Company failed to comply with financial covenants specified in the agreement
related to earnings and tangible net worth. As a result, the Company cannot
borrow under the facility.
In October 1992, the Company finalized a $35 million unsecured private
placement of senior notes with an interest rate of 6.99%. Interest is payable
semi-annually, and principal payments of $6.5 million are due annually
commencing April 1996, with a final principal payment of $9.0 million due in
October 1999. The financing agreement requires the Company to maintain various
financial ratios and covenants. During Fiscal 1994, the Company failed to
comply with covenants specified in the agreement related to earnings and
tangible net worth. As a result, the senior notes are callable at the
discretion of the noteholders and are classified as a current liability in the
January 28, 1995 consolidated balance sheet.
Management is in the process of negotiating revised terms and conditions
for the senior notes and, in addition, is negotiating with another lender for a
working capital credit facility of up to $30 million. However, there is no
assurance that these negotiations will be successful.
The senior notes being callable at the discretion of the Noteholders and
the Company's inability to borrow under the bank credit facility raise
substantial doubt regarding the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. See "RECENT EVENTS."
The Company believes that its cash on hand, projected cash from operations,
the expected proceeds from the liquidation of wholesale watch inventory and
working capital facility currently under negotiation, if successfully
consummated, will be sufficient to meet its debt service requirements and
anticipated working capital and capital expenditure needs for Fiscal 1995.
There can be no assurance that the Company's future operating results
will improve to the point where they will be sufficient to sustain such debt
service and working capital needs.
The Company has partially financed its peak seasonal inventory and
accounts receivable with short-term borrowings. During Fiscal 1994, Fiscal
1993 and Fiscal 1992, the Company's peak levels of inventory and accounts
receivable were $225.1 million, $275.5 million and $224.2 million and peak
outstanding short-term borrowings pursuant to lines of credit were $39.8
million, $20.0 million and $29.4 million respectively. Average amounts of
outstanding short-term borrowings for the respective years were $9.2 million,
$5.6 million and $4.1 million.
The Company's net capital expenditures were $6.3 million in Fiscal 1994,
$12.6 million in Fiscal 1993 and $6.7 million in Fiscal 1992. The Fiscal 1994
and 1993 expenditures reflect the costs associated with the new distribution
facility and fixturization costs associated with Sam's retail locations.
EFFECTS OF INFLATION
Gold prices are affected by political, industrial and economic factors and
by changing perceptions of the value of gold relative to currencies. Investors
commonly purchase gold and other precious metals perceived to be
22
<PAGE>
rising in value as a hedge against a perceived increase in inflation, thereby
bidding up the price of such metals. The Company's sales volume and net income
are potentially affected by the fluctuations in prices of gold, diamonds and
other precious or semi-precious gemstones as well as watches and other
accessories. In general, the Company has historically sought to protect its
gold inventory against gold price fluctuations through its hedging transactions.
Hedging is not available with respect to possible fluctuations in the price of
precious and semi-precious gemstones, watches or other accessories.
The Company's selling, general and administrative expenses are directly
affected by inflation resulting in an increased cost of doing business.
Although inflation has not had and the Company does not expect it to have a
material effect on operating results, there is no assurance that the Company's
business will not be affected by inflation in the future.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Independent Auditors' Report ......................... 25
Consolidated Balance Sheets as of January 28, 1995
and December 31, 1993 .......................... 26
Consolidated Statements of Operations for
the Fifty-Two Weeks Ended January 28, 1995
and for Each of the Two Years in the
Period Ended December 31, 1993 ................... 27
Consolidated Statements of Stockholders'
Equity for the Fifty-Two Weeks
Ended January 28, 1995 for Each of the Two
Years in the Period Ended
December 31, 1993 ................................ 28
Consolidated Statements of Cash Flows for the
Fifty-Two Weeks Ended January 28, 1995
for Each of the Two Years
in the Period Ended December 31, 1993 ............ 29
Notes to Consolidated Financial Statements............. 31
</TABLE>
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Jan Bell Marketing, Inc.
Sunrise, Florida
We have audited the accompanying consolidated balance sheets of Jan Bell
Marketing, Inc. and its subsidiaries (the "Company") as of January 28, 1995 and
December 31, 1993, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the fifty-two weeks ended January 28,
1995 and each of the two years in the period ended December 31, 1993. Our
audits also included the financial statement schedule listed at Item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 28, 1995
and December 31, 1993, and the results of their operations and their cash flows
for the fifty-two weeks ended January 28, 1995 and each of the two years in the
period ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note G to
the consolidated financial statements, in the fifty-two weeks ended January 28,
1995, the Company failed to comply with earnings and tangible net worth
covenants in the agreements related to its senior notes payable and bank credit
facility. As a result, the senior notes are callable at the discretion of the
noteholders, and the Company cannot borrow under the bank credit facility.
Management is in the process of negotiating revised terms and conditions for
the senior notes and is negotiating with another lender for a working capital
credit facility; however, there is no assurance that these negotiations will
be successful. The senior notes being callable at the discretion of the
Noteholders and the Company's inability to borrow under the bank credit
facility raise substantial doubt regarding the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note G. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
April 27, 1995
25
<PAGE>
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
January 28, December 31,
1995 1993
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 28,212 $ 30,178
Accounts receivable (net of
allowance for doubtful
accounts and sales returns:
1995-$5,630 and 1993-$3,428 12,156 22,064
Inventories (Notes C, E and K) 106,053 177,538
Refundable income taxes (Note H) 697 15,075
Prepaid expenses 834 1,103
Other current assets 207 1,914
-------- --------
Total current assets 148,159 247,872
Property, net (Notes C and F) 29,639 28,846
Excess of cost over fair
value of net assets acquired 2,869 27,850
(Notes C and K)
Other assets (Note B) 6,085 7,686
-------- --------
$186,752 $312,254
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 14,249 $ 29,339
Accrued expenses 10,067 8,734
Accrued lease payment 101 1,877
Liability for inventory
repurchased (Note B) --- 33,426
Senior notes payable
classified as current (Note G) 35,000 ---
-------- --------
Total current liabilities 59,417 73,376
-------- --------
Long-term debt (Note G) --- 33,496
-------- --------
Stockholders' Equity (Notes G, I and L):
Common stock, $.0001 par value,
50,000,000 shares authorized,
25,741,991 and 25,851,738 shares
issued and outstanding 3 3
Additional paid-in capital 178,896 180,367
Retained earnings/(deficit) (50,657) 28,871
Foreign currency translation
adjustment (907) ---
Deferred compensation (Note K) --- (3,859)
-------- --------
127,335 205,382
-------- --------
$186,752 $312,254
======== ========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
Fifty Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $305,685 $275,177 $333,521
Less:
Effect of Sam's
agreement (Note B) --- 99,718 ---
-------- -------- --------
305,685 175,459 333,521
-------- -------- --------
Cost of sales 263,979 245,310 276,872
Less:
Effect of Sam's
agreement (Note B) --- 79,687 ---
-------- -------- --------
263,979 165,623 276,872
-------- -------- --------
Gross profit 41,706 9,836 56,649
Selling, general and
administrative
expenses 60,048 44,492 34,826
Other charges (Note K) 47,773 10,217 ---
Currency Exchange
Loss (Note K) 5,474 --- ---
-------- -------- --------
Operating income (loss) (71,589) (44,873) 21,823
Interest expense (3,534) (3,195) (916)
Interest and other income 419 635 550
-------- -------- --------
Income (loss) before income
taxes (74,704) (47,433) 21,457
Income tax provision
(benefit) (Note H) 353 (11,709) 6,682
-------- -------- --------
Net income (loss) $(75,057) $ (35,724) $ 14,775
======== ======== ========
Net income (loss) per
common share $ (2.92) $ (1.40) $ .59
======== ========= ========
Weighted average number
of common shares 25,688,592 25,484,544 25,164,798
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
Common
Shares Common Paid-in Retained
Issued Stock Capital Earnings
---------- ------ -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1991 25,448,780 $ 3 $170,488 $49,820
Purchase plan exercise 12,101 133
Exercise of options 844,178 8,132
Issuance of common stock 63,688 550
Exercise of warrants 141,717
Stock bonus plan issuance 43,200 584
Tax benefit on exercise of
stock options 2,271
Amortization of deferred
compensation
Net income 14,775
---------- ----- -------- --------
Balance at December 31, 1992 26,553,664 3 182,158 64,595
Purchase plan exercise 12,236 112
Exercise of options 37,580 323
Issuance of common stock 63,688 550
Stock bonus plan issuance 331,500 5,925
Repurchase of common stock
Retirement of treasury stock (1,149,500) (8,726)
401(k) Plan contribution 2,570 25
Amortization of deferred
compensation
Net loss (35,724)
---------- ----- -------- --------
Balance at December 31, 1993 25,851,738 3 180,367 28,871
Exercise of options 500 4
Amortization of deferred
compensation
Net loss (4,471)
---------- ----- -------- --------
Balance at January 30, 1994 25,852,238 3 180,371 24,400
Purchase plan exercise 19,065 78
Issuance of common stock 63,688 990
Issuance of stock warrants 826
Settlement of stock awards (193,000) (3,369)
Amortization of deferred
compensation
Foreign currency
translation adjustment
Net loss (75,057)
---------- ----- -------- --------
Balance at January 28, 1995 25,741,991 3 $178,896 $(50,657)
========== ===== ======== ========
<CAPTION>
Foreign
Currency Total
Treasury Deferred Translation Stockholders'
Stock Compensation Adjustment Equity
-------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $(8,468) $(3,595) $-0- $208,248
Purchase plan exercise 133
Exercise of options 8,132
Issuance of common stock 550
Exercise of warrants
Stock bonus plan issuance (584) ---
Tax benefit on exercise of
stock options 2,271
Amortization of deferred
compensation 865 865
Net income 14,775
------ ------- ---- ----------
Balance at December 31, 1992 (8,468) (3,314) -0- 234,974
Purchase plan exercise 112
Exercise of options 323
Issuance of common stock 550
Stock bonus plan issuance (5,925)
Repurchase of common stock (258) (258)
Retirement of treasury stock 8,726
401(k) Plan contribution 25
Amortization of deferred
compensation 5,380 5,380
Net loss (35,724)
------ ------- ---- ----------
Balance at December 31, 1993 -0- (3,859) -0- 205,382
Exercise of options 4
Amortization of deferred
compensation 86 86
Net loss --- (4,471)
------ ------- ---- ----------
Balance at January 30, 1994 -0- (3,773) -0- 201,001
Purchase plan exercise 78
Issuance of common stock 990
Issuance of stock warrants 826
Settlement of stock awards 3,369
Amortization of deferred
compensation 404 404
Foreign currency
translation adjustment (907) (907)
Net loss (75,057)
------ ------- ---- ----------
Balance at January 28, 1995 $ -0- $ -0- $(907) $127,335
====== ======= ==== ========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Fifty-Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Cash received from customers $ 313,163 $ 319,907 $ 303,951
Cash paid to suppliers and
employees (292,249) (324,893) (296,273)
Interest and other income
received 419 635 411
Interest paid (3,534) (3,195) (348)
Income taxes (paid) received 14,348 499 (9,109)
-------- -------- --------
Net cash provided by(used in)
operating activities 32,147 (7,047) (1,368)
-------- -------- --------
Cash flows from investing
activities:
Capital expenditures (6,316) (12,611) (6,693)
Increase in other assets --- --- (966)
-------- -------- --------
Net cash (used in) investing
activities (6,316) (12,611) (7,659)
-------- -------- --------
Cash flows from financing
activities:
Proceeds from long-term
debt financing --- --- 35,000
Debt financing costs --- --- (1,953)
Proceeds from exercise
of options --- 323 8,132
Proceeds from issuance of
common stock --- 25 ---
Stock purchase plan payments
withheld 78 112 104
Purchase of treasury stock --- (258) ---
-------- -------- --------
Net cash provided by
financing activities 78 202 41,283
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 25,909 (19,456) 32,256
Cash and cash equivalents at
beginning of year 2,303 49,634 17,378
-------- -------- --------
Cash and cash equivalents at
end of year $ 28,212 $ 30,178 $ 49,634
======== ======== ========
</TABLE>
29
<PAGE>
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
(continued)
<TABLE>
<CAPTION>
Fifty-Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Net income (loss) $(75,057) $(35,724) $14,775
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 9,147 6,761 5,076
Goodwill write-off 23,795 --- ---
Foreign currency translation
adjustment (907) --- ---
Stock compensation expense 404 5,929 1,415
Debt financing costs --- 449 ---
(Increase) decrease
in assets:
Accounts receivable
(net) 7,478 44,730 (29,571)
Inventories 79,306 (70,799) (4,348)
Refundable income taxes 14,348 (9,688) ---
Prepaid expenses 124 241 (536)
Other assets 998 (4,207) (1,559)
Customer deposit --- 15,822 ---
Increase (decrease) in
liabilities:
Accounts payable (10,430) 3,488 14,357
Accrued expenses 1,107 4,607 1,268
Liability for inventory
repurchased (18,166) 33,426 ---
Deferred income taxes --- (2,082) (2,245)
-------- -------- --------
Net cash provided by (used in)
operating activities $ 32,147 $ (7,047) $ (1,368)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
A. The Company:
The Company is principally engaged in the sale of jewelry, watches and
other consumer products through leased departments in wholesale clubs and
formerly through its own wholesale operations. During the fifty-two weeks
ended January 28, 1995 ("Fiscal 1994"), the Company generated approximately 85%
of its net sales from Sam's customers. Accordingly, the Company is dependent on
Sam's to conduct its business and the loss of the leased department arrangement
with Sam's would have a material adverse effect on the business of the Company.
Thesignificant change in the Company's business from being primarily a
wholesale operation in prior years to primarily a retail operation in Fiscal
1994 makes comparisons with historical operating results not meaningful or
practicable.
B. Agreement with Sam's Wholesale Club:
In May 1993, the Company entered into an agreement (the "Agreement") to
operate an exclusive leased department at all existing and future Sam's
Wholesale Club ("Sam's") locations through February 1, 1999. In March 1994, the
agreement was extended to February 1, 2001. Under the terms of the Agreement,
the Company purchased Sam's existing inventory which included goods Sam's had
previously purchased from the Company as well as from other vendors. As
consideration for entering into the Agreement, the Company paid to Sam's a
one-time fee of $7.0 million, which is included in Other Assets and is being
amortized over the term of the Agreement. The unamortized amount as of January
28, 1995 was approximately $5.6 million. The Company pays Sam's a tenancy fee
of 9% (9.25% prior to April 1994) of net sales.
As a result of this new Agreement with Sam's, in 1993 the Company recorded
a sales reversal of $99.7 million for the amount of inventory previously sold by
Jan Bell to Sam's which became subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time charge
to pre-tax earnings. In connection with the transition to become a
fully-integrated retailer, Jan Bell also incurred approximately $6.0 million
(included in "Other Charges"), including additional one-time charges for costs
such as hiring and training personnel, systems implementations, other activities
related to commencing operations under the new Agreement and the transition to
primarily retail operations, and a valuation adjustment for certain inventory
acquired which Sam's had purchased from other vendors in 1993.
During 1991, the Company entered into an agreement with Pace Membership
Warehouse ("Pace") to operate leased jewelry departments at all present and
future Pace locations and to merchandise fine jewelry, watches, fragrances, fine
writing instruments and sunglasses on an exclusive basis until January 1997. In
November 1993, Wal-Mart Stores, Inc. announced that it would purchase most of
the Pace locations and operate them as Sam's. The Pace
31
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
locations not being acquired would be closed. At that time, the Company was
operating leased jewelry departments at all 117 Pace locations, 30 of which
were closed and 87 of which were converted to Sam's locations during January
1994. The Company is operating leased jewelry departments in the converted Pace
locations in accordance with the Agreement.
C. Summary of Significant Accounting Policies:
(1) Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in the
consolidation.
(2) Sales of Consignment Merchandise -- Income is recognized on the sale
of consignment merchandise at such time as the merchandise is sold by the
consignee.
(3) Allowance for Sales Returns -- The Company generally gives its
customers the right to return merchandise purchased by them and records an
allowance at the time of sale for the amount of gross profit on estimated
returns.
(4) Hedging Activities -- The Company uses gold commodities futures
contracts to hedge gold inventories. Commodity futures contracts are contracts
for delayed delivery of commodities in which the seller agrees to make and the
purchaser agrees to take delivery at a specified future date of a specified
commodity, at a specified price. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
commodity values and interest rates. Gains and losses on futures used to hedge
gold inventories valued at cost are deferred and included in the determination
of income upon disposition of such inventories. Gains and losses on futures
contracts used to hedge gold inventories valued at market are included in the
determination of income currently. At January 28, 1995 the Company had futures
contracts maturing at various dates through August 1995, to sell 35,200 ounces
of gold at various specified prices for an aggregate of $13.7 million. U.S.
Treasury securities with a carrying value of $500,000 at January 28, 1995 and
December 31, 1993, respectively, have been pledged to cover margin requirements
under future contracts.
(5) Inventories -- Inventories of precious and semi-precious stones and
gem jewelry-related merchandise (and associated gold) watches, and other
consumer products are valued at the lower of cost (first-in, first-out method)
or market.
32
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
Inventories of gold jewelry-related merchandise, exclusive of the gold
component of precious and semi-precious gem jewelry related inventories, are
valued principally at market, which includes adjustments for unrealized gains or
losses.
Costs incurred in acquiring, receiving, preparing and distributing
inventory to the point of being ready for sale are included in inventory.
(6) Property -- Property is stated at cost and is depreciated using the
straight-line method over the following estimated useful lives of the respective
assets:
<TABLE>
<CAPTION>
Estimated
Asset Useful Life
----- -----------
<S> <C>
Building 30 years
Furniture and fixtures 5 years
Leasehold improvements 5 years
Automobiles and trucks 3 years
</TABLE>
(7) Income Taxes -- The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("SFAS No. 109") effective
January 1, 1993. Under SFAS 109, deferred income taxes reflect the net tax
effects of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards.
(8) Net Income (Loss) Per Common Share -- Net income (loss) per common
share is based upon the weighted average number of shares of common stock
outstanding in each period, adjusted for the dilutive effects, if any, of
options granted under the Company's option plans.
(9) Cash and Cash Equivalents -- For the purpose of the statements of cash
flows, the Company considers all highly-liquid investments purchased with
maturities of three months or less to be cash equivalents.
(10) Cost in Excess of Fair Value of Assets Acquired ("Goodwill") -- The
Company periodically evaluates the recoverability of the carrying amount of
Goodwill based on projected operating income. As discussed in Note K, in 1994
the Company wrote-off the unamortized balance of Goodwill associated with the
1991 acquisition of the minority interest in Big Ben '90 amounting to $23.8
million. The remaining Goodwill is being amortized on the straight line basis
over 20 years. Accumulated amortization of these assets at January 28, 1995
and December 31, 1993 was approximately $1.1 million and $2.7 million,
respectively. Amortization expense for Fiscal 1994, 1993 and 1992 was
approximately $1.1 million in each year.
33
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
(11) Reclassifications - Certain reclassifications have been made to the
prior consolidated financial statements to conform to the current presentation.
D. Change in Fiscal Year
In 1994, the Company changed its fiscal year from a calendar year ending
on December 31 to a retail 52/53 week fiscal year ending on the last Sunday
(which was subsequently changed to the last Saturday) of each January. The
first such fiscal year began on January 31, 1994 and ended on January 28,
1995. The following is condensed information regarding the consolidated
results of operations and cash flows for the 30 day transition period of
January 1, 1994 to January 30, 1994 (in thousands, except per share data):
<TABLE>
<S> <C>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Net sales $ 7,384
--------
Gross profit 689
--------
Net loss (4,471)
--------
Net Loss per common share (.17)
--------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash (used in) operating activities $(27,469)
Net cash (used in) investing activities (408)
Net cash provided by financing activities 2
--------
Net decrease in Cash and Cash Equivalents (27,875)
Cash and Cash Equivalents at Beginning of Period 30,178
--------
Cash and Cash Equivalents at End of Period $ 2,303
--------
Reconciliation of Net Loss to Net Cash
(Used In) Operating Activities:
Net Loss $ (4,471)
Depreciation and amortization 747
Stock compensation expense 417
(Increase) in current assets (4,180)
(Decrease) in current liabilities (19,982)
--------
Net cash (used in) operating activities $(27,469)
========
</TABLE>
34
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
E. Inventories:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
January 28, December 31,
1995 1993
---------- -----------
(amounts shown in thousands)
<S> <C> <C>
Precious and semi-precious jewelry-
related merchandise (and associated
gold):
Raw materials $ 8,617 $ 10,885
Finished goods 41,775 57,158
Gold jewelry-related merchandise:
Raw materials 2 13
Finished goods 18,305 26,794
Watches 27,461 62,688
Other consumer products 9,893 20,000
-------- --------
$106,053 $177,538
======== ========
</TABLE>
F. Property:
The components of property are as follows:
<TABLE>
<CAPTION>
January 28, December 31,
1995 1993
---------- -----------
(amounts shown in thousands)
<S> <C> <C>
Land $ 4,171 $ 4,171
Buildings 10,758 4,384
Furniture and fixtures 31,352 26,649
Leasehold improvements 394 514
Automobiles and trucks 546 892
------- --------
47,221 36,610
Less accumulated depreciation (17,582) (12,055)
------- --------
29,639 24,555
Construction in progress-distribution center --- 4,291
------- --------
$29,639 28,846
======= ========
</TABLE>
Depreciation expense for the years ended January 28, 1995, December 31,
1993 and 1992 was approximately $5.5 million, $4.6 million and $3.6 million
respectively.
35
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
G. Financing Arrangements and Going Concern Considerations
GOING CONCERN CONSIDERATIONS
The accompanying financial statements are prepared assuming that the
Company will continue as a going concern. In Fiscal 1994, the Company incurred
a net loss of $75.1 million which, as discussed below, caused the Company to
fail to comply with earnings and tangible net worth covenants in the agreements
related to the senior notes payable and bank credit facility. As a result, the
senior notes are presently callable at the discretion of the noteholders, and
the Company cannot borrow under the bank line of credit. Management is in the
process of negotiating revised terms and conditions for the senior notes and,
in addition, is negotiating with another lender for a working capital credit
facility of up to $30 milion. However, there is no assurance that these
negotiations will be successful. The senior notes being callable at the
discretion of the Noteholders and the Company's inability to borrow under the
bank credit facility raise substantial doubt regarding the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
FINANCING ARRANGEMENTS
In September 1994, the Company finalized a two year $50 million unsecured
revolving bank credit facility with an interest rate at the bank's prime rate
plus two percent, or two and one-half percent over LIBOR (London Interbank
Offered Rate) or the applicable secondary CD rate. No borrowings were
outstanding at January 28, 1995. During the fourth quarter of Fiscal 1994, the
Company failed to comply with financial covenants specified in the agreement
related to earnings and tangible net worth. As a result, the facility has been
effectively terminated, and the costs incurred in connection with the agreement
have been charged to expense.
In October 1992, the Company finalized a $35 million unsecured private
placement of senior notes with an interest rate of 6.99%. Interest is payable
semi-annually, and principal payments of $6.5 million are due annually
commencing April 1996, with a final principal payment of $9.0 million due in
October 1999. The related agreement requires the Company to maintain various
financial ratios and covenants, and prohibits the payment of dividends. During
Fiscal 1994, the Company failed to comply with covenants specified in the
agreement related to earnings and tangible net worth. As a result, the senior
notes are callable at the discretion of the noteholders and are classified as a
current liability in the January 28, 1995 consolidated balance sheet, and the
costs incurred in connection with the agreement have been charged to expense.
Management is in the process of negotiating revised terms and conditions
for the senior notes and is negotiating with another lender for a working
capital credit facility of up to $30 million. However, there is no assurance
that these negotiations will be successful.
36
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
Information concerning the Company's short-term borrowings follows:
<TABLE>
<CAPTION>
Fifty-Two
Weeks ended
January 28, Year ended December 31,
---------- ----------------------
1995 1993 1992
---- ---- ----
(amounts shown in thousands)
<S> <C> <C> <C>
Maximum borrowings outstanding
during the period........... $39,750 $19,950 $29,400
Average outstanding balance
during the period........... 9,239 5,607 4,092
Weighted average interest rate
for the period.............. 8.61% 6.00% 6.00%
</TABLE>
37
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
H. Income Taxes:
Effective January 1, 1993, the Company adopted SFAS No. 109. SFAS No. 109
superseded SFAS No. 96, "Accounting for Income Taxes," which the Company
previously used. There was no material effect of adopting SFAS No. 109 on the
Company's financial statements. The tax effects of significant items composing
the Company's net deferred taxes as of January 28, 1995 and December 31, 1993
are as follows:
<TABLE>
<CAPTION>
January 28, December 31,
1995 1993
----------- -----------
(amounts shown in thousands)
<S> <C> <C>
Deferred Tax Liabilities:
Difference between book and tax
basis of property $ 870 $ 331
Unrealized gains on hedging, net --- 5,483
Other --- 34
------- -------
$ 870 5,848
------- -------
Deferred Tax Assets:
Sales returns and doubtful accounts
allowances not currently deductible 5,418 1,942
Inventory reserves not currently
deductible 5,164 579
Federal net operating loss and
tax credit carryforward 11,415 5,084
State net operating loss carryforward 4,893 3,376
Charitable contribution carryforward 60 43
Other 1,053 1,660
------- -------
28,003 12,684
------- -------
Valuation allowance 27,133 6,836
------- -------
Net Deferred Tax Asset/Liability $ --- $ ---
======= =======
</TABLE>
38
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
Fifty Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
(amounts shown in thousands)
<S> <C> <C> <C>
Domestic $(70,650) $(51,665) $14,132
Foreign ( 4,054) 4,232 7,325
-------- -------- -------
$(74,704) $(47,433) $21,457
======== ======== =======
</TABLE>
39
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
The current and deferred income tax components of the provision (benefit)
for income taxes consist of the following:
<TABLE>
<CAPTION>
Fifty Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
(amounts shown in thousands)
<S> <C> <C> <C>
Current:
Federal $ --- $(10,170) $ 6,887
State --- --- 1,165
Foreign 353 543 875
-------- -------- -------
353 (9,627) 8,927
Deferred:
Federal --- (1,778) (1,917)
State --- (304) (328)
-------- -------- -------
--- (2,082) (2,245)
-------- -------- -------
$ 353 $(11,709) $ 6,682
======== ======== =======
</TABLE>
The provision (benefit) for income taxes varies from the amount computed by
applying the statutory rate for reasons summarized below:
<TABLE>
<CAPTION>
Fifty Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
(amounts shown in thousands)
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 34.0%
Benefit of graduated rates --- (1.0) ---
State taxes (net of federal
benefit) --- .4 2.6
Tax effect of income from
foreign subsidiaries (.5)% 1.9 (7.5)
Valuation allowance (35.0) (14.4) ---
Other --- 2.8 2.0
---- ----- -----
(.5)% 24.7% 31.1%
==== ===== =====
</TABLE>
The Company has a Federal net operating loss carryforward, of approximately
$30.2 million and a state net operating loss carryforward of approximately $69.9
million. The Federal net operating loss carryforward expires beginning in 2008
and the state net operating loss carryforward expires beginning in 1998 through
2008. The Company also has an alternative minimum tax credit carryforward of
approximately $847,000 to offset future regular federal income taxes.
40
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
At the time the Company purchased Exclusive Diamonds International, Limited
("EDI") in August of 1990, EDI applied to and received from the Israeli
government under the Capital Investments Law of 1959 "approved enterprise"
status, which results in reduced tax rates given to foreign owned corporations
to stimulate the export of Israeli manufactured products. The benefit to the
Company amounted to approximately $0.7 million or $0.03 per share, $1.2 million
or $0.05 per share, and $2.0 million or $0.08 per share, in Fiscal 1994, 1993
and 1992, respectively. The "approved enterprise" tax benefit is available to
EDI until the year 2000.
The Company has not provided Federal and state income taxes on
approximately $8.3 million of undistributed earnings of foreign subsidiaries
which it considers invested in such subsidiaries indefinitely. The amount of
unrecognized deferred tax liability on the unremitted earnings of the foreign
subsidiaries at January 28, 1995 approximates $3.2 million exclusive of any
benefit from utilization of foreign tax credits. At January 28, 1995, the
Company has approximately $1.8 million of unrecognized foreign tax credits
which, depending on circumstances, may be available to reduce federal income
taxes on the unremitted earnings of the foreign subsidiaries in the event such
earnings are repatriated.
I. Commitments and Contingencies:
(1) At January 28, 1995, commitments under letters of credit amounted to
$2.0 million.
(2) At January 28, 1995, under various licensing and agency agreements,
the Company is obligated to pay minimum amounts approximating $1.8 million in
the aggregate in 1995 and 1996.
(3) The Company has warrants outstanding to purchase 700,000 shares of
common stock. The warrants expire December 16, 1998 and have an exercise price
of $24.70.
(4) In connection with the acquisition of EDI, the Company entered into
non-compete agreements with the prior owners which provide for the issuance of
an aggregate of 317,881 shares of the Company's common stock over five years
commencing August 1991. During Fiscal 1994, 1993 and 1992, 63,688 shares
valued at $660,000 were issued each year.
J. Legal Proceedings:
The Company is from time to time involved in litigation incident to the
conduct of its business. While it is not possible to predict with certainty the
outcome of such matters, management believes that all litigation currently
41
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
pending to which the Company is a party will not have a material adverse effect
on the Company's financial position and results of operations.
K. Other Charges
The following is the composition of Other Charges in Fiscal 1994:
<TABLE>
<CAPTION>
<S> <C>
Goodwill write-off (1) $23,795,000
Losses on inventory liquidations (2) 20,428,000
Severance and executive compensation
settlements (3) 2,985,000
Other (4) 565,000
------------
Total $47,773,000
============
<FN>
(1) In May 1990, the Company entered into an agreement with Big Ben
Corporation to form a joint venture, Big Ben '90, in which the Company held a
50.1% interest. In September 1991, the Company acquired the minority interest
in the joint venture in a transaction accounted for as a purchase, resulting in
a cost in excess of net assets acquired (goodwill) of $26.9 million. The
Company viewed the joint venture formation and acquisition as a means of
assuring adequate supplies of watches for sale at discount prices to its
existing significant customers, Sam's and Pace, and for new marketing
opportunities. Management perceived that the valuable elements of Big Ben '90
were: (a) contacts for access to parallel markets in order to
purchase
substantial quantities of watches for sale at lower price points; (b) personnel
with expertise to manage a wholesale watch division; (c) an existing wholesale
watch business; and (d) opportunities for expansion of the wholesale watch
business to new customers and through development of private label and designer
brand names for watches at lower price points.
In 1991 and 1992, the Company experienced increases in its watch business,
with watches accounting for 34% and 38% respectively, of net sales. A
significant portion of these sales increases occurred in promotional events at
lower price points. In subsequent years, sales of watches decreased to 26% of
net sales in 1993 and 22% in 1994, with further decreases expected in the
foreseeable future. These decreases, as well as the related decline in
profitability from sales of watches were caused by a number of factors,
including: (a) increased competition as watches at lower price points became
increasingly available, resulting in higher levels of returns and lower gross
margin; (b) marketing promotions of lower price point watches became
ineffective; (c) private label and designer brand name watch programs with lower
price points were unsuccessful; (d) efforts to expand the wholesale watch
business were not successful; and (e) the inventory of watches became
overstocked and the amount of watches in need of repair increased, resulting in
increased costs. In
42
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
addition, as discussed in Note B, in 1993 the Company became primarily a
retailer, and now operates leased jewelry departments in all Sam's locations.
During 1994, Sam's notified the Company that it wanted the Company to eliminate
lower end watches from the departments, and to instead offer primarily
recognized brands at higher price points.
These circumstances caused an evaluation of the wholesale watch business in
the latter half of 1994, and in the fourth quarter the Company made the decision
to close its wholesale watch division and liquidate the related inventory as
soon as practicable, resulting in significant inventory reserves as discussed
below. All key personnel from Big Ben '90 left the Company by year end. The
Company will now sell primarily recognized brand watches at higher price points
in the leased departments at Sam's. Also, while the Company will continue to
purchase watches in parallel markets, the sources and styles of the merchandise
purchased are different from those in Big Ben '90, and management plans to
reduce the parallel markets as the primary source for watches.
As a result of the events described above, as well as the decisions,
actions and plans of management, the Company has not retained any of the
valuable elements of the Big Ben '90 acquisition. Also, the Company projects,
based on management's best estimate of future operating results for its watch
business, that none of the remaining balance of Goodwill arising from the Big
Ben '90 acquisition will be recovered. Accordingly, the remaining balance of
such Goodwill of $23.8 million has been written off as of January 28, 1995.
(2) In the fourth quarter of 1994, the Company made the decision to sell
certain inventory at significantly less than normal prices, resulting in an
estimated net realizable value below the cost of such inventory. This decision
was made (a) to liquidate the merchandise that was predominantly sold in the
wholesale watch division which was being closed in order to focus management's
attention on the Company's retail operations, and (b) to liquidate certain other
inventory on an expedited basis in order to raise cash for liquidity purposes as
a result of the uncertain status of credit availability due to the Company's
failure to comply with certain covenants in its debt agreements as discussed in
Note G.
As a result, the Company recorded losses of $17.7 million to reflect such
inventory at its net realizable value. The consolidated balance sheet as of
January 28, 1995 includes allowances of $17.3 million related to inventory with
a cost of $35 million. Subsequent to January 28, 1995, the Company has sold a
portion of such inventory with a cost of $11.3 million resulting in $3.5
million being charged to such allowances. Additionally, the Company provided
$2.7 million for obligations under licensing agreements for the use of trade
names on watches previously sold in the wholesale division.
43
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
(3) In connection with the closing of the wholesale watch division, changes in
executive management and the reduction in the number of personnel, the Company
made payments to and provided for severance for terminated employees and the
settlement of certain employment contracts, aggregating $2.7 million. Accrued
expenses at January 28, 1995, include $1.6 million for such payments to be made
after year end. In addition, cash payments of $0.8 million were made during the
fourth quarter to buy-out the unvested portions of bonus stock awards,
resulting in a $0.3 million charge to expense, and the related remaining amount
of deferred compensation was eliminated by charging additional paid-in-capital.
(4) As discussed in Note G, the Company did not comply with certain covenants
in the agreements related to the senior notes payable and the bank credit
facility, and financing costs of $2.3 million incurred primarily in connection
with these original agreements have been charged to expense. Additionally,
the Company settled the termination of the lease department agreement with
Pace Membership Warehouse, Inc., which resulted in a $1.7 million recovery of
previously accrued expenses.
Included in Other Costs in 1993 are the $6.0 million in charges discussed
in Note B related to the Sam's agreement and retail transition. Also included
are compensation costs of $4.2 million in connection with the departure of the
former Chairman of the Board of Directors on March 29, 1994, consisting
primarily of the acceleration of vesting of previously granted stock bonus
awards and amounts due under his employment contract.
</TABLE>
L. Stock Benefit Plans:
The Company maintains various stock option, bonus and purchase plans for
the benefit of its employees, officers, directors and certain third parties. A
summary of the activity in the stock option plans is as follows:
44
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
STOCK
OPTION PLANS
SHARES PRICE
====================================
Outstanding, December 31, 1992 1,046,380 $7.88-14.50
Granted 954,675 $9.00-19.63
Exercised (37,580) $7.88-13.25
Expired/cancelled (92,286) $7.88-13.50
------------------------------------
Outstanding, December 31, 1993 1,871,189 $7.88-19.63
Granted 21,620 $9.00- 9.00
Exercised ( 500) $7.88- 7.88
Expired/cancelled ( 9,524) $9.00-13.50
------------------------------------
Outstanding, January 30, 1994 1,882,785 $7.88-13.50
Granted 2,302,210 $4.00- 6.25
Exercised --- ---
Expired/cancelled (99,849) $6.25-13.50
------------------------------------
Outstanding, January 28, 1995 4,085,146 $4.00-19.63
Shares reserved under
the Plans 6,172,384
=========
As of January 28, 1995, options to purchase 1,255,960 shares were
exercisable.
A total of 562,500 shares are reserved for issuance under the Employee Stock
Purchase Plan of which 19,065, 12,236, and 12,101 shares were issued during the
years ended January 28, 1995 and December 31, 1993 and 1992, respectively.
M. Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments." The estimated fair value amounts have
been determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that would be realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
45
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
(1) Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, Accrued
Expenses, and Liability for Inventory Repurchased -- The carrying amount of
these items are a reasonable estimate of their fair value.
(2) Long Term Debt -- The present value of the future principal and interest
payments on the senior notes issued in October, 1992 is used to estimate fair
value for this debt which is not quoted on an exchange. The notes have a net
book value of $35 million and are estimated to have a fair value at January 28,
1995 and December 31, 1993 of approximately $37.6 million and $36.2 million,
respectively.
(3) Gold Futures Contracts -- The fair value of gold futures contracts is the
amount at which they could be settled, based on market prices on commodity
exchanges. At January 28, 1995 and December 31, 1993, open gold futures
contracts are included in the financial statements at their fair value which
approximates $0.3 million and $13.2 million, respectively.
(4) Letters of Credit -- Letters of credit principally support corporate
obligations. At January 28, 1994, $0.6 million of commercial letters of credit
expire within a 120 day period, and $1.4 million of standby letters of credit
expire within a 370 day period. At December 31, 1993, $4.1 million of
commercial letters of credit expired within a 30 day period, and $4.9 million of
standby letters of credit expired within a 120 day period. The estimated fair
value, which is estimated using fees currently charged for similar arrangements,
is insignificant.
N. Selected Quarterly Financial Data (unaudited):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------------------------------------------
May 1, 1994 July 31,1994 October 30,1994 January 28, 1995
----------- ------------ --------------- -----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales...................... $ 63,010 $60,077 $68,588 $114,010
Gross Profit .................. 8,683 8,484 10,234 14,305
Net loss (1)................... (5,979) (4,932) (4,532) (59,614)
Net loss per Common
Share......................... (.23) (.19) (.18) (2.32)
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------
March 31, 1993 June 30, 1993 September 30, 1993 December 31, 1993
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net Sales (2)...................... $ (31,481) $ 49,845 $ 42,601 $ 114,494
Gross Profit (loss)(2)............. (9,470) 8,526 6,054 4,726
Net Income (loss)(3)............... (10,154) 181 (2,887) (22,864)
Net income (loss) per Common Share. (.40) .01 (.11) (.90)
<FN>
46
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
(1) Net income for the thirteen weeks ended January 28, 1995, includes (a)
$23.8 million write-off of Goodwill associated with the 1991 acquisition of
the minority interest in the Big Ben '90 joint venture; (b) $17.7 million
to provide for liquidation of inventory predominantly sold in the wholesale
watch division, which the Company has decided to close, and certain other
inventory in order to raise cash for liquidity purposes as a result of the
uncertain status of credit availability due to the Company's failure to
comply with certain covenants in its debt agreements, and $2.7 million for
obligations under licensing agreements for the use of trade names on
watches previously sold in the wholesale division; (c) $3.0
million in payments to and provisions for severance for terminated
employees and the settlement of certain employment contracts in connection
with the closing of the wholesale watch division and the buy-out of the
unvested portions of bonus stock awards; and (d) $2.3 million in financing
costs incurred primarily in connection with the senior notes and bank
credit facility agreements which contain certain covenants with which the
Company failed to comply, and recovery of previously accrued expenses of
$1.7 million resulting from the settlement of the terminated lease
department agreement with Pace Membership Club, Inc.
(2) As a result of the new agreement with Sam's, the Company recorded a sales
reversal of $99.7 million for the amount of inventory previously sold by
Jan Bell to Sam's which became subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time
charge to pre-tax earnings. In the first quarter of 1993, the Company had
estimated the amount of the sales reversal to be $77.1 million and the
related cost of sales at $59.0 million which resulted in recording an $18.1
million one-time charge to pre-tax earnings. The change in estimate was
recorded in the Fourth Quarter.
(3) Pre-tax income in the fourth quarter of 1993 was decreased by (a) Other
Costs consisting of $5.2 million of charges related to the Sam's agreement
and other retail transition costs, and compensation expense of $4.2 million
related to the departure of the Company's Chairman of the Board and (b)
adjustments for slow-moving and damaged inventory and shrinkage of
approximately $8.5 million.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Form 8-K filed within 24 months prior to the date of the
most recent financial statements reporting a change of accountants or reporting
disagreements on any matter of accounting principle or financial statement
disclosure.
PART III
ITEMS 10 THROUGH 13.
Within 120 days after the close of the fiscal year, the Company intends to
file with the Securities and Exchange Commission a definitive proxy statement
pursuant to Regulation 14A which will involve the election of directors. The
answers to Items 10 through 13 are incorporated by reference pursuant to General
Instruction G(3); provided, however, the Compensation Committee Report, the
Performance Graphs, and all other items of such report that are not required to
be incorporated, are not incorporated by reference into this Form 10-K or any
other filing with the Securities and Exchange Commission by the Company.
47
<PAGE>
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following is a list of the financial
statements of Jan Bell Marketing, Inc. included in Item 8 of Part II.
Independent Auditors' Report.
Consolidated Balance Sheets - January 28, 1995 and December 31, 1993.
Consolidated Statements of Operations - Fifty-Two Weeks Ended January 28, 1995,
and the Years Ended December 31, 1993 and December 31, 1992.
Consolidated Statements of Stockholders' Equity - Fifty-Two Weeks Ended
January 28, 1995, and the Years Ended December 31, 1993 and
December 31, 1992.
Consolidated Statements of Cash Flows - Fifty-Two Weeks Years Ended
January 28, 1995, and the Years Ended December 31, 1993 and
December 31, 1992.
(a)(2) Financial Statement Schedules. The following is the financial
statement schedule filed as part of this annual report on Form 10-K: Schedule
II. All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(a)(3) The following list of schedules and exhibits are incorporated by
reference as indicated in this Form 10-K:
EXHIBIT
Number Description
- ------- -----------
3.1 - Certificate of Incorporation. Incorporated by reference from
Company's Form S-1 (No. 33-15347) declared effective in August
1987.
3.2 - Bylaws.
4.1 - Specimen Certificate. Incorporated by reference from Company's
Form 10-K filed in March 1991.
4.2 - Jan Bell Marketing, Inc. 1987 Stock Option Plan. Incorporated by
reference from Company's Form 10-K filed in March 1991.
4.3 - Jan Bell Marketing, Inc. Employee Stock Purchase Plan.
Incorporated by reference from Company's Form 10-K filed in March
1991.
48
<PAGE>
JAN BELL MARKETING INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
EXHIBIT
Number Description
- ------- -----------
4.4 - Jan Bell Marketing, Inc. 1991 Stock Bonus Plan. Incorporated by
reference from Company's Definitive Proxy Statement filed in
April 1991.
4.5 - Jan Bell Marketing, Inc. 1991 Stock Option Plan. Incorporated by
reference from Company's Definitive Proxy Statement filed in
April 1993.
10.1 - Employment Agreement dated May 15, 1994 between Joseph Pennacchio
and the Company.
10.2 - Employment Agreement dated August 1, 1994 between Richard Bowers
and the Company.
10.3 - Form of Indemnification Agreement. Incorporated by reference
from Company's Form S-1 (No. 33-26947) declared effective in
February 1989.
10.6 - Agreement with Sam's dated July 19, 1993. Incorporated by
reference from Company's 8-K filed in July 1993.
10.7 - Note Purchase Agreements, dated October 8, 1992. Incorporated by
reference from Company's Form 10-Q filed in November 1992.
10.8 - Forbearance Agreement dated as of February 28, 1995 between
the Company and the Noteholders named therein. Incorporated by
reference from Company's 8-K filed in March 1995.
21.1 - Subsidiaries of Registrant:
Wholly-owned subsidiaries of the Company include JBM Venture Co.,
Inc., JBM Retail Company, Inc., Delaware corporations, Regal
Diamonds Ltd., an Israeli company, Exclusive
Diamonds International, Ltd., an Israeli company, Jan Bell de
Mexico, S.A. de C.V., and Elico Mexicana, a Mexican corporation,
and Jan Bell Marketing/Puerto Rico, Inc., a Puerto Rican
corporation.
23.1 - Consent of Deloitte & Touche LLP
27 - Financial Data Schedule
(b) Reports on Form 8-K. The Company filed reports on Form 8-K during the
fourth quarter ending January 28, 1995 as follows:
None
49
<PAGE>
SCHEDULE II
JAN BELL MARKETING, INC.
VALUATION AND QUALIFICATION ACCOUNTS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Charged to
Beginning Costs and Ending
Description Balance Expenses Deductions Balance
- ----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
December 31, 1992
Allowance for Doubtful
Accounts $ 30 200 -- $ 230
Allowance for Sales
Returns $3,220 7,145 5,590 $ 4,775
December 31, 1993
Allowance for Doubtful
Accounts $ 230 594 74 $ 750
Allowance for Sales
Returns $4,775 24,531 26,628 $ 2,678
Inventory Allowances $ 300 1,700 --- $ 2,000
January 28, 1995
Allowance for Doubtful
Accounts $ 725 83 363 $ 445
Allowance for Sales
Returns $2,880 10,699 8,394 $ 5,185
Inventory Allowances $2,000 18,475 2,000 $18,475
</TABLE>
50
<PAGE>
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 of the undersigned, thereunto duly authorized.
JAN BELL MARKETING, INC.
Date: May 15, 1995 By: Joseph Pennacchio
---------------------
Joseph Pennacchio,
Chief Executive 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 and on the dates indicated:
SIGNATURE CAPACITY DATE
- --------- -------- -----
Isaac Arguetty Chairman of the Board 5/12/95
- -------------------
Isaac Arguetty
Joseph Pennacchio Director and Chief 5/12/95
- ------------------- Executive Officer
Joseph Pennacchio (Principal Executive
Officer)
Rosemary B. Trudeau Director, Senior Vice 5/12/95
- ------------------- President-Investor
Rosemary B. Trudeau Relations
John Burden Director 5/12/95
- -------------------
John Burden
Chaim Edelstein Director 5/12/95
- -------------------
Chaim Edelstein
Sidney Feltenstein Director 5/12/95
- -------------------
Sidney Feltenstein
Dean Groussman Director 5/12/95
- -------------------
Dean Groussman
Frank S. Fuino, Jr. Executive Vice President 5/12/95
- ------------------- of Finance and Chief
Frank S. Fuino, Jr. Financial Officer
51
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
PAGE
------------
EXHIBIT
Number Description
- ------- -----------
SEE PAGE 49 FOR A COMPLETE LIST OF EXHIBITS FILED,
INCLUDING EXHIBITS INCORPORATED BY REFERENCE FROM
PREVIOUSLY FILED DOCUMENTS.
3.2 Bylaws.
10.1 Employment Agreement dated May 15, 1994 between Joseph Pennacchio
and the Company.
10.2 Employment Agreement dated August 1, 1994 between Richard Bowers
and the Company.
21.1 Subsidiaries of Registrant:
Wholly-owned subsidiaries of the Company include JBM Venture Co.,
Inc., JBM Retail Company, Inc., Delaware corporations, Exclusive
Diamonds International, Ltd., an Israeli company, Jan Bell de
Mexico, S.A. de C.V., and Elico Mexicana, a Mexican corporation,
and Jan Bell Marketing/Puerto Rico, Inc.,a Puerto Rican
corporation.
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
52
<PAGE>
EXHIBIT 3.2
JAN BELL MARKETING, INC.
BYLAWS
(as amended through May, 1994)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.
The registered office of the Corporation in the State of Delaware
shall be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES.
The Corporation also may have offices at such other places both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 1. STOCKHOLDER MEETINGS.
(a) TIME AND PLACE OF MEETINGS. Meetings of the stockholders shall
be held at such times and places, either within or without the State of
Delaware, as may from time to time be fixed by the Board of Directors and stated
in the notices or waivers of notice of such meetings.
(b) ANNUAL MEETING. The annual meeting of the stockholders shall be
held during the third week of the month of May in each year as designated by the
Board of Directors, or at such other date as may be designated by the Board of
Directors, for the election of directors and the transaction of such other
business properly brought before such annual meeting of the stockholders and
within the powers of the stockholders.
(c) SPECIAL MEETINGS. Special meetings of the stock-holders of the
Corporation for any purpose or purposes may be called at any time only by the
President, or the Board of Directors pursuant to a resolution approved by a
majority of the whole Board of Directors. Business transacted at any special
meeting of the stockholders shall be limited to the purposes stated in the
notice of such meeting.
(d) NOTICE OF MEETINGS. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, written notice of each meeting of
the stockholders shall be given not less than ten days nor more than sixty days
before the date of such meeting to each stockholder entitled to vote thereat,
directed to such stockholder's address as it appears upon the books of the
<PAGE>
Corporation, such notice to specify the place, date, hour and purpose or
purposes of such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, addressed
to the stockholder at his address as it appears on the stock ledger of the
Corporation. When a meeting of the stockholders is adjourned to another time
and/or place, notice need not be given of such adjourned meeting if the time and
place thereof are announced at the meeting of the stockholders at which the
adjournment is taken, unless the adjournment is for more than thirty days or
unless after the adjournment a new record date is fixed for such adjourned
meeting, in which event a notice of such adjourned meeting shall be given to
each stockholder of record entitled to vote thereat. Notice of the time, place
and purpose of any meeting of the stockholders may be waived in writing either
before or after such meeting and will be waived by any stockholder by such
stockholder's attendance thereat in person or by proxy. Any stockholder so
waiving notice of such a meeting shall be bound by the proceedings of any such
meeting in all respects as if due notice thereof had been given.
(e) QUORUM. Except as otherwise required by law, the Certificate of
Incorporation or these Bylaws, the holders of not less than a majority of the
shares generally entitled to vote at any meeting of the stockholders, present in
person or by proxy, shall constitute a quorum. Directors shall be elected by a
plurality of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. In all matters other than
the election of directors, the affirmative vote on a particular matter of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the particular subject matter shall be the act of the
stockholders. In particular and without limitation, broker nonvotes shall be
counted as present for quorum purposes at a meeting but shall not be counted for
voting purposes in the particular voting calculation. If a quorum shall fail to
attend any meeting of the stockholders, the presiding officer of such meeting
may adjourn such meeting from time to time to another place, date or time,
without notice other than announcement at such meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting of the stockholders as originally noticed. The foregoing
notwithstanding, if a notice of any adjourned special meeting of the
stockholders is sent to all stockholders entitled to vote thereat which states
that such adjourned special meeting will be held with those present in person or
by proxy constituting a quorum, then, except as otherwise required by law, those
present at such adjourned special meeting of the stockholders shall constitute a
quorum and all matters shall be determined by a majority of the votes cast at
such special meeting.
SECTION 2. DETERMINATION OF STOCKHOLDERS ENTITLED TO NOTICE AND TO
VOTE.
To determine the stockholders entitled to notice of any meeting
of the stockholders or to vote thereat, the Board
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of Directors may fix in advance a record date as provided in Article VII,
Section 1 of these Bylaws, or if no record date is fixed by the Board of
Directors, a record date shall be determined as provided by law.
SECTION 3. VOTING.
(a) Except as otherwise required by law, the Certificate of
incorporation or these Bylaws, each stockholder present in person or by proxy at
a meeting of the stockholders shall be entitled to one vote for each full share
of stock registered in the name of such stockholder at the time fixed by the
Board of Directors or by law as the record date of the determination of
stockholders entitled to vote at such meeting.
(b) Every stockholder entitled to vote at a meeting of the
stockholders may do so either (i) in person or (ii) by one or more agents
authorized by a written proxy executed by the person or such stockholder's duly
authorized agent, whether by manual signature, typewriting, telegraphic
transmission or otherwise. Every proxy must be executed in writing (which shall
include telegraphing or cabling) by the stockholder or by his duly authorized
agent, but no proxy shall be voted on after three years from its date, unless
the proxy provides for a longer period.
(c) Voting may be by voice or by ballot as the presiding officer of
the meeting of the stockholders shall determine. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by such stockholder's
proxy, and shall state the number of shares voted.
(d) In advance of or at any meeting of the stockholders, the Chairman
of the Board or President may appoint one or more persons as inspectors of
election (the "Inspectors") to act at such meeting. Such Inspectors shall take
charge of the ballots at such meeting. After the balloting on any question, the
Inspectors shall count the ballots cast and make a written report to the
secretary of such meeting of the results. Subject to the direction of the
chairman of the meeting, the duties of such Inspectors may further include
without limitation: determining the number of shares outstanding and the voting
power of each; the shares represented at the meeting; the existence of a quorum;
the authenticity, validity, and effect of proxies; receiving votes, ballots, or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all votes
of consents and determining when the polls shall close; determining the result;
and doing such acts as may be proper to conduct the election or vote with
fairness to all stockholders. An Inspector need not be a stockholder of the
Corporation and any officer of the Corporation may be an
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Inspector on any question other than a vote for or against such officer's
election to any position with the Corporation or on any other questions in which
such officer may be directly interested. If there are three or more Inspectors,
the determination, report or certificate of a majority of such Inspectors shall
be effective as if unanimously made by all Inspectors.
SECTION 4. LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the Corporation
shall prepare and make available, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, showing the address of and the number of shares
registered in the name of each such stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to such meeting, either
at a place within the city where such meeting is to e held and which place shall
be specified in the notice of such meeting, or, if not so specified, at the
place where such meeting is to be held. The list also shall be produced and
kept at the time and place of the meeting of the stockholders during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 5. ACTION BY CONSENT OF STOCKHOLDERS.
Any action required or permitted to be taken by the stockholders must
be effected at a duly called annual or special meeting of such stockholders and
may not be effected by any consent in writing by such stockholders.
SECTION 6. CONDUCT OF MEETINGS.
The chairman of the meeting shall have full and complete authority to
determine the agenda, to set the procedures and order the conduct of meetings,
all as deemed appropriate by such person in his sole discretion with due regard
to the orderly conduct of business.
SECTION 7. NOTICE OF AGENDA MATTERS.
If a stockholder wishes to present to the Chairman of the Board or the
President an item for consideration as an agenda item or a meeting of
stockholders, he must give timely notice to the Secretary of the Corporation and
give a brief description of the business desired to be brought before the
meeting. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation, not less
than sixty days nor more than ninety days prior to the meeting; provided,
however, that in the event that less than seventy days' notice of prior
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public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the date on which such notice of
the date of the annual meeting was mailed or such public disclosure was made.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS.
Unless otherwise restricted by law, the Certificate of Incorporation
or these Bylaws as to action which shall be authorized or approved by the
stockholders, and subject to the duties of directors as prescribed by these
Bylaws, all corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be controlled by, the
Board of Directors. Without prejudice to such general powers, but subject to
the same limitations, the directors shall have the following powers:
(a) To select and remove all the other officers, agents and employees
of the Corporation, prescribe such powers and duties for them as may
not be inconsistent with law, the Certificate of Incorporation or
these Bylaws, fix their compensation and require from them security
for faithful service.
(b) To conduct, manage, and control the affairs and business of the
Corporation and to make such rules and regulations therefor not
inconsistent with law, the Certificate of Incorporation or these
Bylaws, as they may deem best.
(c) To change the principal office for the transaction of the
business of the Corporation from one location to another as provided
in Article I, Section 2, hereof; to designate any place within or
without the State of Delaware for the holding of any stockholders'
meeting or meetings and to adopt, make and use a corporate seal, and
to prescribe the forms of certificates of stock, and to alter the form
of such seal and of such certificates from time to time, as in their
judgment they may deem best, provided such seal and such certificates
shall at all times comply with the provisions of law.
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(d) To authorize the issue of shares of stock of the Corporation from
time to time, upon such terms as may be lawful, in consideration of
money paid, labor done or services actually rendered debts or
securities cancelled, or tangible or intangible property actually
received or, in the case of shares issued as a dividend, against
amounts transferred from surplus to stated capital.
(e) To borrow money and incur indebtedness from the purposes of the
Corporation, and to cause to be executed and delivered therefore, in
the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations or other, evidences of debt
and securities therefore.
(f) To adopt and put into effect such stock purchase plans and stock
option plans, both of general and restricted stock option plan
character, as they may deem advisable for the benefit of employees of
the Corporation, and to issue stock in accordance with and pursuant to
any such plan.
SECTION 2. ELECTION OF DIRECTORS.
(a) NUMBER, QUALIFICATION AND TERM OF OFFICE. The authorized number
of Directors of the Corporation shall be fixed from time to time by the Board of
Directors, but shall not be less than three nor more than thirteen. The exact
number of directors shall be determined from time to time, either by a
resolution or Bylaw provision duly adopted by a majority of the whole Board of
Directors. Directors need not be stock holders.
(b) RESIGNATION. Any director may resign from the Board of Directors
at any time by giving written notice to the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein, or if the time
when such resignation shall become effective shall not be so specified, then
such resignation shall take effect immediately upon its receipt by the
Secretary; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
(c) NOMINATION OF DIRECTORS. Candidates for director of the
Corporation shall be nominated only either by:
(i) the Board of Directors or a committee appointed by the Board
of Directors, or
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(ii) nomination at any stockholders' meeting by or on behalf of
any stockholder entitled to vote thereat; provided, that written
notice of such stockholder's intent to make such nomination or
nominations shall have been given, either by personal delivery or by
United States certified mail, postage prepaid, to the Secretary of the
Corporation not later than (1) with respect to an election to be held
at an annual meeting of the stockholders, thirty days in advance of
such annual meeting, and (2) with respect to an election to be held at
a special meeting of the stockholders for the election of directors,
the close of business on the tenth day following the date on which
notice of such special meeting is first given to the stockholders
entitled to vote thereat. Each such notice by a stockholder shall set
forth: (1) the name and address of the (A) stockholder who intends to
make the nomination and (B) person or persons to be nominated; (2) a
representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear
in the person or by proxy at the meeting to nominate the person or
persons specified in the notice; (3) a description of all arrangements
or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder;
(4) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy or
information statement filed with the Securities and Exchange
Commission pursuant to the proxy rules promulgated under the
Securities Exchange Act of 1934, as amended, or any successor statute
thereto, had the nominee been nominated, or intended to be nominated,
by the Board of Directors; and (5) the manually signed consent of each
nominee to serve as a director of the Corporation if so elected. The
presiding officer of the meeting of the stockholders may refuse to
acknowledge the nominee of any person not made in compliance with the
foregoing procedure.
(d) PREFERRED STOCK PROVISIONS. Notwithstanding the foregoing
whenever the holders of any one or more classes or series of stock issued by the
Corporation having a preference over the Common Stock as to dividends or upon
liquidation shall
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have the right, voting separately by class or series, to elect directors at an
annual or special meeting of the stockholders, the election, term of office,
filling of vacancies, nomination, terms of removal and other features of such
directorships shall be governed by the terms of Article Fourth of the
Certificate of Incorporation and the resolutions establishing such class or
series adopted pursuant thereto.
SECTION 3. MEETINGS OF THE BOARD OF DIRECTORS.
(a) REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held without call at the following times:
(i) at such times as the Board of Directors shall from time to
time by resolution determine; and
(ii) one-half hour prior to any special meeting of the
stockholders and immediately following the adjournment of any annual
or special meeting of the stockholders.
Notice of all such regular meetings hereby is dispensed with.
(b) SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the President or the Board of Directors pursuant to a resolution
approved by a majority of the whole Board of Directors. Notice of the time and
place of special meetings of the Board of Directors shall be given by the
Secretary or an Assistant Secretary of the Corporation, or by any other officer
authorized by the Board of Directors. Such notice shall be given to each
director personally or by mail, messenger, telephone or telegraph at such
director's business or residence address. Notice by mail shall be deposited in
the United States mail, postage prepaid, not later than the third day prior to
the date fixed for such special meeting. Notice by telephone or telegraph shall
be sent, and notice given personally or be messenger shall be delivered, at
least twenty-four hours prior to the time set for such special meeting. Notice
of a special meeting of the Board of Directors need not contain a statement of
the purpose of such special meeting.
(c) ADJOURNED MEETINGS. A majority of directors present at any
regular or special meeting of the Board of Directors or any committee thereof,
whether or not constituting a quorum, may adjourn any meeting from time to time
until a quorum is present or otherwise. Notice of the time and place of holding
any adjourned meeting shall not be required if the time and place are fixed at
the meeting adjourned.
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(d) PLACE OF MEETINGS. Unless a resolution of the Board of Directors
or the written consent of all members of the Board of Directors given either
before or after the meeting and filed with the Secretary of the Corporation
designates a different place within or without the State of Delaware, meetings
of the Board of Directors, both regular and special, shall be held at the
Corporation's principal executive offices.
(e) PARTICIPATION BY TELEPHONE. Members of the Board of Directors or
any committee may participate in any meeting of the Board of Directors or
committee through the use of conference telephone or similar communications
equipment, so long as all members participating in such meeting can hear one
another, and such participation shall constitute presence in person at such
meeting.
(f) QUORUM. At all meetings of the Board of Directors or any
committee thereof, a majority of the total number of directors of the entire
then authorized Board of Directors or such committee shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any such meeting at which there is a quorum shall be the act of the
Board of Directors or any committee, except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these Bylaws. A meeting of
the Board of Directors or any committee at which a quorum initially is present
may continue to transact business notwithstanding the withdrawal of directors so
long as any action is approved by at least a majority of the required quorum for
such meeting.
(g) WAIVER OF NOTICE. The transactions of any meeting of the Board
of Directors or any committee, however called and noticed or wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice, if a quorum be present and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, or a consent to
hold such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 5. ACTION WITHOUT MEETING.
Any action required or permitted to be taken by the Board of Directors
at any meeting or at any meeting of a committee may be taken without a meeting
if all members of the Board of Directors or such committee consent in writing
and the writing or writings are filed with the minutes of the proceedings of the
Board of Directors or such committee.
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SECTION 6. COMPENSATION OF DIRECTORS.
Unless otherwise restricted by law, the Certificate of Incorporation
or these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of committees of the Board of Directors may be allowed like compensation for
attending committee meetings.
SECTION 7. COMMITTEES OF THE BOARD.
(a) COMMITTEES. The Board of Directors may, by resolution adopted by
a majority of the Board of Directors, designate one or more committees of the
Board of Directors, each committee to consist of one or more directors. Each
such committee, to the extent permitted by law, the Certificate of Incorporation
and these Bylaws, shall have and may exercise such of the powers of the Board of
Directors in the management and affairs of the Corporation as may be prescribed
by the resolutions creating such committee. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. The Board of Directors shall have the power, at any time for any
reason, to change the members of any such committee, to fill vacancies, and to
discontinue any such committee.
(b) MINUTES OF MEETINGS. Each committee shall keep regular minutes
of its meetings and report the same to the Board of Directors when required.
(c) AUTHORIZED COMMITTEES.
(1) AUDIT COMMITTEE. The Board of Directors shall appoint an
Audit Committee consisting of at least two directors, all of whom shall be
independent of management. The Audit Committee shall review the financial
affairs and procedures of the Corporation from time to time with management,
meet with the auditors of the Corporation to review
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the financial statements and procedures, and make reports and recommendations to
the Board of Directors concerning their periodic reviews and selection of
auditors.
(2) EXECUTIVE COMMITTEE. The Board of Directors shall appoint
an Executive Committee consisting of at least three members of the Board of
Directors elected by the whole Board. Members of the Executive Committee shall
serve at the pleasure of the Board of Directors and each member of the Executive
Committee may be removed with or without cause at any time by the Board of
Directors. Vacancies shall be filled by the Board of Directors. The Executive
Committee may exercise the powers of the Board of Directors and the supervision
of the management of the business and affairs of the Corporation, but shall not
possess any authority prohibited to it by law.
(3) ACQUISITION COMMITTEE. The Board of Directors shall appoint
an Acquisition Committee consisting of at least three members of the Board of
Directors elected by the whole Board. Members of the Acquisition Committee
shall serve at the pleasure of the Board of Directors and each member of the
Acquisition Committee may be removed with or without cause at any time by the
Board of Directors. Vacancies shall be filled by the Board of Directors. The
Acquisition Committee shall develop criteria and identify types of acquisitions
and shall continuously examine opportunities for acquiring business entities
which will enhance the Company's ability to expand its operations.
(4) COMPENSATION COMMITTEE. The Board of Directors shall
appoint a Compensation Committee consisting of at least two members of the Board
of Directors appointed by the whole board. The Compensation Committee may
exercise powers with respect to all compensation matters for officers and other
employees and with respect to any stock option or other compensation plans
approved by the Board of Directors and, if applicable, the shareholders of the
Company, including selection of optionees, determinations of fair market value,
amounts of shares granted and like duties.
SECTION 8. INTERESTED DIRECTORS.
In addition to the statutory and corporate common law of Delaware, no
contract of transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officers
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose if (i) the material facts as to
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his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.
(a) NUMBER. The officers of the Corporation shall be chosen by the
Board of Directors and may include a Chairman of the Board of Directors (who
must be a director as chosen by the Board of Directors) and shall include a
President, a Vice President, a Secretary and a Treasurer. The Board of
Directors also may appoint one or more Assistant Secretaries or Assistant
Treasurers and such other officers and agents with such powers and duties as it
shall deem necessary. Any Vice President may be given such specific designation
as may be determined from time to time by the Board of Directors. Any number of
offices may be held by the same person, unless otherwise required by the law,
the Certificate of Incorporation or these Bylaws. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
(b) ELECTION AND TERM OF OFFICE. The officers shall be elected
annually by the Board of Directors at its regular meeting following the annual
meeting of the stockholders and each officer shall hold office until the next
annual election of officers and until such officer's successor is elected and
qualified, or until such officer's death, resignation or removal. Any officer
may be removed at any time, with or without cause, by a vote of the majority of
the whole Board of Directors. Any vacancy occurring in any office may be filled
by the Board of Directors.
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(c) SALARIES. The salaries of all officers of the Corporation shall
be fixed by the Board of Directors or a committee thereof from time to time.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors, if there be a Chairman, shall
preside at all meetings of the stockholders and the Board of Directors and shall
have such other power and authority as may from time to time be assigned by the
Board of Directors.
SECTION 3. PRESIDENT.
The President shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and the Board of Directors (if
a Chairman of the Board has not been elected) and shall see that all orders and
resolutions of the Board of Directors are carried into effect. Subject to the
provisions of these Bylaws and to the direction of the Board of Directors, the
President shall have the general and active management of the business of the
Corporation, may execute all contracts and any mortgages, conveyances or other
legal instruments in the name of and on behalf of the Corporation, but this
provision shall not prohibit the delegation of such powers by the Board of
Directors to some other officer, agent or attorney-in-fact of the Corporation.
SECTION 4. VICE PRESIDENTS.
In the absence or disability of the President, the Vice Presidents in
order of their rank as fixed by the Board of Directors, or if not ranked, the
Vice President designated by the Board of Directors, shall perform all the
duties of the president, and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them, respectively, by the Board of Directors or these Bylaws.
SECTION 5. SECRETARY AND ASSISTANT SECRETARIES.
The Secretary shall record or cause to be recorded, in books provided
for the purpose, minutes of the meetings of the stockholders, the Board of
Directors and all committees of the Board of Directors; see that all notices are
duly given in accordance with the provisions of these Bylaws as required by law;
be custodian of all corporate records (other than financial) and of the seal of
the Corporation, and have authority to affix the seal to all documents requiring
it and attest to the same; give, or cause to be given, notice of all meetings of
the
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stockholders and special meetings of the Board of Directors; and, in general,
shall perform all duties incident to the office of Secretary and such other
duties as may, from time to time, be assigned to him by the Board of Directors
or by the President. At the request of the Secretary, or in the Secretary's
absence or disability, any Assistant Secretary shall perform any of the duties
of the Secretary and, when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the Secretary.
SECTION 6. TREASURER AND ASSISTANT TREASURERS.
The Treasurer shall keep or cause to be kept the books of account of
the Corporation and shall render statements of the financial affairs of the
Corporation in such form and as often as required by the Board of Directors or
the President. The Treasurer, subject to the order of the Board of Directors,
shall have custody of all funds and securities of the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements. The
Treasurer shall perform all other duties commonly incident to his office and
shall perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. At the request of
the Treasurer, or in the Treasurer's absence or disability, any Assistant
Treasurer may perform any of the duties of the Treasurer and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Except where by law the signature of the Treasurer is required, each
of the Assistant Treasurers shall possess the same power as the Treasurer to
sign all certificates, contracts, obligations and other instruments of the
Corporation.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. ACTIONS AGAINST DIRECTORS AND OFFICERS.
The Corporation shall indemnify to the full extent permitted by, and
in the manner permissible under, the laws of the State of Delaware any person
made, or threatened to be made, a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director or
officer of the Corporation or any predecessor of the Corporation, or served any
other enterprise as a director or officer at the request of the Corporation or
any predecessor of the Corporation.
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SECTION 2. CONTRACT.
The provisions of Section 1 of this Article V shall be deemed to be a
contract between the Corporation and each director and officer who serves in
such capacity at any time while such Bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter based in whole or in part upon any
such state of facts.
SECTION 3. NONEXCLUSIVITY.
The rights of indemnification provided by this Article V shall not be
deemed exclusive of any other rights to which any director or officer of the
Corporation may be entitled apart from the provisions of this Article V.
SECTION 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS.
The Board of Directors in its discretion shall have the power on
behalf of the Corporation to indemnify any person, other than a director or
officer, made a party to any action, suit or proceeding by reason of the fact
that such person or such person's testator or intestate, is or was an employee
or agent of the Corporation.
SECTION 5. INSURANCE.
Upon a resolution or resolutions duly adopted by the Board of
Directors of the Corporation, the Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation against any liability asserted against such person and
incurred by him in any capacity, or arising out of his capacity as such, whether
or not the Corporation would have the power to indemnify such person against
such liability under the provisions of applicable law, the Certificate of
Incorporation or these Bylaws.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES.
Unless otherwise provided by a resolution of the Board of Directors,
the shares of the Corporation shall be represented by a certificate. The
certificates of stock of the Corporation shall be numbered and shall be entered
in the books
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of the Corporation as they are issued. They shall exhibit the holder's name and
number of shares and shall be signed by or in the name of the Corporation by (a)
the Chairman of the Board of Directors, the President or any Vice President and
(b) the Treasurer, any Assistant Treasurer, the Secretary or any Assistant
Secretary. Any or all of the signatures on a certificate may be facsimile. In
case any officer of the Corporation, transfer agent or registrar who has signed,
or whose facsimile signature has been placed upon such certificate, shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, such certificate may nevertheless be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar at the
date of issuance.
SECTION 2. CLASSES OF STOCK.
(a) If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualification, limitations, or
restrictions of such preferences or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences or rights.
(b) Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to applicable law (including Sections 151, 156, 202(a),
or 218(a) of the General Corporation Law of the State of Delaware) or a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the quallifications, limitations or restrictions of such preferences
or rights.
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SECTION 3. TRANSFER.
Upon surrender to the Corporation or the transferagent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares shall be cancelled, issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation.
SECTION 4. RECORD OWNER.
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof, and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, save as expressly provided by the laws of the State of
Delaware.
SECTION 5. LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates or
uncertificated shares to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates or uncertificated shares, the Board
of Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
ARTICLE VII
MISCELLANEIOUS
SECTION 1. RECORD DATE.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of
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the stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange or stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days prior to the date of such meeting nor more than sixty days prior to any
other action. If not fixed by the Board of Directors, the record date shall be
determined as provided by law.
(b) A determination of stockholders of record entitled to notice of
or to vote at a meeting of the stockholders shall apply to any adjournments of
the meeting, unless the Board of Directors fixes a new record date for the
adjourned meeting.
(c) Holders of stock on the record date are entitled to notice and to
vote or to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of the
shares on the books of the Corporation after the record date, except as
otherwise provided by agreement or by law, the Certificate of Incorporation or
these Bylaws.
SECTION 2. EXECUTION OF INSTRUMENTS.
The Board of Directors may, in its discretion, determine the method
and designate the signatory officer or officers, or other persons, to execute
any corporate instrument or document or to sign the corporate name without
limitation, except where otherwise provided by law, the Certificate of
Incorporation or these Bylaws. Such designation may be general or confined to
specific instances.
SECTION 3. VOTING OF SECURITIES OWNED BY THE CORPORATION.
All stock and other securities of other corporations held by the
Corporation shall be voted, and all proxies with respect thereto shall be
executed, by the person so authorized by resolution of the Board of Directors,
or, in the absence of such authorization, by the President.
SECTION 4. CORPORATE SEAL.
The Corporation shall have a corporate seal in such form as shall be
prescribed and adopted by the Board of Directors.
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SECTION 5. CONSTRUCTION AND DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules
of construction and definitions in the General Corporation Law of the State of
Delaware and the Certificate of Incorporation shall govern the construction of
these Bylaws.
SECTION 6. AMENDMENTS.
Subject to the provisions of the Certificate of Incorporation and
these Bylaws, these Bylaws may be altered, amended or repealed at any annual
meeting of the stockholders (or at any special meeting thereof duly called for
that purpose) by a majority vote of the shares represented and entitled to vote
thereat; provided, that in the notice of any such meeting, notice of such
purpose shall be given. Subject to the laws of the State of Delaware, the
Certificate of Incorporation and these Bylaws, the Board of Directors may by
majority vote of the whole Board of Directors amend these Bylaws, or enact such
other Bylaws as in their judgment may be advisable for the regulation of the
conduct of the affairs of the Corporation.
SECTION 7. SECTION 203.
The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of Delaware.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of the 15th day of
May, 1994 ("Date of Execution"), is made by and between JAN BELL MARKETING,
INC., a Delaware corporation having its principal place of business in Sunrise,
Florida (the "Company"), and JOSEPH PENNACCHIO (the "Executive").
The Company desires to obtain the services of the Executive, and the
Executive is willing to render such services, in accordance with the terms
hereinafter set forth. The Board of Directors of the Company, by appropriate
resolutions, authorized the employment of the Executive as provided for in this
Agreement. Accordingly, the Company and the Executive agree as follows:
ARTICLE I
Duties
1.01 DUTIES. The Executive shall be Co-Chief Executive Officer,
Chief Merchandising Officer and report solely to the Board of Directors of the
Company (the "Board") and to the other Co-Chief Executive Officer of the
Company. The duties to be performed by the Executive under this Agreement are
as specified in the Company's By-Laws, if applicable, and/or as assigned as of
the date hereof by the Board and the other Co-Chief Executive Officer of the
Company which are consistent with the functions of the positions of Co-Chief
Executive Officer and Chief Merchandising Officer. Such duties are to be
performed primarily in Florida. During the Contract Term, and excluding any
periods of vacation, sick leave or disability to which the Executive is
entitled, the Executive agrees
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to devote the Executive's full attention and time to the business and affairs
of the Company and, to the extent necessary to discharge the duties assigned
to the Executive hereunder, to use the Executive's best efforts to perform
faithfully and efficiently such duties. Within a reasonable period of time
(but not more than 30 days) after commencement of employment hereunder, the
Executive shall be elected as a member of the Board. Thereafter, the Company
shall use its best efforts to maintain the Executive as a member of the Board
for such time as he is employed by the Company hereunder. The Executive hereby
accepts his initial election and agrees to accept all future elections.
1.02 OTHER ACTIVITIES. During the Contract Term, it shall not be a
violation of this Agreement for the Executive to (i) serve on corporate, civic
or charitable boards or committees, (ii) deliver lectures, fulfill speaking
engagements or teach at educational institutions or (iii) manage personal
investments in a manner consistent herewith, so long as such activities are
consistent with the policies of the Company as of the date hereof and do not
interfere with the performance of the Executive's duties in accordance with this
Agreement.
ARTICLE II
Term of Agreement
2.01 TERM. Subject to the termination provisions hereinafter
provided, the term (the "Contract Term") of this Agreement shall commence on
May 25, 1994 (the "Effective Date") and end on May 24, 1999.
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ARTICLE III
Compensation
3.01 BASE SALARY. During the Contract Term, the Company shall pay
or cause to be paid to the Executive in cash, in accordance with the normal
payroll practices of the Company for peer executives, in installments not less
frequently than monthly, an annual base salary ("Annual Base Salary") equal to
$540,000 for each year of the Contract Term. The Board shall review and
consider increases to the Executive's Annual Base Salary not less frequently
than annually, provided that as of January 1 of each calendar year, the
Executive's Annual Base Salary shall be increased for such calendar year to an
amount not less than the Executive's Annual Base Salary as of the immediately
preceding January 1 (or in the case of January 1, 1995, as of the Effective
Date), multiplied by a fraction, not less than one, the numerator of which is
the national average Consumer Price Index -- Wages (the "CPIW") for the current
January 1, and the denominator of which is the CPIW for the immediately prior
January 1. It is understood that such CPIW is generally not available for
several months after any January 1; therefore, the salary adjustment provided
for in this Agreement shall be made as soon as reasonably practicable after the
CPIW becomes available, by increasing future salary payments to reflect such
increase and paying a single sum amount, without interest, with respect to
amounts of such increase not paid to the Executive for payroll periods prior to
the calculation and implementation of any such salary adjustment. Any amount
to which the Executive's Annual Base Salary is increased shall not be
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reduced after any such increase and the term "Annual Base Salary" as used in
this Agreement shall refer to the Annual Base Salary as so increased.
3.02 BONUS. The Company shall pay or cause to be paid to the
Executive an annual bonus ("Bonus") of up to 40% of the Executive's Annual Base
Salary based upon the degree to which annual performance goals (set by the
Company in consultation with the Executive) have been met.
3.03 STOCK OPTIONS.
(a) GRANT OF STOCK OPTIONS. The parties hereto acknowledge that
the Compensation Committee of the Board has granted to the Executive, subject
to and as of the date of the Executive's commencement of employment hereunder,
nonqualified options to purchase 360,000 shares of the Company's common stock
(the "Initial Stock Options"). The 360,000 of the Initial Stock Options shall
be exercisable, 20% per year, commencing one year from the date of commencement
of employment hereunder; subject to such other terms and conditions that are
consistent with the Company's past practices and not inconsistent with the
following provisions of this Section 3.03.
(b) EXERCISE PRICE. The exercise price of the Initial Stock
Options shall be the price per share of the Company's common stock on the date
hereof, as determined in accordance with the Company's standard practice.
(c) TERMINATION OF OPTIONS. Notwithstanding any other provision
hereof to the contrary, the Initial Stock Options shall not be exercisable (i)
after ten years after the Date of Execution
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of this Agreement or (ii) as may be provided by the Company under such option
termination provisions as are consistent with the Company's past practices and
not inconsistent with Section 3.03(e).
(d) ADDITIONAL GRANTS OF OPTIONS. In addition to the Initial Stock
Options granted hereunder, the Executive shall be eligible annually for
additional grants of stock options, as such are available to peer executives in
accordance with the Company's stock option plan.
(e) VESTING OF OPTIONS. If the Executive's employment is
terminated by the Company without Cause, by the Executive for Good Reason at a
time at which facts supporting a determination of Cause do not exist, or by
virtue of the Executive's death or Disability, or there is a Change of Control
while the Executive is employed hereunder, all options shall be fully vested
and exercisable immediately upon such Date of Termination or Change of Control;
provided, however, that such options will not vest upon a Change of Control if,
on the date of the Change of Control, facts supporting a determination of Cause
exist and the Board or Committee (as defined below) makes a determination of
Cause in accordance with the procedures set forth in Section 6.02 hereof
(whether before or after the Change of Control). Any options vested prior to,
or on account of, termination or Change of Control shall, subject to Section
3.03(c) hereof, remain exercisable for not less than 90 days following such
Date of Termination or Change of Control.
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ARTICLE IV
Other Benefits
4.01 INCENTIVE, SAVINGS AND RETIREMENT PLANS. In addition to Annual
Base Salary and Bonuses, the Executive shall be entitled to participate
during the Contract Term in all incentive (including long-term incentive),
savings and retirement plans, practices, policies and programs applicable to
other peer executives of the Company.
4.02 WELFARE BENEFITS. During the Contract Term, the Executive and
the Executive's family, as applicable, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, dependent life, accidental death and travel accident insurance plans and
programs, and directors' and officers' insurance) and applicable to other peer
executives of the Company.
4.03 EXPENSES. During the Contract Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable employment-related
expenses incurred by the Executive upon the Company's receipt of accountings in
accordance with practices, policies and procedures applicable to peer
executives of the Company.
4.04 OFFICE AND SUPPORT STAFF. During the Contract Term, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to personal secretarial and other
assistance, provided with respect to other
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peer executives of the Company, and appropriate to the Executive's position
and responsibilities.
4.05 VACATION. During the Contract Term, the Executive shall be
entitled to paid vacation time in accordance with the plans, practices,
policies, and programs applicable to other peer executives of the Company,
provided, however, that such vacation time shall in no event be less than four
weeks per year.
4.06 LUXURY AUTOMOBILE. The Company will provide a luxury
automobile of the Executive's choice (which choice may include a reasonable
domestic or foreign luxury car) and all expenses of operation and maintenance,
including the appropriate insurance. The automobile provided hereunder shall
be replaced, upon the timely request of the Executive, with a new such car
every two years.
4.07 MOVING EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable expenses incurred with respect to his relocation
to Florida, including, but not limited to, expenses for moving personal
property, travel and living expenses (including the costs of the Executive and
the Executive's wife incurred in travel to and from Florida to look for
housing), and temporary living expenses in Florida incurred while looking for
a permanent residence for a period not to exceed 120 days following the
Effective Date, upon the Company's receipt of accountings in accordance with
practices, policies and procedures applicable to peer executives of the
Company.
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ARTICLE V
Termination of Employment
5.01 TERMINATION OF EMPLOYMENT FOR CAUSE OR OTHER THAN FOR GOOD
REASON. If, before the end of the Contract Term, the Company terminates the
Executive's employment for Cause or the Executive terminates employment other
than for Good Reason, then the Company shall pay within 30 days after the Date
of Termination to the Executive that portion of the Executive's Annual Base
Salary which is accrued but unpaid as of such Date of Termination, but the
Executive will not be entitled to receive any other compensation, benefits or
rights under this Agreement. If the Company terminates the Executive's
employment for Cause, it shall provide the Executive with written notice of
termination (including copies of findings of the Board or the Committee of the
Board in accordance with Section 6.02), and a statement of the Date of
Termination and the reason for such termination.
5.02 TERMINATION OF EMPLOYMENT FOR DEATH OR DISABILITY. If, before
the end of the Contract Term, the Executive's employment terminates due to death
or Disability, the Company shall pay to the Executive (a) within 30 days
after the Date of Termination an amount which is equal to the sum of (i) that
portion of the Executive's Annual Base Salary which is accrued but unpaid as
of the Date of Termination and (ii) the amount of any Bonus accrued for any
year which ended during the Contract Term prior to the Date of Termination,
but which is unpaid as of the Date of Termination, and (b) within 30 days
after the determination of the performance for the year in which the Date of
Termination ("Termination Year")
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occurs, a pro rata bonus ("Pro Rata Bonus"), which shall be equal to the
product of:
(1) the Bonus to which the Executive would have been entitled for
the Termination Year if the Executive had remained employed for the entire
year, multiplied by
(2) a fraction, the numerator of which is the number of days in
the Termination Year which elapsed through the Date of Termination, and
the denominator of which is the total number of days in the Termination
Year;
but the Executive will not be entitled to receive any other compensation,
benefits or rights under this Agreement.
5.03 TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE OR BY
THE EXECUTIVE FOR GOOD REASON. If, before the end of the Contract Term, the
Executive's employment is terminated by the Company without Cause, or by the
Executive for Good Reason at a time at which facts supporting a determination of
Cause do not exist, the Company shall pay to the Executive the following:
(a) within 30 days after the Date of Termination in a lump sum in cash an
amount equal to the sum of (1) that portion of the Executive's Annual Base
Salary which is accrued but unpaid as of the Date of Termination, (2) any
Bonus accrued during any year which ended during the Contract Term and prior
to the Date of Termination, but which is unpaid as of the Date of Termination,
(3) the Executive's Pro Rata Bonus determined under the provisions of Section
5.02(b) under the assumption that the Bonus for the Termination Year would be
the Executive's maximum annual Bonus and (4) an amount equal to the product of
(A) the remaining unexpired
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Contract Term (stated in years and fractions of years) multiplied by (B) the
sum of the Executive's Annual Base Salary and average of the annual Bonuses
payable for all prior years (which average shall be deemed to be $100,000 for
any termination prior to any annual Bonus becoming payable hereunder for a
prior year), and (b) the continuation during the remainder of the Contract
Term of the benefits not specifically dealt with in Section 5.03(a) to which
the Executive is entitled during the Contract Term under Sections 4.01,
4.02 and 4.03 hereof; but the Executive will not be entitled to receive any
other compensation, benefits or rights under this Agreement. Notwithstanding
the foregoing and Section 7.03, the amount of any medical benefits provided by
Section 5.03(b) shall be reduced, except as otherwise provided by law, by the
amount of any medical benefits to which the Executive is otherwise entitled on
or after the Date of Termination.
5.04 OTHER TERMINATION BENEFITS. In addition to any amounts or
benefits payable upon termination of employment hereunder and except as
otherwise provided herein, the Executive shall be entitled to any payments or
benefits explicitly provided under the terms of any plan, policy or program of
the Company or as otherwise required by applicable law.
5.05 CHANGE OF CONTROL SEVERANCE BENEFIT. In the event of a Change
of Control, the Executive may terminate employment in the 30-day period starting
12 months after the Change of Control if the Executive has a basis to
conclude that he will not be able to perform his duties effectively (the
Executive's determination of whether there exists such a basis being conclusive
if made in good
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faith); provided, however, that, at the time of such termination facts
supporting a determination of Cause do not exist and the Board does not make a
determination of Cause in accordance with the procedures set forth in Section
6.02 hereof; and provided, further, that the Executive has not acted in
connection with his duties hereunder unreasonably or in bad faith during such
12-month period. In the event of such termination, a Change of Control
Severance Benefit, in lieu of any other compensation, benefits or rights
otherwise provided for hereunder, shall be paid by the Company to the Executive,
equal to the severance benefits which would be payable under ection 5.03,
determined as though the unexpired Contract Term was one year.
5.06 PARACHUTE EXCISE TAX PAYMENTS. In the event that any payment
by the Company (or an affiliate) to the Executive under or outside of the terms
of this Agreement (a "Payment") would be subject to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code (the "Code"), then
the Executive shall be entitled to receive (i) 2.99 times the Executive's
applicable "base amount" under Section 280G of the Code (the "Limited Amount"),
or (ii) if the amount otherwise payable hereunder reduced by the Excise Tax is
greater than the Limited Amount, the amount otherwise payable hereunder.
ARTICLE VI
Certain Definitions
6.01 "DISABILITY" means any medically determinable physical or
mental impairment that can be expected to last for a continuous period of not
less than six months, and that renders the
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Executive unable to perform all material duties required under this Agreement,
or that renders the Executive unable to perform all material duties required
under this Agreement for at least 180 days during any 360-day period. The
date of the determination of Disability is the date on which the Executive is
certified as having incurred a Disability by a physician acceptable to the
Company; provided that the Executive shall be examined by such a physician for
these purposes at the reasonable request of the Company.
6.02 CAUSE.
(a) "Cause" means a written finding by the Board or, if directed by
the Board to consider whether or not such a finding should be made, the
Compensation Committee of the Board or any other Board committee consisting of
directors who are not employees of the Company ("Committee"), to the effect
that:
1. the Executive committed any felony or other crime
involving dishonesty;
2. the Executive engaged in any serious misconduct (excluding
(A) the failure of the Executive to achieve business goals and objectives,
(B) other actions by the Executive which are reasonably believed by the
Executive to be in the best interests of the Company and (C) any act or
omission with respect to which a determination could properly have been
made by the Board that the Executive met the applicable standard of
conduct for indemnification or reimbursement under the By-Laws of the
Company, any applicable indemnification agreement or the laws and
regulations under
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which the Company is governed, in each case in effect at the time of such
act or omission) in the course of the Executive's employment which, in the
judgment of the Board (or, if applicable, Committee), materially injures
the Company, financially or otherwise;
3. the Executive habitually neglected his duties (other than
on account of physical or mental incapacity), excluding bad judgment or
negligence, provided that either (A) he received from the Company notice
of habitual neglect of duties ("Notice of Neglect") where no prior notice
of any instance of neglect of duties was given, and he failed to cure such
habitual neglect within 15 days of receiving such notice, or (B) the
Executive received notice of an instance of neglect of duties and failed
to cure before such neglect became habitual; or
4. the Executive materially breached this Agreement, provided
that, if such breach is both inadvertent and nonrecurring, the Executive
received written notice by the Company of such breach ("Notice of Breach")
and failed to cure fully such breach within 15 days after receiving such
notice.
(b) The Company shall give the Executive at least 30 days' written
notice ("Notice of Intent") that the Board will make a determination of the
basis, if any, to terminate the Executive's employment for Cause in accordance
with Section 6.02(a)(1)-(4). The findings of the Board (or, if applicable,
Committee) shall be based upon any information which the Board (or, if
applicable, Committee) may consider relevant, including, but not limited to,
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written submissions by the Executive or his representatives and, at the
Executive's request, a personal presentation to the Board (or, if applicable,
Committee) by the Executive. Concurrently with or subsequently to such Notice
of Intent, the Board (or, if applicable, Committee) may by written notice to the
Executive suspend him from any or all of his functions contemplated under
this Agreement, provided that the Executive shall receive during any such
suspension the full amount of salary and benefits to which he is entitled
under this Agreement. Any such notice of suspension may be effective for a
period commencing on or after the Executive's receipt thereof and ending on
the date on which a finding is made as to the existence of Cause in accordance
with this Section 6.02, but in no event shall such period exceed 90 days. If
the Board (or, if applicable, Committee) determines that the Executive should
be terminated for Cause, such termination of employment shall be effective for
all purposes as of the date the Executive receives a notice of suspension or
if no such notice of suspension is given, a Notice of Intent.
(c) At the discretion of the Board, the periods relating to the
Notice of Neglect, the Notice of Breach and the Notice of Intent may run
concurrently.
6.03 "CHANGE OF CONTROL" means, for the purpose of this Agreement,
any of the following events:
(a) the acquisition by any person or group acting as such,
excluding a person or group that as of the date hereof owns 5% or more of
the outstanding Stock, of beneficial ownership of 40% or more of either
the then outstanding Stock
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or the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors;
provided that a Change of Control shall not be deemed to occur if the
fair market value of the Stock is less than $10 per share on the date of
such acquisition;
(b) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided that any individual who becomes a director
after the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of the directors of the Company (as such terms
are used in Rule 14a-11 under the Securities Exchange Act of 1934, as
amended ("1934 Act")); or
(c) approval by the stockholders of the Company of (i) a merger,
reorganization or consolidation with respect to which the individuals and
entities who were the respective beneficial owners of the Stock and voting
securities of the Company immediately before such merger, reorganization or
consolidation do not, after such merger, reorganization or consolidation,
beneficially own, directly or indirectly, more than 50% of, respectively,
the then outstanding common shares
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and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the corporation
resulting from such merger, reorganization or consolidation, (ii) a
liquidation or dissolution of the Company or (iii) the sale or other
disposition of all or substantially all of the assets of the Company.
For purposes of this definition, "person" means such term as used in
Securities and Exchange Commission ("SEC") Rule 13d-5(b) under the 1934
Act; "beneficial owner" means such term as defined in SEC Rule 13d-3 under
the 1934 Act; "group" means such term as defined in Section 13(d) of the
1934 Act; "Subsidiary" means a corporation as defined in Section 424(f) of
the Internal Revenue Code of 1986, as amended ("Code"), with the Company
being treated as the employer corporation for purposes of this definition
of Subsidiary; and "Stock" means the common stock of the Company.
6.04 "GOOD REASON" means the occurrence of any one of the following
events, but only if the Company fails to cure such event within 15 days after
written notice from the Executive:
(a) assignment to the Executive of any duties materially and
adversely inconsistent with the Executive's position as specified in
Article I hereof (or such other position to which he may be promoted),
including status, offices, responsibilities or persons to whom the
Executive reports as contemplated under Article I of this Agreement, or any
other action by the Company which results in a material
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and adverse change in such position, status, offices, titles or
responsibilities,
(b) the failure of the Company to assign this Agreement to a
successor to the Company by merger or similar transaction or sale of all or
substantially all of the assets of the Company,
(c) the material failure by the Company to comply with the
provisions of this Agreement,
(d) the Company's requiring the Executive to be based at any office
or location more than 50 miles from his office or location as of the date
hereof,
(e) the failure of the Board to elect and/or re-elect the Executive
as Co-Chief Executive Officer and Chief Merchandising Officer of the
Company,
(f) the failure of the shareholders of the Company to re-elect the
Executive as a member of the Board, unless the Board determines that the
failure to be re-elected is reasonably attributable to the Executive's
substandard performance, or
(g) any material adverse change to the terms and conditions of the
Executive's employment under this Agreement.
6.05 "DATE OF TERMINATION" means the date as of which the
Executive's employment with the Company is terminated by the Company or by the
Executive for any reason including, but not limited to, death or Disability.
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ARTICLE VII
Miscellaneous
7.01 EXPENSES.
(a) If the Executive incurs reasonable legal or other fees and
expenses in an effort to establish entitlement to benefits under this Agreement,
unless such effort was conducted in bad faith, the Company shall reimburse the
Executive for such fees and expenses.
(b) The Company shall provide reimbursement of fees and expenses,
as described in Section 7.01(a) above, to the Executive on a monthly basis upon
the Executive's written submission of a request for reimbursement, together with
proof that the fees and expenses were incurred.
7.02 INDEMNIFICATION.
(a) PRIOR EMPLOYER.
1. The Company agrees to indemnify and hold harmless the
Executive for any liability, reasonable expenses and reasonable costs
(including reasonable legal fees) which the Executive may incur in
connection with any claim, action or proceeding threatened or initiated
against the Executive in connection with the Executive's legal obligations,
if any, arising from the Executive's employment and/or employment agreement
with the Executive's immediately prior employer; provided that the
Executive has not withheld from the Company any relevant, materially
adverse information regarding these matters.
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2. Promptly, and in no event later than 30 days, after his
receipt of notice of the assertion of any claim or the commencement of any
action or proceeding against him in respect of which indemnity or
reimbursement may be sought against the Company hereunder ("Assertion"),
the Executive shall notify the Company in writing of the Assertion. The
Company shall be entitled to participate in and, to the extent it elects by
written notice to the Executive within 30 days after receipt by the Company
of notice of such Assertion, to assume the defense of such Assertion at its
own expense, with counsel chosen by it and reasonably satisfactory to the
Executive. Notwithstanding that the Company shall have elected by such
written notice to assume the defense of any Assertion, the Executive shall
have the right to be consulted with respect to the investigation and
defense thereof, with separate counsel chosen by the Executive, but in such
event the fees and expenses of such counsel shall be paid by the Executive.
3. Notwithstanding paragraphs (1) and (2), above, this
indemnity shall not apply to any settlement of any legal action brought
against the Executive as provided herein unless the Executive obtains the
Company's prior written consent with respect to the terms of any such
settlement.
(b) CORPORATE OFFICERS AND DIRECTORS. The Company and the
Executive acknowledge their execution on the date hereof of an indemnification
agreement substantially in the form previously provided by the Company to the
Executive.
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7.03 FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, set-off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others, except in the
case of amounts due under documented loans and other amounts theretofore
determined by a court or arbitrator to be owed to the Company. If the Company
fails to make any payment payable hereunder within 10 days after such amounts
are due, then the Executive shall be entitled to receive interest, compounded
monthly, on the unpaid amount, at a rate equal to the highest interest rate
applicable to the Company in its borrowing of funds from any third party during
the period of nonpayment, and if no such rate is determinable, or if higher, at
a rate equal to 1% above the prime commercial lending rate announced by
Citibank, N.A. in effect from time to time during the period of such nonpayment.
In no event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement, nor shall the amount of any
payment hereunder be reduced, except as otherwise specifically provided herein,
by any compensation earned by the Executive as a result of employment by another
employer.
7.04 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof (other than those arising
under Section 7.11, to the extent necessary for the
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Company to avail itself of the rights and remedies provided under Section 7.11),
shall be submitted to arbitration in Dade County, Florida in accordance with the
Rules of the American Arbitration Association, and judgment upon the award may
be entered in any court having jurisdiction thereof.
7.05 ASSIGNMENT; SUCCESSORS. The Company may freely assign its
respective rights and obligations under this Agreement to a successor of the
Company's business, without the prior written consent of the Executive. This
Agreement shall be binding upon and inure to the benefit of the Executive and
the Executive's estate and the Company and any assignee of, or successor to, the
Company. This Agreement, and the Executive's rights and obligations hereunder,
may not be assigned by the Executive; any purported assignment by the Executive
in violation hereof shall be null and void.
7.06 BENEFICIARY. If the Executive dies prior to receiving all of
the salary and bonuses payable hereunder, such salary and bonuses shall be paid
in a lump sum payment to the beneficiary designated in writing by the Executive
("Beneficiary") or if no such Beneficiary is designated, to the Executive's
estate.
7.07 NONALIENATION OF BENEFITS. Benefits payable under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution or
levy of any kind, either voluntary or involuntary, prior to actually being
received by the Executive, and any such attempt to dispose of any right to
benefits payable hereunder shall be void.
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7.08 SEVERABILITY. If all or any part of this Agreement is declared
by any court or governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any portion of this
Agreement not declared to be unlawful or invalid. Any paragraph or part of a
paragraph so declared to be unlawful or invalid shall, if possible, be construed
in a manner which will give effect to the terms of such paragraph or part of a
paragraph to the fullest extent possible while remaining lawful and valid.
7.09 AMENDMENT AND WAIVER. This Agreement shall not be altered,
amended or modified except by written instrument executed by the Company and the
Executive. A waiver of any term, covenant, agreement or condition contained in
this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any default in any such term,
covenant, agreement or condition shall not be deemed a waiver of any later
default thereof or of any other term, covenant, agreement or condition.
7.10 NOTICES. All notices and other communications hereunder shall
be in writing and delivered by hand or by first-class registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Jan Bell Marketing, Inc.
13801 N.W. 14th Street
Sunrise, Florida 33323
Attn: General Counsel
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If to the Executive:
Joseph Pennacchio
20 Dexter Drive
Sherborn, MA 01770
Either party may from time to time designate a new address by notice given in
accordance with this Section 7.10. Notice and communications shall be effective
when actually received by the addressee.
7.11 COVENANTS AND CONFIDENTIAL INFORMATION.
(a) The Executive agrees that prior to May 24, 2000 (and, as to
clauses (3) and (4) of this Section 7.11(a), at any time) he will not, directly
or indirectly, do or suffer any of the following:
1. Own, manage, control or participate in the ownership,
management or control of, or be employed or engaged by or otherwise affiliated
or associated (collectively, "Employed") as a consultant, independent contractor
or otherwise with, any other corporation, partnership, proprietorship, firm,
association, or other business entity, or otherwise engage in any business,
which is engaged in any manner in, or otherwise competes with, the business of
the Company or any of its affiliates (as conducted on the date the Executive
ceases to be employed by the Company in any capacity, including as a consultant)
(a "Prohibited Business") in the United States of America or any of the
countries in Europe or Israel in which the Company or any of its affiliates is
doing business (a "Competing Business") for so long as this Section 7.11(a)(1)
shall remain in effect, nor solicit any person or business that was at the time
of the Executive's termination of
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employment, or within one year prior thereto, a customer or supplier of the
Company or any of its affiliates; provided, however, that, notwithstanding the
foregoing, the Executive shall not be deemed to be Employed by a Competing
Business if the Board or Committee determines that the Executive has established
by clear and convincing evidence all of the following: (A) such entity
(including its affiliates in aggregate) does not derive Material Revenues (as
defined below) from the aggregate of all Prohibited Businesses, (B) such entity
(including its affiliates in aggregate) is not a Competitor (as defined below)
of the Company and its affiliates and (C) Executive has no direct responsibility
for or otherwise with respect to any Prohibited Business; for purposes of this
clause (1), Material Revenues shall mean that 5% or more of the revenues of the
entity (including its affiliates in aggregate) are derived from the aggregate of
all Prohibited Businesses; an entity shall be deemed a Competitor of the Company
and its affiliates if the combined gross receipts of the entity (including its
affiliates in aggregate) from any Prohibited Business is more than 25% of the
gross receipts of the Company and its affiliates in such Prohibited Business;
and an "affiliate" of an entity is any entity controlled by, controlling or
under common control with the entity;
2. Employ, assist in employing, or otherwise associate in
business with any present, former or future employee, officer or agent of the
Company or its affiliates;
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3. Induce any person who is an employee, officer or agent of
the Company, or any member of the Company or its affiliates, to terminate said
relationship; and
4. Disclose, divulge, discuss, copy or otherwise use or
suffer to be used in any manner, in competition with, or contrary to the
interests of, the Company, or any member of the Company or its affiliates, the
customer lists, manufacturing and marketing methods, product research or
engineering data, vendors, contractors, financial information, business plans
and methods or other trade secrets of the Company, or any member of the Company
or its affiliates, it being acknowledged by the Executive that all such
information regarding the business of the Company or its affiliates compiled or
obtained by, or furnished to, the Executive while the Executive shall have been
employed by or associated with the Company is confidential information and the
Company's exclusive property (it being understood, however, that information
publicly disclosed by the Company shall not be subject to this Section
7.11(a)(4), provided that such information may not be used in connection with
any of the activities prohibited under clauses (1) and (2) of this Section
7.11(a) for so long as such clauses remain in effect); provided, however, if the
Executive's employment is terminated by the Company pursuant to Section 5.03 or
by the Executive pursuant to Section 5.03, clauses (1) and (2) of this Section
7.11(a) shall continue to remain in effect from and after the date of
termination for a period of time equal to the lesser of the remaining five year
term of this Agreement ending on April 24, 1999 or two years. Additionally, if
the Company terminates the
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Executive under Section 5.03 after the takeover, merger or acquisition of the
Company or a sale of all or substantially all of the assets of the Company and
in each such event in a transaction which has not been approved by the Board,
then clauses (1) and (2) of this Section 7.11(a) shall terminate immediately.
(b) The Executive expressly agrees and understands that the remedy
at law for any breach by him of any of the provisions of this Section 7.11 will
be inadequate and that damages flowing from such breach are not readily
susceptible to being measured in monetary terms. Accordingly, it is
acknowledged that upon adequate proof of the Executive's violation of any
legally enforceable provision of this Section 7.11, the Company shall be
entitled to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this Section 7.11
shall be deemed to limit the Company's remedies at law or in equity for any
breach by the Executive of any of the provisions of this Section 7.11 which may
be pursued or availed of by the Company.
(c) In the event the Executive shall violate any legally
enforceable provision of this Section 7.11 as to which there is a specific time
period during which he is prohibited from taking certain actions or from
engaging in certain activities, as set forth in such provision, then, such
violation shall toll the running of such time period from the date of such
violation until such violation shall cease; provided, however, the Company shall
seek appropriate remedies in a reasonably prompt manner after discovery of a
violation by the Executive.
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(d) The Executive has carefully considered the nature and extent of
the restrictions upon him and the rights and remedies conferred upon the Company
under this Section 7.11, and hereby acknowledges and agrees that the same are
reasonable in time and territory, are designed to eliminate competition which
otherwise would be unfair to the Company, are designed to not stifle the
inherent skill and experience of the Executive, would not operate as a bar to
the Executive's sole means of support, are fully required to protect the
legitimate interests of the Company and do not confer a benefit upon the Company
disproportionate to the detriment to the Executive.
(e) If any decisionmaker determines that any of the covenants
contained in this Section 7.11 (the "Restrictive Covenants"), or any part
thereof, is unenforceable because of the duration or geographical scope of such
provision, the duration or scope of such provision, as the case may be, shall be
reduced so that such provision becomes enforceable and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
(f) The Company and the Executive intend to and hereby confer
jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographical scope of the Restrictive Covenants. If the
courts of any one or more of such jurisdictions hold the Restrictive Covenants
wholly unenforceable by reason of breadth of scope or otherwise, it is the
intention of the Company and the Executive that such determination not bar or in
any way affect the Company's right to the relief provided above in the courts of
any other jurisdiction within the geographical scope
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of such Restrictive Covenants as to breaches of such Restrictive Covenants in
such other respective jurisdictions, such Restrictive Covenants as they relate
to each jurisdiction's being, for this purpose, severable, diverse and
independent covenants, subject, where appropriate, to the doctrine of RES
JUDICATA.
7.12 COUNTERPART ORIGINALS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
7.13 ENTIRE AGREEMENT. This Agreement forms the entire agreement
between the parties hereto with respect to any severance payment and with
respect to the subject matter contained in this Agreement.
7.14 SURVIVAL. Anything contained in this Agreement to the contrary
notwithstanding, the provisions of Section 7.11, and the other provisions of
this Agreement relevant to the enforcement thereof (to the extent necessary to
effectuate the survival of Section 7.11), shall survive any termination of this
Agreement.
7.15 APPLICABLE LAW. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the State of Florida,
without regard to its choice of law principles.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
JAN BELL MARKETING, INC.
By:
__________________________________
/S/ JOSEPH PENNACCHIO
----------------------------------
JOSEPH PENNACCHIO
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of the 12th day of
August, 1994 ("Date of Execution"), is made by and between JAN BELL MARKETING,
INC., a Delaware corporation having its principal place of business in Sunrise,
Florida (the "Company"), and RICHARD BOWERS (the "Executive").
WHEREAS, the Executive is currently employed by the Company, the terms
of such employment governed by an employment agreement entered into by the
parties as of May 1, 1991; and
WHEREAS, the Company desires to retain the services of the Executive,
and the Executive is willing to render such services, in accordance with the
terms hereinafter set forth, such terms to supersede and render null and void
the employment agreement dated May 1, 1991 in its entirety. The Company is
properly empowered and authorized to continue the employment of the Executive as
provided for in this Agreement.
NOW, THEREFORE, the Company and the Executive agree as follows:
ARTICLE I
Duties
1.01 DUTIES. The Executive shall be the Senior Executive Vice
President, General Counsel and report solely to the Board of Directors of the
Company (the "Board") and to the Chief Executive Officer of the Company. The
duties to be performed by the Executive under this Agreement are as specified in
the Company's By-Laws, if applicable, and/or as assigned as of the date hereof
by the Board and the Chief Executive Officer of the Company which are consistent
with the Executive's prior duties in the positions of Senior Executive Vice
President and General Counsel. Such duties are to be performed primarily in
Florida. During the Contract Term, and excluding any periods of vacation, sick
leave or disability to which the Executive is entitled, the Executive agrees to
devote the Executive's full attention and time to the business and affairs of
the Company and, to the extent necessary to discharge the duties assigned to the
Executive hereunder, to use the Executive's best efforts to perform faithfully
and efficiently such duties. Subject to the reasonable and appropriate
performance of his duties hereunder, Executive shall be permitted to deviate in
a reasonable manner from regular office hours for personal family matters.
<PAGE>
1.02 OTHER ACTIVITIES. During the Contract Term, it shall not be a
violation of this Agreement for the Executive to (i) serve on corporate, civic
or charitable boards or committees, (ii) deliver lectures, fulfill speaking
engagements or teach at educational institutions or (iii) manage personal
investments in a manner consistent herewith, so long as such activities are
consistent with the policies of the Company as of the date hereof and do not
interfere with the performance of the Executive's duties in accordance with this
Agreement.
ARTICLE II
Term of Agreement
2.01 TERM. Subject to the termination provisions hereinafter
provided, the term (the "Contract Term") of this Agreement shall commence on
August 12, 1994 (the "Effective Date") and end on August 11, 1999.
ARTICLE III
Compensation
3.01 BASE SALARY. During the Contract Term, the Company shall pay
or cause to be paid to the Executive in cash, in accordance with the normal
payroll practices of the Company for peer executives, in installments not less
frequently than monthly, an annual base salary ("Annual Base Salary") equal to
$240,000 for each year of the Contract Term. The Board shall review and
consider increases to the Executive's Annual Base Salary not less frequently
than annually, provided that as of January 1 of each calendar year, the
Executive's Annual Base Salary shall be increased for such calendar year to an
amount not less than the Executive's Annual Base Salary as of the immediately
preceding January 1 (or in the case of January 1, 1995, as of the Effective
Date), multiplied by a fraction, not less than one, the numerator of which is
the national average Consumer Price Index -- Wages (the "CPIW") for the current
January 1, and the denominator of which is the CPIW for the immediately prior
January 1. It is understood that such CPIW is generally not available for
several months after any January 1; therefore, the salary adjustment provided
for in this Agreement shall be made as soon as reasonably practicable after the
CPIW becomes available, by increasing future salary payments to reflect such
increase and paying a single sum amount, without interest, with respect to
amounts of such increase not paid to the Executive for payroll periods prior to
the calculation and implementation of any such salary adjustment. Any amount to
which the Executive's Annual Base Salary is increased shall not be reduced after
any such increase and the term "Annual Base Salary"
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as used in this Agreement shall refer to the Annual Base Salary as so increased.
3.02 BONUS. The Executive shall be eligible to receive a
discretionary annual bonus for each fiscal year of the Company and any portion
thereof during the Contract Term ("Bonus") of up to 40% of the Executive's
Annual Base Salary based upon the degree to which annual Company and individual
performance goals (set by the Company in consultation with the Executive) have
been met.
3.03 STOCK OPTIONS.
(a) GRANT OF STOCK OPTIONS. The parties agree that the Company
will within the next three months recommend to the administrative committee (the
"Committee") under the Company's 1991 Amended Stock Option Plan (the "Option
Plan") that the Executive be eligible for and receive option grants thereunder
to purchase such number of shares of the Company's common stock, consistent with
Executive's position and duties. The option grant shall be determined by the
Committee in accordance with the provisions of the Plan in such amount and
exercisable subject to such terms and conditions consistent with prior grants to
the Executive.
(b) ADDITIONAL GRANTS OF OPTIONS. The Executive shall be eligible
annually for additional grants of stock options subject to the discretion of the
Committee.
(c) VESTING OF OPTIONS. The Company shall recommend to the
Committee that if the Executive's employment is terminated by the Company for
reasons other than Cause by the Executive for Good Reason at a time at which
facts supporting a determination of Cause do not exist, or by virtue of the
Executive's death or Disability, all options theretofore granted to the
Executive under the Plan shall become fully vested and immediately exercisable,
and shall remain exercisable for a period of two years thereafter.
ARTICLE IV
Other Benefits
4.01 INCENTIVE, SAVINGS AND RETIREMENT PLANS. In addition to Annual
Base Salary and Bonuses, the Executive shall be entitled to participate during
the Contract Term in all incentive (including long-term incentive), savings and
retirement plans, practices, policies and programs applicable to other peer
executives of the Company. To the extent that restricted stock vests during the
Contract Term or prior thereto if permissible pursuant to the Company's 1991
Stock Bonus Plan (the "Stock Bonus Plan"), the Executive shall be permitted to
satisfy any tax obligations to the Company and the Internal Revenue Service by
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transferring to the Company shares of stock of the Company valued at their fair
market value.
4.02 WELFARE BENEFITS. During the Contract Term, the Executive and
the Executive's family, as applicable, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life (including
the existing Metropolitan Life whole life policy), group life, dependent life,
accidental death and travel accident insurance plans and programs, and
directors' and officers' insurance) and applicable to other peer executives of
the Company.
4.03 EXPENSES. During the Contract Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable employment-related
expenses incurred by the Executive upon the Company's receipt of accountings in
accordance with practices, policies and procedures applicable to peer executives
of the Company, including without limitation payment of legal profession dues
and attendance of continuing legal education and corporate compliance programs
as determined reasonably by the Executive.
4.04 OFFICE AND SUPPORT STAFF. During the Contract Term, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to personal secretarial and other
assistance, provided with respect to other peer executives of the Company, and
appropriate to the Executive's position and responsibilities.
4.05 VACATION. During the Contract Term, the Executive shall be
entitled to paid vacation time in accordance with the plans, practices,
policies, and programs applicable to other peer executives of the Company,
provided, however, that such vacation time shall in no event be less than four
weeks per year.
4.06 AUTOMOBILE. The Company will provide an automobile of the
Executive's choice (which choice may include a reasonable domestic or foreign
car consistent with past practice for Executive) and all expenses of operation
and maintenance, including the appropriate insurance. The automobile provided
hereunder shall be replaced, upon the timely request of the Executive, with a
new such car approximately every two years. Executive shall maintain adequate
contemporaneous records concerning the use of the automobile.
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ARTICLE V
Termination of Employment
5.01 TERMINATION OF EMPLOYMENT FOR CAUSE OR OTHER THAN FOR GOOD
REASON. If, before the end of the Contract Term, the Company terminates the
Executive's employment for Cause or the Executive terminates employment other
than for Good Reason, then the Company shall pay immediately on the Date of
Termination to the Executive that portion of the Executive's Annual Base Salary
which is accrued but unpaid as of such Date of Termination, but the Executive
will not be entitled to receive any other compensation, benefits or rights under
this Agreement. If the Company terminates the Executive's employment for Cause,
it shall provide the Executive with written notice of termination (including
copies of findings of the Board or the Committee of the Board in accordance with
Section 6.02), and a statement of the Date of Termination and the reason for
such termination.
5.02 TERMINATION OF EMPLOYMENT FOR DEATH OR DISABILITY. If, before
the end of the Contract Term, the Executive's employment terminates due to death
or Disability, the Company shall pay to the Executive (a) within 30 days after
the Date of Termination an amount which is equal to the sum of (i) that portion
of the Executive's Annual Base Salary which is accrued but unpaid as of the Date
of Termination and (ii) the amount of any Bonus accrued for any fiscal year
which ended during the Contract Term prior to the Date of Termination, but which
is unpaid as of the Date of Termination, and (b) within 30 days after the
determination of the performance for the fiscal year in which the Date of
Termination ("Termination Year") occurs, a pro rata bonus ("Pro Rata Bonus"),
which shall be equal to the product of:
(1) the Bonus to which the Executive would have been entitled for
the Termination Year if the Executive had remained employed for the entire
year, multiplied by
(2) a fraction, the numerator of which is the number of days in the
Termination Year which elapsed through the Date of Termination, and the
denominator of which is the total number of days in the Termination Year;
but the Executive will not be entitled to receive any other compensation,
benefits or rights under this Agreement.
5.03 TERMINATION OF EMPLOYMENT BY THE COMPANY WITHOUT CAUSE OR BY
THE EXECUTIVE FOR GOOD REASON. If, before the end of the Contract Term, the
Executive's employment is terminated by the Company without Cause, or by the
Executive for Good Reason at a time at which facts supporting a determination of
Cause do not exist, the Company shall pay to the Executive the following:
(a) immediately on the Date of Termination in a lump sum in cash an amount equal
to the sum of (1) that portion of the Executive's Annual Base Salary which is
accrued but unpaid as of the Date of Termination, (2) any Bonus accrued during
any fiscal year which ended during the Contract Term and prior to the Date of
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Termination, but which is unpaid as of the Date of Termination, (3) the
Executive's Pro Rata Bonus determined under the provisions of Section 5.02(b)
under the assumption that the Bonus for the Termination Year would be the
Executive's maximum annual Bonus and (4) the present value (determined using the
interest rate specified in Section 7.03) of the amount equal to the product of
(A) the remaining unexpired Contract Term (stated in years and fractions of
years) multiplied by (B) the sum of the Executive's Annual Base Salary and
average of the annual Bonuses payable for all prior fiscal years (which average
shall be deemed to be $50,000 for any termination that occurs within the first
year of this agreement), (b) the continuation during the remainder of the
Contract Term of the benefits not specifically dealt with in Section 5.03(a) to
which the Executive is entitled during the Contract Term under Sections 4.01,
4.02 and 4.03 hereof; but the Executive will not be entitled to receive any
other compensation, benefits or rights under this Agreement, and (c) to
immediately vest and remove all restrictions on any restricted stock previously
granted to Executive. To the extent that any benefit cannot be paid under the
Company's benefit plans because the Executive is no longer an employee, the
Company shall directly provide such benefit. Notwithstanding the foregoing and
Section 7.03, the amount of any medical benefits provided by Section 5.03(b)
shall be reduced, except as otherwise provided by law, by the amount of any
medical benefits to which the Executive is otherwise entitled on or after the
Date of Termination.
5.04 OTHER TERMINATION BENEFITS. In addition to any amounts or
benefits payable upon termination of employment hereunder and except as
otherwise provided herein, the Executive shall be entitled to any payments or
benefits explicitly provided under the terms of any plan, policy or program of
the Company or as otherwise required by applicable law. Notwithstanding the
foregoing, the period of post-termination medical coverage provided hereunder
shall offset the period of coverage required by "COBRA" pursuant to Section
4980B of the Internal Revenue Code and Part 6 of Title I of ERISA.
5.05 CHANGE OF CONTROL SEVERANCE BENEFIT. In the event of a Change
of Control, the Executive may terminate employment in the 30-day period starting
12 months after the Change of Control if the Executive has a basis to conclude
that he will not be able to perform his duties effectively (the Executive's
determination of whether there exists such a basis being conclusive if made in
good faith); provided, however, that, at the time of such termination facts
supporting a determination of Cause do not exist and the Board does not make a
determination of Cause in accordance with the procedures set forth in Section
6.02 hereof; and provided, further, that the Executive has not acted in
connection with his duties hereunder unreasonably or in bad faith during such
12-month period. In the event of such termination, a Change of Control
Severance Benefit, in lieu of any other compensation, benefits or rights
otherwise provided for hereunder, shall be paid by the Company to the Executive,
equal to the severance benefits which would be payable under Section 5.03,
determined as though the unexpired
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Contract Term was one year.
5.06 PARACHUTE EXCISE TAX PAYMENTS. In the event that any payment
by the Company (or an affiliate) to the Executive under or outside of the terms
of this Agreement (a "Payment") would be subject to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code, then the Executive
shall be entitled to receive (i) 2.99 times the Executive's applicable "base
amount" under Section 280G of the Internal Revenue Code (the "Limited Amount"),
or (ii) if the amount otherwise payable hereunder reduced by the Excise Tax is
greater than the Limited Amount, the amount otherwise payable hereunder.
ARTICLE VI
Certain Definitions
6.01 "DISABILITY" means any medically determinable physical or
mental impairment that can be expected to last for a continuous period of not
less than six months, and that renders the Executive unable to perform all
material duties required under this Agreement, or that renders the Executive
unable to perform all material duties required under this Agreement for at least
180 days during any 360-day period. The date of the determination of Disability
is the date on which the Executive is certified as having incurred a Disability
by a physician acceptable to the Company; provided that the Executive shall be
examined by such a physician for these purposes at the reasonable request of the
Company.
6.02 CAUSE.
(a) "Cause" means a written finding by the Board or, if directed by
the Board to consider whether or not such a finding should be made, the
Compensation Committee of the Board or any other Board committee consisting of
directors who are not employees of the Company ("Committee"), to the effect
that:
1. the Executive has been convicted of any felony or other
crime involving dishonesty, substance abuse or moral turpitude;
2. the Executive engaged in any serious misconduct (excluding
(A) the failure of the Executive to achieve business goals and objectives,
(B) other actions by the Executive which are reasonably believed by the
Executive to be in the best interests of the Company and (C) any act or
omission with respect to which a determination could properly have been
made by the Board that the Executive met the applicable standard of conduct
for indemnification or reimbursement under the By-Laws of the Company, any
applicable
7
<PAGE>
indemnification agreement or the laws and regulations under which the
Company is governed, in each case in effect at the time of such act or
omission) in the course of the Executive's employment which, in the
reasonable judgment of the Board (or, if applicable, Committee), materially
injures the Company, financially or otherwise;
3. the Executive habitually neglected his duties or failed to
follow the lawful written instructions of the Chief Executive Officer
(other than on account of physical or mental incapacity), provided that
either (A) he received from the Company notice of failure to follow such
instructions or neglect of duties ("Notice of Neglect") where no prior
notice of any instance failure to follow such instructions or of neglect of
duties was given, and he failed to cure such failure to follow such
instructions or neglect within 15 days of receiving such notice, or (B) the
Executive received notice of an instance of neglect of duties or of failure
to follow lawful written instructions of the Chief Executive Officer and
failed to cure before such neglect or failure to follow such instructions
became habitual; or
4. the Executive materially breached this Agreement, provided
that, if such breach is both inadvertent and nonrecurring, the Executive
received written notice by the Company of such breach ("Notice of Breach")
and failed to cure fully such breach within 15 days after receiving such
notice.
(b) The Company shall give the Executive at least 30 days' written
notice ("Notice of Intent") that the Board will make a determination of the
basis, if any, to terminate the Executive's employment for Cause in accordance
with Section 6.02(a)(1)-(4). The findings of the Board (or, if applicable,
Committee) shall be based upon any information which the Board (or, if
applicable, Committee) may consider relevant, including, but not limited to,
written submissions by the Executive or his representatives and, at the
Executive's request, a personal presentation to the Board (or, if applicable,
Committee) by the Executive. Concurrently with or subsequently to such Notice
of Intent, the Board (or, if applicable, Committee) may by written notice to the
Executive suspend him from any or all of his functions contemplated under this
Agreement, provided that the Executive shall receive during any such suspension
the full amount of salary and benefits to which he is entitled under this
Agreement. Any such notice of suspension may be effective for a period
commencing on or after the Executive's receipt thereof and ending on the date on
which a finding is made as to the existence of Cause in accordance with this
Section 6.02, but in no event shall such period exceed 90 days. If the Board
(or, if applicable, Committee) determines that the Executive should be
terminated for Cause, such termination of employment shall be effective for all
purposes as of the date the Executive receives a notice of suspension or if no
such notice of suspension is given, a Notice of Intent.
8
<PAGE>
(c) At the discretion of the Board, the periods relating to the
Notice of Neglect, the Notice of Breach and the Notice of Intent may run
concurrently.
6.03 "CHANGE OF CONTROL" means, for the purpose of this Agreement,
any of the following events:
(a) the acquisition by any person or group acting as such,
excluding a person or group that as of the date hereof owns 5% or more of
the outstanding Stock, of beneficial ownership of 40% or more of either the
then outstanding Stock or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors; provided that a Change of Control shall not be deemed to
occur if the fair market value of the Stock is less than $10 per share on
the date of such acquisition;
(b) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided that any individual who becomes a director
after the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of the directors of the Company (as such terms are used in Rule
14a-11 under the Securities Exchange Act of 1934, as amended ("1934 Act"));
or
(c) approval by the stockholders of the Company of (i) a merger,
reorganization or consolidation with respect to which the individuals and
entities who were the respective beneficial owners of the Stock and voting
securities of the Company immediately before such merger, reorganization or
consolidation do not, after such merger, reorganization or consolidation,
beneficially own, directly or indirectly, more than 50% of, respectively,
the then outstanding common shares and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors of the corporation resulting from such merger,
reorganization or consolidation, (ii) a liquidation or dissolution of the
Company or (iii) the sale or other disposition of all or substantially all
of the assets of the Company;
Provided, however, if Isaac Arguetty remains the Chairman of the
Board of the Company, then a "Change of Control" shall not be deemed to
have occurred.
For purposes of this definition, "person" means such term as used in
Securities and Exchange Commission ("SEC") Rule 13d-5(b) under the 1934
Act; "beneficial owner" means
9
<PAGE>
such term as defined in SEC Rule 13d-3 under the 1934 Act; "group" means
such term as defined in Section 13(d) of the 1934 Act; "Subsidiary" means
a corporation as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended ("Code"), with the Company being treated as the employer
corporation for purposes of this definition of Subsidiary; and "Stock"
means the common stock of the Company.
6.04 "GOOD REASON" means the occurrence of any one of the following
events, but only if the Company fails to cure such event within 15 days after
written notice from the Executive:
(a) assignment to the Executive of any duties materially and
adversely inconsistent with the Executive's position as specified in
Article I hereof (or such other position to which he may be promoted),
(b) the failure of the Company to assign this Agreement to a
successor to the Company by merger or similar transaction or sale of all or
substantially all of the assets of the Company,
(c) the material failure by the Company to comply with the
provisions of this Agreement,
(d) the Company's requiring the Executive to be based at any office
or location outside of metropolitan Miami, Ft. Lauderdale and Palm Beach,
Florida areas, or
(e) the failure of the Board to elect and/or re-elect the Executive
as Senior Executive Vice President and General Counsel of the Company,
6.05 "DATE OF TERMINATION" means the date as of which the
Executive's employment with the Company is terminated by the Company or by the
Executive for any reason including, but not limited to, death or Disability.
ARTICLE VII
Miscellaneous
7.01 EXPENSES.
(a) If the Executive incurs reasonable legal or other fees and
expenses in an effort to establish entitlement to benefits under this Agreement,
unless such effort was conducted in bad faith, the Company shall reimburse the
Executive for such fees and expenses. The Company's reimbursement obligation
under this Section 7.01 shall not exceed $75,000 and shall be subject to
adjustment upon conclusion of any such proceeding by an arbitrator or court if
the Company is the prevailing party in any such proceeding. This Section 7.01
shall not affect the rights and
10
<PAGE>
obligations between the parties pursuant to the Indemnification Agreement
referenced in Section 7.02.
(b) The Company shall provide reimbursement of fees and expenses,
as described in Section 7.01(a) above, to the Executive on a monthly basis upon
the Executive's written submission of a request for reimbursement, together with
proof that the fees and expenses were incurred.
7.02 INDEMNIFICATION. The Company and the Executive acknowledge
their prior execution as of May 1, 1991 of an indemnification agreement.
7.03 FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, set-off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others, except in the
case of amounts due under documented loans and other amounts theretofore
determined by a court or arbitrator to be owed to the Company. If the Company
fails to make any payment payable hereunder within 10 days after such amounts
are due, then the Executive shall be entitled to receive interest, compounded
monthly, on the unpaid amount, at a rate equal to the highest interest rate
applicable to the Company in its borrowing of funds from any third party during
the period of nonpayment, and if no such rate is determinable, or if higher, at
a rate equal to 1% above the prime commercial lending rate announced by
Citibank, N.A. in effect from time to time during the period of such nonpayment.
In no event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement, nor shall the amount of any
payment or benefit hereunder be reduced, except as otherwise specifically
provided herein, by any compensation earned or benefit received by the Executive
as a result of employment by another employer.
7.04 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof (other than those arising
under Section 7.11, to the extent necessary for the Company to avail itself of
the rights and remedies provided under Section 7.11), shall be submitted to
arbitration in Dade County, Florida in accordance with the Rules of the American
Arbitration Association, and judgment upon the award may be entered in any court
having jurisdiction thereof.
7.05 ASSIGNMENT; SUCCESSORS. The Company may assign its respective
rights and obligations under this Agreement to a successor of the Company's
business, subject to the other terms of this Agreement. This Agreement shall be
binding upon and inure to the benefit of the Executive and the Executive's
estate and the Company and any assignee of, or successor to, the Company. This
Agreement, and the Executive's rights and obligations hereunder, may not be
assigned by the Executive; any purported assignment by
11
<PAGE>
the Executive in violation hereof shall be null and void.
7.06 BENEFICIARY. If the Executive dies prior to receiving all of
the salary and bonuses payable hereunder, such salary and bonuses shall be paid
in a lump sum payment to the beneficiary designated in writing by the Executive
("Beneficiary") or if no such Beneficiary is designated, to the Executive's
estate.
7.07 NONALIENATION OF BENEFITS. Benefits payable under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution or
levy of any kind, either voluntary or involuntary, prior to actually being
received by the Executive, and any such attempt to dispose of any right to
benefits payable hereunder shall be void.
7.08 SEVERABILITY. If all or any part of this Agreement is declared
by any court or governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any portion of this
Agreement not declared to be unlawful or invalid. Any paragraph or part of a
paragraph so declared to be unlawful or invalid shall, if possible, be construed
in a manner which will give effect to the terms of such paragraph or part of a
paragraph to the fullest extent possible while remaining lawful and valid.
7.09 AMENDMENT AND WAIVER. This Agreement shall not be altered,
amended or modified except by written instrument executed by the Company and the
Executive. A waiver of any term, covenant, agreement or condition contained in
this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any default in any such term,
covenant, agreement or condition shall not be deemed a waiver of any later
default thereof or of any other term, covenant, agreement or condition.
7.10 NOTICES. All notices and other communications hereunder shall
be in writing and delivered by hand or by first-class registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Jan Bell Marketing, Inc.
13801 N.W. 14th Street
Sunrise, Florida 33323
Attn: Chief Executive Officer
If to the Executive:
Richard W. Bowers
13801 N.W. 14th Street
Sunrise, Florida 33323
12
<PAGE>
Either party may from time to time designate a new address by notice given
in accordance with this Section 7.10. Notice and communications shall be
effective when actually received by the addressee.
7.11 COVENANTS AND CONFIDENTIAL INFORMATION.
(a) The Executive agrees that prior to August 11, 2000 (and, as to
clauses (3) and (4) of this Section 7.11(a), at any time) he will not, directly
or indirectly, do or suffer any of the following:
1. Own, manage, control or participate in the ownership,
management or control of, or be employed or engaged by or otherwise affiliated
or associated (collectively, "Employed") as a consultant, independent contractor
or otherwise with, any other corporation, partnership, proprietorship, firm,
association, or other business entity, or otherwise engage in any business,
which is engaged in any manner in, or otherwise competes with, the business of
the Company or any of its affiliates (as conducted on the date the Executive
ceases to be employed by the Company in any capacity, including as a consultant)
(a "Prohibited Business") in the United States of America or any of the
countries in Europe or Israel in which the Company or any of its affiliates is
doing business (a "Competing Business") for so long as this Section 7.11(a)(1)
shall remain in effect, nor solicit any person or business that was at the time
of the Executive's termination of employment, or within one year prior thereto,
a customer or supplier of the Company or any of its affiliates; provided,
however, that, notwithstanding the foregoing, the Executive shall not be deemed
to be Employed by a Competing Business if the Board or a committee of the Board
determines that the Executive has established by clear and convincing evidence
all of the following: (A) such entity (including its affiliates in aggregate)
does not derive Material Revenues (as defined below) from the aggregate of all
Prohibited Businesses, (B) such entity (including its affiliates in aggregate)
is not a Competitor (as defined below) of the Company and its affiliates and (C)
Executive has no direct responsibility for or otherwise with respect to any
Prohibited Business; for purposes of this clause (1), Material Revenues shall
mean that 5% or more of the revenues of the entity (including its affiliates in
aggregate) are derived from the aggregate of all Prohibited Businesses; an
entity shall be deemed a Competitor of the Company and its affiliates if the
combined gross receipts of the entity (including its affiliates in aggregate)
from any Prohibited Business is more than 25% of the gross receipts of the
Company and its affiliates in such Prohibited Business; and an "affiliate" of an
entity is any entity controlled by, controlling or under common control with the
entity;
2. Employ, assist in employing, or otherwise associate in
business with any present employee, officer or agent of the Company or its
affiliates;
13
<PAGE>
3. Induce any person who is an employee, officer or agent of
the Company, or any member of the Company or its affiliates, to terminate said
relationship; and
4. Disclose, divulge, discuss, copy or otherwise use or suffer
to be used in any manner, in competition with, or contrary to the interests of,
the Company, or any member of the Company or its affiliates, the customer lists,
manufacturing and marketing methods, product research or engineering data,
vendors, contractors, financial information, business plans and methods or other
trade secrets of the Company, or any member of the Company or its affiliates, it
being acknowledged by the Executive that all such information regarding the
business of the Company or its affiliates compiled or obtained by, or furnished
to, the Executive while the Executive shall have been employed by or associated
with the Company is confidential information and the Company's exclusive
property (it being understood, however, that information publicly disclosed by
the Company shall not be subject to this Section 7.11(a)(4), provided that such
information may not be used in connection with any of the activities prohibited
under clauses (1) and (2) of this Section 7.11(a) for so long as such clauses
remain in effect); provided, however, if the Executive's employment is
terminated by the Company pursuant to Section 5.03 or by the Executive pursuant
to Section 5.03, clauses (1) and (2) of this Section 7.11(a) shall continue to
remain in effect from and after the date of termination for a period of time
equal to the lesser of the remaining term of this Agreement ending on August 11,
1999 or two years. Additionally, if the Company terminates the Executive under
Section 5.03 after the takeover, merger or acquisition of the Company or a sale
of all or substantially all of the assets of the Company and in each such event
in a transaction which has not been approved by the Board, then clauses (1) and
(2) of this Section 7.11(a) shall terminate immediately.
(b) The Executive expressly agrees and understands that the remedy
at law for any breach by him of any of the provisions of this Section 7.11 will
be inadequate and that damages flowing from such breach are not readily
susceptible to being measured in monetary terms. Accordingly, it is
acknowledged that upon adequate proof of the Executive's violation of any
legally enforceable provision of this Section 7.11, the Company shall be
entitled to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this Section 7.11
shall be deemed to limit the Company's remedies at law or in equity for any
breach by the Executive of any of the provisions of this Section 7.11 which may
be pursued or availed of by the Company.
(c) In the event the Executive shall violate any legally
enforceable provision of this Section 7.11 as to which there is a specific time
period during which he is prohibited from taking certain actions or from
engaging in certain activities, as set forth in such provision, then, such
violation shall toll the running of such time period from the date of such
violation until such violation shall cease; provided, however, the Company shall
14
<PAGE>
seek appropriate remedies in a reasonably prompt manner after discovery of a
violation by the Executive.
(d) The Executive has carefully considered the nature and extent of
the restrictions upon him and the rights and remedies conferred upon the Company
under this Section 7.11, and hereby acknowledges and agrees that the same are
reasonable in time and territory, are designed to eliminate competition which
otherwise would be unfair to the Company, are designed to not stifle the
inherent skill and experience of the Executive, would not operate as a bar to
the Executive's sole means of support, are fully required to protect the
legitimate interests of the Company and do not confer a benefit upon the Company
disproportionate to the detriment to the Executive.
(e) If any decision maker determines that any of the covenants
contained in this Section 7.11 (the "Restrictive Covenants"), or any part
thereof, is unenforceable because of the duration or geographical scope of such
provision, the duration or scope of such provision, as the case may be, shall be
reduced so that such provision becomes enforceable and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
(f) The Company and the Executive intend to and hereby confer
jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographical scope of the Restrictive Covenants. If the
courts of any one or more of such jurisdictions hold the Restrictive Covenants
wholly unenforceable by reason of breadth of scope or otherwise, it is the
intention of the Company and the Executive that such determination not bar or in
any way affect the Company's right to the relief provided above in the courts of
any other jurisdiction within the geographical scope of such Restrictive
Covenants as to breaches of such Restrictive Covenants in such other respective
jurisdictions, such Restrictive Covenants as they relate to each jurisdiction's
being, for this purpose, severable, diverse and independent covenants, subject,
where appropriate, to the doctrine of RES JUDICATA.
7.12 COUNTERPART ORIGINALS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
7.13 ENTIRE AGREEMENT. This Agreement forms the entire agreement
between the parties hereto with respect to any severance payment and with
respect to the subject matter contained in this Agreement.
7.14 SURVIVAL. Anything contained in this Agreement to the contrary
notwithstanding, the provisions of Section 7.11, and the other provisions of
this Agreement relevant to the enforcement thereof (to the extent necessary to
effectuate the survival of Section 7.11), shall survive any termination of this
Agreement.
15
<PAGE>
7.15 APPLICABLE LAW. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the State of Florida,
without regard to its choice of law principles.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
JAN BELL MARKETING, INC.
By: /s/ JOSEPH PENNACCHIO
---------------------
JOSEPH PENNACCHIO, CEO
/s/ RICHARD W. BOWERS
----------------------
RICHARD W. BOWERS
16
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-20026, 33-20031, 33-42410, 33-42419, 33-44025 and 33-45778 of Jan Bell
Marketing, Inc. on Forms S-8 of our report dated April 27, 1995 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to the Company's ability to continue as a going concern), appearing in this
Annual Report on Form 10-K of Jan Bell Marketing, Inc. for the fifty-two weeks
ended January 28, 1995.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
May 15, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, THE CONSOLIDATED BALANCE SHEETS, THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND THE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED JANUARY 28, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-31-1994
<PERIOD-END> JAN-28-1995
<CASH> 28,212
<SECURITIES> 0
<RECEIVABLES> 17,786
<ALLOWANCES> 5,630
<INVENTORY> 106,053
<CURRENT-ASSETS> 148,159
<PP&E> 47,221
<DEPRECIATION> 17,582
<TOTAL-ASSETS> 186,752
<CURRENT-LIABILITIES> 59,417
<BONDS> 0
<COMMON> 3
0
0
<OTHER-SE> 127,332
<TOTAL-LIABILITY-AND-EQUITY> 186,752
<SALES> 305,685
<TOTAL-REVENUES> 305,685
<CGS> 263,979
<TOTAL-COSTS> 263,979
<OTHER-EXPENSES> 116,410<F1>
<LOSS-PROVISION> 83
<INTEREST-EXPENSE> 3,534
<INCOME-PRETAX> (74,704)
<INCOME-TAX> 353
<INCOME-CONTINUING> (75,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,057)
<EPS-PRIMARY> (2.92)
<EPS-DILUTED> (2.92)
<FN>
<F1>OTHER EXPENSES CONSIST OF ALL NON-OPERATING COSTS, EXCLUDING INCOME TAXES.
AMOUNT INCLUDES INTEREST EXPENSE NET OF INTEREST INCOME AND OTHER NON-OPERATING
COSTS (NET).
</FN>
</TABLE>
