<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended August 2, 1997
Commission File Number 1-9647
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
14051 N.W. 14TH STREET, SUNRISE, FLORIDA 33323
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 846-2719
--------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,912,504 COMMON SHARES ($.0001 PAR VALUE)
AS OF SEPTEMBER 16, 1997
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED AUGUST 2, 1997
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets............................................3
B. Consolidated Statements of Operations..................................4
C. Consolidated Statements of Cash Flows..................................6
D. Notes to Consolidated Financial Statements.............................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................9
PART II: OTHER INFORMATION
Items 1, 2, 3 and 5 have been omitted because they are not
applicable with respect to the current reporting period.
Item 4. Submission of Matters to a Vote of Security Holders.......................14
Item 6. Exhibits and Reports on Form 8-K..........................................14
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
August 2, February 1,
1997 1997
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 25,227 $ 23,525
Accounts receivable, net 6,799 6,162
Inventories 75,165 79,893
Other current assets 1,387 1,260
--------- ---------
Total current assets 108,578 110,840
Property, net 19,630 21,481
Goodwill 2,662 2,860
Other assets 3,801 4,204
--------- ---------
$ 134,671 $ 139,385
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,108 $ 8,222
Accrued expenses 6,204 5,790
--------- ---------
Total current liabilities 12,312 14,012
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value,
50,000,000 shares authorized,
25,912,504 and 25,894,428 shares
issued and outstanding, respectively 3 3
Additional paid-in capital 180,482 180,448
Accumulated deficit (56,287) (53,338)
Foreign currency translation adjustment (1,839) (1,740)
--------- ---------
122,359 125,373
--------- ---------
$ 134,671 $ 139,385
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
August 2, 1997 August 3, 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
Net sales $ 53,309 $ 55,152
Cost of sales and
occupancy costs 41,365 43,060
----------- -----------
Gross profit 11,944 12,092
Store and warehouse
operating and selling expenses 8,056 7,776
General and administrative expenses 3,070 2,348
Other charges -- 777
Depreciation and amortization 1,828 2,251
Currency exchange (gain)/loss 2 (10)
----------- -----------
Operating loss (1,012) (1,050)
Interest and other income 433 359
Interest expense -- 457
----------- -----------
Loss before income taxes (579) (1,148)
Income tax provision 64 29
----------- -----------
Net loss $ (643) $ (1,177)
=========== ===========
Net loss per common share $ (0.02) $ (0.05)
Weighted average shares outstanding 25,901,099 25,844,226
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
Twenty-Six Weeks Twenty-Six Weeks
Ended Ended
August 2, 1997 August 3, 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
Net sales $ 100,286 $ 102,602
Cost of sales and
occupancy costs 77,999 80,799
------------ ----------
Gross profit 22,287 21,803
Store and warehouse
operating and selling expenses 15,648 15,587
General and administrative expenses 6,457 5,109
Other charges -- 2,643
Depreciation and amortization 3,845 4,477
Currency exchange (gain)/loss 2 (5)
------------ ----------
Operating loss (3,665) (6,008)
Interest and other income 824 749
Interest expense -- 984
------------ ----------
Loss before income taxes (2,841) (6,243)
Income tax provision 108 5
------------ ----------
Net loss $ (2,949) $ (6,248)
============ ==========
Net loss per common share $ (0.11) $ (0.24)
Weighted average shares outstanding 25,897,820 25,841,325
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Twenty-Six Weeks
Ended Ended
August 2, 1997 August 3, 1996
---------------- -----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 99,616 $ 103,545
Cash paid to suppliers and employees (97,391) (92,679)
Interest and other income received 824 749
Interest paid -- (984)
Income taxes (paid) refunded 14 (30)
--------- ---------
Net cash provided by operating activities 3,062 10,601
--------- ---------
Cash flows from investing activities:
Capital expenditures (987) (297)
--------- ---------
Net cash used in investing activities (987) (297)
--------- ---------
Cash flows from financing activities:
Net borrowings under line of credit -- 2,100
Debt repayment -- (17,500)
Other (366) 100
--------- ---------
Net cash (used in) financing activities (366) (15,300)
--------- ---------
Effect of exchange rate on cash (7) (25)
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,702 (5,021)
Cash and cash equivalents at beginning of period 23,525 14,955
--------- ---------
Cash and cash equivalents at end of period 25,227 $ 9,934
========= =========
Reconciliation of net loss to net cash provided by (used
in) operating activities:
Net loss $ (2,949) $ (6,248)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,845 4,477
Currency exchange (gain) loss 2 (5)
(Increase) Decrease in assets:
Accounts receivable (net) (670) 943
Inventories 4,703 5,481
Other (164) (896)
Increase (Decrease) in liabilities:
Accounts payable (2,120) 7,202
Accrued expenses 415 (353)
--------- ---------
Net cash provided by (used in) operating activities $ 3,062 $ 10,601
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Unaudited Financial Statements
The Company's financial statements for the thirteen and twenty-six week
periods ended August 2, 1997 and August 3, 1996 have not been audited by
certified public accountants, but in the opinion of management of the Company
reflect all adjustments (which include only normal recurring accruals) necessary
to present fairly the financial position, results of operations and cash flows
for those periods. Results of the thirteen and twenty-six week periods ended
August 2, 1997 and August 3, 1996 are not necessarily indicative of annual
results because of the seasonality of the Company's business.
The accompanying financial statements should be read in conjunction
with the Company's annual consolidated financial statements and the notes
thereto for the year ended February 1, 1997.
B. Relationship with Sam's Wholesale Club
The Company operates an exclusive leased department at all existing and
future domestic and Puerto Rican Sam's Wholesale Club ("Sam's") locations under
an agreement which expires February 1, 2001 with either party having the right
to request one additional five year period, subject to appropriate notice
provisions. The Company pays Sam's a tenancy fee of 9% of net sales. During the
thirteen and twenty-six weeks ended August 2, 1997, approximately 90% and 92% of
the Company's net sales were from Sam's customers and for the foreseeable future
it is expected that the substantial portion of net sales will be generated
through this agreement. The Company and Sam's each have determined that the
present relationship is in need of modification and believe that there is a
basis to have a mutually beneficial future relationship beyond 2001. Both the
Company and Sam's would like to evaluate the mix of responsibilities to take
better advantage of their respective expertise's within the merchandising and
retailing disciplines. While the agreement as presently structured will not be
extended beyond its primary term, the Company and Sam's intend to proceed in
order to hopefully implement specific terms of a modified relationship prior to
the expiration date.
During Fiscal 1995, a dispute considered in nature and magnitude
outside the normal course of business arose between Sam's and the Company
related to certain wholesale sales and returns, primarily relating to certain
claims by Sam's for credits for certain merchandise returns. The total
difference between the amount of credits that Sam's originally claimed and the
amount the Company believes is appropriate is approximately $6.7 million. The
Company and Sam's have held discussions and negotiations regarding this matter;
however, no final resolution has been reached. While the Company believes that
no further amounts are owed to Sam's, the outcome remains uncertain. The
financial statements do not include a provision for any loss that may result
from the resolution of this matter.
7
<PAGE> 8
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C. Inventories:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
August 2, February 1,
1997 1997
---- ----
(Amounts shown in thousands)
Company Held on Company Held on
Owned Consignment Owned Consignment
-------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Precious and semi-precious gem jewelry
related merchandise (and associated gold):
Raw materials $ 9,217 $ -- $ 6,257 $ --
Finished goods 33,930 1,532 39,054 1,378
Gold jewelry-related merchandise 11,971 293 12,639 705
Watches 9,140 55 10,414 --
Other consumer products 10,907 261 11,529 --
-------- -------- ------- -------
$ 75,165 $ 2,141 $79,893 $ 2,083
======== ======== ======= =======
</TABLE>
D. Income Taxes
The Company's provision (benefit) for income taxes for 1997 and 1996 is
related to domestic operations and the operation of the foreign subsidiaries.
The federal portion of the income tax provision relates to the federal
alternative minimum tax. Federal and state tax benefits have not been recognized
for the domestic loss for 1996 and 1995 due to the fact that all loss carrybacks
have been fully utilized and, under SFAS No. 109, "Accounting for Income Taxes,"
the Company has determined that it is more likely than not that the deferred tax
asset will not be realized.
E. Other Charges
Other charges of $777,000 and $2.6 million for the thirteen and
twenty-six weeks ended August 3, 1996 represent severance payments to the
Company's former President and Chief Executive Officer, $147,000 of which was
incurred in the thirteen weeks ended August 3, 1996 and a write-off of $630,000
of financing costs in connection with the Company's pay-off of senior
noteholders, also in the thirteen weeks ended August 3, 1996.
F. Litigation
The Company is presently a defendant in a lawsuit alleging copyright
infringement in the procurement and sale of certain non-jewelry products. The
general issues services involved in this lawsuit are now being reviewed in a
separate case involving other parties by the United States Supreme Court, which
is expected to rule in the first or second quarter of 1998. There can be no
assurance as to the outcome or potential financial impact of these cases;
however, adverse rulings could have significant negative financial impact as
well as the potential of other similar liabilities involving other non-jewelry
products.
8
<PAGE> 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The discussion and analysis below contain trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
Company's actual results could differ materially from those anticipated in any
forward-looking statements as a result of certain factors set forth below and
elsewhere in this Report.
The Company operates an exclusive leased department at all existing and
future domestic and Puerto Rican Sam's Wholesale Club ("Sam's") locations under
an agreement which expires February 1, 2001 with either party having the right
to request one additional five year period, subject to appropriate notice
provisions. The Company pays Sam's a tenancy fee of 9% of net sales. During the
thirteen and twenty-six weeks ended August 2, 1997, approximately 90% and 92% of
the Company's net sales were from Sam's customers and for the foreseeable future
it is expected that the substantial portion of net sales will be generated
through this agreement. The Company and Sam's each have determined that the
present relationship is in need of modification and believe that there is a
basis to have a mutually beneficial future relationship beyond 2001. Both the
Company and Sam's would like to evaluate the mix of responsibilities to take
better advantage of their respective expertise's within the merchandising and
retailing disciplines. While the agreement as presently structured will not be
extended beyond its primary term, the Company and Sam's intend to proceed in
order to hopefully implement specific terms of a modified relationship prior to
the expiration date.
Net sales were $53.3 million and $100.3 million for the thirteen and
twenty-six week periods ended August 2, 1997 compared to $55.2 million and
$102.6 million for the thirteen and twenty-six week periods ended August 3,
1996. Net sales in the retail locations for the thirteen and twenty-six week
periods ended August 2, 1997 were $48.8 million and $93.3 million compared to
$51.9 million and $95.8 million for the thirteen and twenty-six week periods
ended August 3, 1996. Comparable retail sales for the thirteen and twenty-six
week periods ended August 2, 1997 were $47.7 million and $91.3 million compared
to $51.6 million and $95.1 million for the thirteen and twenty-six week periods
ended August 3, 1996. The decline in revenues for the thirteen and twenty-six
weeks ended August 2, 1997 is mainly attributable to decreases sales of in
non-jewelry merchandise.
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.
Gross profit was $11.9 million or 22.4% of net sales for the thirteen
weeks ended August 2, 1997 compared to $12.1 million or 21.9% of net sales for
the thirteen weeks ended August 3, 1996. Gross profit was $22.3 million or 22.2%
of net sales for the twenty-six weeks ended August 2, 1997 compared to $21.8
million or 21.3% of net sales for the twenty-six weeks ended August 3, 1996. The
increase in gross profit as a percentage of net sales was primarily attributable
to continued margin improvements that are being recognized in the Company's
retail locations because of a shift in merchandising strategies that emphasize
higher margin gem, gold and watch products in place of other lower margin
products and categories, and improvements as a percentage of sales in product
handling costs and inventory shrinkage.
Management recognizes that improvements in net sales, gross margins and
expense reductions must be achieved for the Company to return to profitability.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Store and warehouse operating and selling expenses were $8.1 million
and $15.6 million for the thirteen and twenty-six weeks ended August 2, 1997
compared to $7.8 million and $15.6 million for the thirteen and twenty-six weeks
ended August 3, 1996. The incremental increase in these expenses for the
thirteen weeks ended August 2, 1997 compared to the thirteen weeks ended August
3, 1996 is primarily attributable to increased travel and other store expenses.
General and administrative expenses were $3.1 million and $6.5 million
for the thirteen and twenty-six weeks ended August 2, 1997 compared to $2.3
million and $5.1 million for the thirteen and twenty-six weeks ended August 3,
1996. The increase in these expenses is primarily attributable to increased
professional fees related to the Company's legal matters.
Other charges of $777,000 and $2.6 million for the thirteen and
twenty-six weeks ended August 3, 1996 represent severance payments to the
Company's former President and Chief Executive Officer, $147,000 of which was
incurred in the thirteen weeks ended August 3, 1996 and a write-off of $630,000
of financing costs in connection with the Company's pay-off of senior
noteholders, also in the thirteen weeks ended August 3, 1996. There were no
other charges for the thirteen and twenty-six weeks ended August 2, 1997.
The decrease in depreciation and amortization expense from $2.3 million
and $4.5 million for the thirteen and twenty-six weeks ended August 3, 1996 to
$1.8 million and $3.8 million for the thirteen and twenty-six weeks ended August
2, 1997 is primarily attributable to a decrease in amortization expense due to
higher costs related to the Company's senior note financing during the thirteen
and twenty-six weeks ended August 3, 1996. A significant amount of these costs
were either written off or fully amortized prior to the thirteen and twenty-six
weeks ended August 2, 1997.
The retail jewelry business is seasonal in nature with a higher
proportion of sales and a significant portion of earnings generated during the
fourth quarter holiday selling season. As a result, operating results for the
thirteen and twenty-six weeks ended August 2, 1997 are not necessarily
indicative of results of operations for the entire fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of August 2, 1997, cash and cash equivalents totaled $25.2 million,
an increase of $1.7 million from February 1, 1997 which resulted primarily from
cash flows generated from operating activities net of capital expenditures. The
Company had no short-term borrowings under its $40 million working capital
facility outstanding as of August 2, 1997 and was in compliance with all of the
facility's financial ratio and performance covenants.
The Company's working capital requirements are directly related to the
amount of inventory required to support its retail operations. During the
thirteen and twenty-six weeks ended August 2, 1997, the inventory decrease of
$4.7 million reflects the Company's continued efforts to reduce and better
balance its inventory levels.
For the remainder of Fiscal 1997, based on discussions with Sam's, the
Company expects a very limited increase in the number of leased departments it
operates, and with the exception of the normal short term build for the
Christmas selling season the Company does not foresee a need for a significant
increase in inventory. Capital expenditures for Fiscal 1997 are projected not to
exceed $3 million.
The Company's business is highly seasonal, with seasonal working
capital needs peaking in October and November before the holiday selling season.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company believes that its cash on hand, projected cash from
operations and availability under the Working Capital Facility will be
sufficient to meet its anticipated working capital and capital expenditure needs
for the remainder of Fiscal 1997. There can be no assurance that the Company's
future operating results will be sufficient to sustain any debt service and
working capital needs.
NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt the following Statement of Financial Accounting
Standards ("SFAS") in the thirteen weeks ending January 31, 1998. SFAS No. 128
"Earnings Per Share" establishes financial accounting and reporting standards
for earnings per share. SFAS No. 128, which supersedes Accounting Principles
Board ("APB") Opinion No. 15, requires a dual presentation of basic and diluted
earnings per share on the face of the income statement and is effective for
financial statements issued for periods ending after December 15, 1997. As a
result of the Company's net loss for the thirteen weeks and twenty-six weeks
ended August 2, 1997 and the thirteen weeks and twenty-six weeks ended August 3,
1996, basic and diluted net loss per share, as computed under SFAS No. 128,
would not differ from the net loss per share shown in the accompanying
consolidated financial statements.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was
issued. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial Statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that a company (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. The Company has not determined the effect, if any, that SFAS No. 130
will have on its consolidated financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and related Information," was issued. SFAS No. 131 establishes
standards for the way that public companies report selected information about
operating segments in annual financial statements and requires that those
companies report selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131, which supersedes SFAS No. 14. "Financial Reporting for Segments of
a Business Enterprise," but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, SFAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impractable. SFAS No. 131 also requires that a public company report descriptive
information about the way that the operating segments were determined, the
products and services provided by the operating segments, differences between
the measurements used in reporting segment information and those used in the
enterprise's general-purpose financial statements, and changes in the
measurement of segment amounts from period to period. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company has not determined the effect, if any, SFAS No. 131 will have on the
disclosures in its consolidated financial statement.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
FUTURE OPERATING RESULTS
The future operating results of the Company may be affected by a number
of factors, including without limitation the following:
The Company is focusing on strategic business development and the
Company incurred expenses for the initial phase of the project of approximately
$800,000. A portion of those costs were expensed by the Company during the
twenty-six weeks ended August 2, 1997. The Company is currently unable to
determine to what extent the strategies will be implemented or the impact of any
potential growth opportunities on its future operating results or capital
requirements.
The Company markets its products principally through Sam's Club, a
division of Wal-Mart, Inc., pursuant to an arrangement whereby the Company
operates an exclusive leased department at all of Sam's existing and future
domestic and Puerto Rican locations through February 1, 2001. 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. The Company is focused on developing retail
opportunities outside its traditional core business within Sam's Club.
Whether by acquisition or by developing alternative retail concepts,
management believes that the Company should be in a diversified position if it
is to successfully renegotiate or absorb the expiration of its Sam's Club lease
in 2001. The pursuit of any such opportunity will require a significant
investment of capital and attention by management. Such business development is
subject to all risks inherent to establishing or acquiring an additional
business, including competition and consumer uncertainties.
On November 9, 1995, the Company opened its first "Jewelry Depot", a
6,071 square foot value oriented jewelry and luxury gift store in Framingham,
Massachusetts. Subsequently, the Company also opened two "Jewelry Depot
Outlets", a 2,207 square foot facility in Vero Beach, Florida and a 891 square
foot store in Worcester, Massachusetts. The "Jewelry Depot" and "Jewelry Depot
Outlets" each were opened as prototypes for potential stand-alone jewelry
operations that the Company has evaluated as possible long term sources of
additional revenue. The Framingham and Worcester locations have not been
successful and in January 1997 the Company decided it would close these
operations. Additionally, during the third quarter of 1996, the Company acquired
from Andin International, Inc. its three Manhattan Diamond locations in the
Potomac Mills, Gurnee Mills and Orlando Belz outlet malls. The Company currently
is unable to determine the impact of these three stand-alone jewelry operations
on its future operating results or capital requirements.
The Company's retail operation requires expertise in the areas of
merchandising, sourcing, selling, personnel, training, systems and accounting.
The Company must look to increases in the number of retail locations to occur,
thereby increasing the Company's customer base, for expansion. 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. Further
consolidation of the warehouse club industry due to geographic constraints and
market consolidation might also adversely affect the Company's existing
relationship with Sam's 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 programs
and concepts, and the ability of the Company to manage the leased operations and
future expansion and hire and train personnel.
The Company purchases diamonds and other gemstones directly in
international markets located in Tel Aviv, New York, Antwerp and elsewhere. The
Company seeks to meet its diamond requirements with purchases on a systemic
basis throughout the year. Hedging is not available with respect to possible
fluctuations in the price of
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
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. Further, 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
also are 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.
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 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 on 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.
The Company utilizes the services of independent suppliers and customs
agents to comply with U.S. customs laws in connection with its purchases of
gold, diamonds and other raw materials from foreign sources. The Company bears
certain risks in purchasing parallel marketed goods which includes certain
watches and other products such as fragrances and collectibles. 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 or copyright holders and their licensees initiate
private suits or administrative agency proceedings seeking damages or injunctive
relief based on alleged trademark or copyright infringement by purchasers and
sellers of parallel marketed goods. While the Company believes that its
practices and procedures with respect to the purchase of parallel marketed goods
lessen the risk of significant litigation or liability, the Company is from time
to time involved in such proceedings and there can be assurance that additional
claims or suits will not be initiated against the Company or any of its
affiliates, and there can be no assurances regarding the results of any pending
or future claims or suits. The Company is presently a defendant in a lawsuit
alleging copyright infringement in the procurement and sale of certain
non-jewelry products. The general legal services involved in this lawsuit are
now being reviewed in a separate case involving other parties by the United
States Supreme Court, which is expected to rule in the first or second quarter
of 1998. These can be no assurance as to the outcome or potential financial
impact of these cases; however, adverse rulings have significant negative
financial impact as well as the potential of other similar liabilities involving
other non-jewelry products. Further, legislation has been introduced in Congress
in recent years regarding parallel marketed goods. Certain legislative or
regulatory proposals, if enacted, could materially limit the Company's ability
to sell parallel marketed goods in the United States. 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. The Company has identified alternate sources
of supply or categories of similar products, although the cost of certain
products may increase or their availability may be lessened.
The agreements related to the Company's amended Working Capital
Facility contain covenants which require the Company to maintain financial
ratios related to earnings, working capital, inventory turnover, trade payables
and tangible net worth, limit capital expenditures and the incurrence of
additional debt, and prohibit the payment of dividends. There can be no
assurance that the Company's future operating results will be sufficient to meet
the requirements of the foregoing covenants.
13
<PAGE> 14
PART II: OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
The Annual Meeting of Shareholders was held July 2, 1997. The
Shareholders of the Company elected as directors Isaac Arguetty and Peter
Offerman to serve terms expiring in 2000. The election of directors by the
Shareholders was by the following votes:
DIRECTOR FOR WITHHELD
-------- --- --------
Isaac Arguetty 20,728,805 576,087
Peter Offermann 20,728,805 576,087
In addition to Messrs. Arguetty and Offermann, the following are directors
whose term of office continued after the Annual Meeting: Haim Bashan, Greg
Bedol, Robert G. Robison, Thomas Epstein and Sidney Feltenstein.
The Shareholders ratified Deloitte and Touche LLP as
independent accountants of the Company for the fiscal year ending January 31,
1998 by a vote of 21,164,211 in favor, 110,228 shares against and 30,453 shares
abstaining.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) The following list of schedules and exhibits are incorporated by
reference as indicated in this Form 10-Q:
(10) Employment Agreement dated as of June 2, 1997 between the Company and
Isaac Arguetty
(27) Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JAN BELL MARKETING, INC.
-----------------------------------
(Registrant)
By: /s/ DAVID P. BOUDREAU
--------------------------------
CHIEF FINANCIAL OFFICER
Date: SEPTEMBER 16, 1997
------------------
14
<PAGE> 1
Exhibit 10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of June 2, 1997 (this "Agreement"), by and
between Jan Bell Marketing, Inc., a Delaware corporation (the "Company"), and
Isaac Arguetty (the "Executive").
WHEREAS, the Company desires to continue the employ of the Executive as its
Chief Executive Officer, and the Executive desires to continue to be retained in
such capacity, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
made herein, the Company and the Executive agree as follows:
1. EMPLOYMENT; DUTIES.
(a) The Company shall employ the Executive as Chief Executive Officer
for the "Employment Period" as defined in Section 2. The Executive, in his
capacity as Chief Executive Officer, shall have such duties, responsibilities
and authority normally incident to such office, subject to the provisions of the
bylaws of the Company. The precise duties, responsibilities and authority of the
Executive may be expanded, limited or modified, from time to time, at the
discretion of the Board of Directors of the Company (the "Board").
(b) The Company shall use its best efforts to cause the Executive to be
elected to the Board and serve as its Chairman throughout the term of this
Agreement and shall include him in the management slate for election as a
director at every stockholders' meeting at which his term as a director would
otherwise expire. If requested by the Board, the Executive shall serve as a
member of the board of directors of any one or more subsidiaries of the Company.
(c) During the Employment Period, the Executive shall render his
services solely in the performance of his duties hereunder. The Executive agrees
that during the Employment Period, he shall, on a full-time basis, devote his
attention, knowledge and experience and give his best effort, skill and
abilities, exclusively to promote the business and interests of the Company.
Subject to Section 5(a)(1), the Executive may serve as an officer or director
of, make investments in, or otherwise participate in, any other entity, provided
that (i) such service, investment or participation does not interfere with the
Executives commitment to perform full-time services for the Company, and (ii) no
resources of the Company (including Company employees) are used in any
significant respect in connection with such service, investment or
participation.
2. EMPLOYMENT PERIOD. This Agreement shall have a term of three years,
commencing as of the date hereof and ending on the third anniversary of the date
hereof (the "Initial Period"), provided that on June 1, 1998, and each June 1
thereafter, the term shall
<PAGE> 2
automatically be extended for an additional one-year period (the "Renewal
Period") unless prior to any such June 1, either party notifies the other in
writing that the term will not be further extended. The Initial Period plus the
Renewal Period is referred to herein as the "Term", and the period during the
Term, prior to termination of this Agreement pursuant to Section 4, is referred
to herein as the "Employment Period".
3. COMPENSATION AND BENEFITS. The Executive shall be entitled to the
following compensation and benefits, in each case subject to applicable
statutory deductions and withholdings:
(a) BASE COMPENSATION. The Executive shall be paid an aggregate base salary
(the "Base Salary") of $360,000 per annum. The Base Salary shall be payable in a
manner consistent with the normal payroll practices of the Company in effect
from time to time. The Board, in its sole discretion, or at the recommendation
of the Compensation Committee, may increase (but not decrease) the Base Salary,
at any time.
(b) ANNUAL BONUS. In addition to the Base Salary, the Executive shall be
entitled to receive an annual bonus for each fiscal year of the Company that
ends during the Employment Period (the "Bonus Award") based upon the achievement
of performance goals to be set by the Compensation Committee in good faith after
consultation with the Executive. A target level (or levels) shall be
established, which, if achieved, shall entitle the Executive to 100% of Base
Salary. Minimum and maximum levels shall also be established which, if achieved,
shall entitle the Executive to 50% and 200% of Base Salary respectively.
Achievement levels that fall between the established levels shall entitle the
Executive to an interpolated percentage of Base Salary. Performance goals may be
based on one or more than one factor. To the extent more than one factor is
established, each factor shall be assigned a weighted percentage to determine
what portion of the total bonus percentage shall be attributable to such factor.
The entitlement to a Bonus Award for a fiscal year shall be determined based on
the Company's audited consolidated financial statements, and any Bonus Award
payable for such year shall be paid as soon as practicable after release of such
statements.
(c) STOCK OPTION.
(1) On the date hereof, the Compensation Committee shall grant to the
Executive a non-qualified option to purchase 1,650,000 shares of the Company's
common stock, par value $.01 per share ("Common Stock") for a price of $2.375
per share (the "Option"). The Option shall be granted pursuant to the Company's
1991 Stock Option Plan and shall vest and become exercisable at the rate of
550,000 shares per fiscal year upon satisfaction of performance and/or stock
price targets as set by the Compensation Committee in good faith after
consultation with the Executive, provided, however, that whether or not such
performance targets are satisfied, the Option shall vest and become exercisable
in full upon the earlier of (i) the fifth anniversary of the date the Option is
granted, provided the Executive has been continuously
2
<PAGE> 3
employed by the Company through such date, or (ii) a Change in Control of the
Company (as defined in Section 4(f)).
(2) The Option shall have a term of 5 1/2 years form the date of
grant, and no portion of the Option shall be exercisable thereafter. After
termination of the Executive's employment for any reason other than Cause, the
Executive may exercise the Option at any time prior to expiration of its term
only to the extent the Option became vested and exercisable as of any date on or
prior to such termination of employment (taking into account any vesting that
occurs pursuant to Section 4(b)). Upon termination of the Executive's employment
for Cause, the unexercised portion of the Option, whether or not vested, shall
immediately terminate.
(d) BENEFITS. The Executive shall be entitled to participate in the
employee and fringe benefit and group insurance programs provided by the Company
for its officers and employees generally and in accordance with the terms of the
applicable plan documents as they may be revised from time to time. The
Executive shall be entitled to use of the Company-provided vehicle provided to
the Executive as of the date hereof, or a comparable vehicle, on the same basis
on which such vehicle was provided prior to the date hereof. The Company shall
continue to pay life insurance premiums on the policy maintained on the life of
the Executive on the same basis as such premiums were paid prior to the date
hereof. The Executive shall also be entitled to reimbursement for reasonable
out-of-pocket expenses in accordance with the Company's policies and procedures.
(e) RETROACTIVE COMPENSATION. As soon as practicable after the date hereof,
the Executive shall be entitled to (i) a payment equal to $67,500 which
represents a bonus for the 1996 fiscal year, and (ii) a payment which represents
a base salary increase to the current rate of Base Salary retroactive from May
1, 1996 to date hereof.
4. TERMINATION.
(a) GENERAL. The Company may terminate this Agreement with or without
Cause, or upon the Executive's Disability. The Executive may terminate this
Agreement with or without Good Reason, or upon the Executive's Disability. This
Agreement shall automatically terminate upon the Executive's death. This
Agreement shall also terminate upon expiration of the Initial Period or any
Renewal Period if notice is provided by either party in accordance with Section
2. Such termination shall be treated as a termination by the Company without
Cause if such notice is provided by the Company, and, if such notice is provided
by the Executive, then such termination shall be treated as a termination by the
Executive without Good Reason. Except as provided in Sections 4(b), in the event
this Agreement is terminated, the Executive's rights and the obligations of the
Company hereunder shall cease as of the effective date of the termination,
provided, however, that the Executive shall be entitled to receive any accrued
but unpaid Base Salary, any accrued but unpaid Bonus Award and Option vesting
earned for the
3
<PAGE> 4
fiscal year ending prior to such termination, and any amount accrued under
Company benefit plans as provided pursuant to the terms of such plans (the
"Accrued Obligations").
(b) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the event that the
Company terminates this Agreement other than for Cause, or if the Executive
terminates this Agreement for Good Reason, the Executive shall be entitled, in
addition to the Accrued Obligations, the following payments and benefits
("Termination Payments"), in each case subject to applicable statutory
deductions and withholdings:
(1) the continued payment of Base Salary, the continued provision of
group health, life, and disability coverage (or if group coverage is not
available, comparable individual coverage), the continued provision of a vehicle
and payment of life insurance premiums as referred to in Section 3(d), in each
case on the same basis as in effect immediately prior to such termination, for
the one year period following such termination;
(2) a lump sum payment equal to (i) if such termination occurs prior
to the end of the Company's 1997 fiscal year, $360,000 or (ii) if such
termination occurs after the end of the Company's 1997 fiscal year, Base Salary
multiplied by the Bonus Percentage multiplied by the sum of one plus a fraction,
the numerator which equals the number of days that have elapsed from the
beginning of the fiscal year in which termination occurs to the termination
date, and the denominator of which equals 365; and
(3) Option vesting with respect to (i) if such termination occurs
prior to the end of the Company's 1997 fiscal year, 550,000 shares or (ii) if
such termination occurs during either the Company's 1998 or 1999 fiscal year,
550,000 shares multiplied by the Vesting Percentage multiplied by the sum of one
plus a fraction, the numerator which equals the number of days that have elapsed
from the beginning of the fiscal year in which termination occurs to the
termination date, and the denominator of which equals 365.
(c) DEATH OR DISABILITY. A termination of the Executive's employment by
reason of death or the Executive's Disability shall not constitute a termination
without Cause or for Good Reason under Section 4(b), and therefore, upon such
termination, the Executive (or his beneficiary) shall be entitled only to the
Accrued Obligations, provided, however, that if such termination is by reason of
Disability, the Executive shall be entitled to the amounts and benefits set
forth in Section 4(b)(1).
(d) RELEASE/COVENANTS. As a condition to his entitlement to receive
Termination Payments, the Executive shall (i) have executed and delivered to the
Company a waiver and release satisfactory to the Company waiving and releasing
all claims against the Company and its direct or indirect subsidiaries and their
respective officers, agents, directors and employees, and such waiver and
release shall have become irrevocable, and (ii) comply with Sections 5 and 6.
4
<PAGE> 5
(e) WRITTEN RESIGNATION. In the event this Agreement is terminated for any
reason (except by death), the Executive agrees that if at that time he is a
director or officer of the Company or any of its direct or indirect
subsidiaries, he will immediately deliver his written resignation as such
director or officer, such resignation to become effective immediately.
(f) CHANGE IN CONTROL. Notwithstanding the provisions of Section 4(b), in
the event of the termination of this Agreement for any reason specified in
Section 4(b), and such termination occurs within the two year period following a
Change in Control, then the Executive shall be entitled to receive the following
payments or benefits upon the date of termination:
(1) the Accrued Obligations;
(2) the continued payment of Base Salary, the continued provision of
group health, life, and disability coverage (or if group coverage is not
available, comparable individual coverage), and the continued provision of a
vehicle and payment of life insurance premiums as referred to in Section 3(d),
in each case on the same basis as in effect immediately prior to such
termination (or, if more favorable to the Executive, as in effect immediately
prior to the Change in Control), until expiration of the then-remaining Term;
(3) a lump sum payment equal to (i) the greater of Base Salary
(determined immediately prior to the Change in Control, or at the time of
termination of employment, whichever is greater) or the Bonus Award for the
immediately preceding fiscal year (or, if greater, for the fiscal year ended
immediately preceding the Change in Control), multiplied by (ii) the number of
years and fractions thereof from the first day of the fiscal year in which
termination of this Agreement occurs to the expiration of the then-remaining
Term; and
(4) an amount that, on an after-tax basis (including federal income
and excise taxes, and state and local income taxes) equals the excise tax
imposed by Section 4999 of the Code upon by the Executive by reason of amounts
payable under this Section 4(f) (including this paragraph (4)), as well as
amounts payable outside of this Agreement by the Company that are described in
Section 280G(b)(2)(A)(i) of the Code. For purposes of this clause (iv), the
Executive shall be deemed to pay federal, state and local income taxes at the
highest marginal rate of taxation.
In the case of a termination for a reason specified in Section 4(b) which
follows an Early Trigger, the Executive shall be entitled to the payments and
benefits specified in Section 4(b) at the times specified therein, and if such
Early Trigger ultimately results in a Change in Control, the Executive shall be
entitled to the payments and benefits specified in this Section 4(f) to be paid
or commence upon the Change in Control, offset by any payments previously made
or benefits previously provided pursuant to Section 4(b).
(g) DEFINITIONS. For purposes of this Agreement:
5
<PAGE> 6
(1) "Bonus Percentage" shall mean (i) if termination of this Agreement
occurs prior to October 1 of any fiscal year, the Bonus Award earned for
the immediately preceding fiscal year, expressed as a percentage of the
Executive's Base Salary in effect as of the end of such preceding fiscal
year, or (ii) if such termination occurs on or after October 1 of any
fiscal year, the Bonus Award that would have been earned for the fiscal
year in which termination occurs had such termination not occurred,
expressed as a percentage of the Executive's Base Salary in effect as of
the date of termination.
(2) "Cause" shall mean (i) a material breach by the Executive of any
material provision of this Agreement, and such breach is not cured by the
Executive within fifteen (15) days from the date the Company notifies the
Executive thereof, (ii) the willful commission of an act of fraud or
dishonesty by the Executive that adversely effects the business of the
Company, and (iii) the conviction of the Executive, or a pleading of guilty
or nolo contendere by the Executive, with respect to the commission of a
felony. Solely for purposes of Section 4(f), other than in the case of the
Executive's conviction of a felony, the Agreement shall not be deemed to
have been terminated for Cause by the Company hereunder without (i) notice
to the Executive setting forth the reasons for the Company's intention to
terminate the Executive for Cause, (ii) an opportunity for the Executive,
together with his counsel, to be heard before the Board, and (iii) delivery
to the Executive of written notice from the Board finding that in the
reasonable good faith opinion of the Board, the Executive was guilty of
conduct set forth in the preceding sentence, and specifying the particulars
thereof in detail.
(3) "Change in Control" shall be deemed to have occurred upon:
(i) the date of the acquisition by any "person" (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding the
Company or any of its subsidiaries or affiliates or any employee benefit
plan sponsored by any of the foregoing, of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of either (x)
the then outstanding shares of common stock of the Company or (y) the then
outstanding voting securities entitled to vote generally in the election of
directors; or
(ii) the date the individuals who constitute the Board as of the
date of this Agreement (the "Incumbent Board") cease for any reason to
constitute at least a majority of the members of the Board, provided that
any individual becoming a director subsequent to the effective date of this
Agreement 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 (other than any individual
whose nomination for election to Board membership was not endorsed by the
Company's management prior to, or at the time of, such individual's initial
nomination for election) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or
(iii) the consummation of a merger, consolidation,
recapitalization, reorganization, sale or disposition of all or a
substantial portion of the
6
<PAGE> 7
Company's assets, a reverse stock split of outstanding voting securities,
the issuance of shares of stock of the Company in connection with the
acquisition of the stock or assets of another entity, provided, however,
that a Change in Control shall not occur under this clause (iii) if
consummation of the transaction would result in at least 70% of the total
voting power represented by the voting securities of the Company (or, if
not the Company, the entity that succeeds to all or substantially all of
the Company's business) outstanding immediately after such transaction
being beneficially owned (within the meaning of Rule 13d-3 promulgated
pursuant to the Exchange Act) by at least 75% of the holders of outstanding
voting securities of the Company immediately prior to the transaction, with
the voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction.
(4) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(5) "Disability" shall mean the Executive's inability to perform his
duties by reason of mental or physical disability for at least ninety (90)
consecutive days or any ninety (90) days (whether or not consecutive) in
any one-hundred eighty (180) consecutive day period. In the event of a
dispute as to whether the Executive is disabled within the meaning hereof,
either party may from time to time request a medical examination of the
Executive by a doctor appointed by the Chief of Staff of a hospital
selected by mutual agreement of the parties, or as the parties may
otherwise agree, and the written medical opinion of such doctor shall be
conclusive and binding upon the parties as to whether the Executive has
become disabled and the date when such disability arose. The cost of any
such medical examination shall be borne by the Company.
(6) "Good Reason" shall mean (i) the Company changes the Executive's
status, title or position as an officer of the Company and such change
represents a material reduction in such status, title or position conferred
hereunder, and/or (ii) the Company materially breaches any material
provision of this Agreement, and such change or breach is not cured by the
Company within fifteen (15) days from the date the Executive delivers a
Notice of Termination for Good Reason. Such "Notice of Termination for Good
Reason" shall include the specific section of this Agreement which was
relied upon and the reason that the Company's act or failure to act has
given rise to his termination for Good Reason.
(7) "Early Trigger" shall mean:
(i) commencement (within the meaning of Rule 14d-2 as promulgated
under the Exchange Act) of a tender offer for stock of the Company subject
to Section 14(d)(2) of the Exchange Act; or
(ii) the execution by the Company of an agreement the
consummation of which would constitute a Change in Control; or
7
<PAGE> 8
(iii) the solicitation of proxies for the election of directors
by anyone other than the Company; or
(iv) the approval by the Company's stockholders of any
transaction described in Section 4(g)(3)(iii).
(8) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include rules thereunder and successor provisions and
rules thereto.
(9) "Vesting Percentage" shall mean (i) if termination of this
Agreement occurs prior to October 1 of any fiscal year, a fraction,
expressed as a percentage (not to exceed 100%), the numerator of which is
the number of shares subject to the Option that became vested based on
satisfaction of performance targets (without regard to any "catch-up"
vesting attributable to a prior fiscal year) as of the end of the
immediately preceding fiscal year, and the denominator of which is 550,000,
or (ii) if such termination occurs on or after October 1 of any fiscal
year, a fraction, expressed as a percentage (not to exceed 100%), the
numerator of which is the number of shares subject to the Option that would
have become vested based on satisfaction of performance targets (without
regard to any "catch-up" vesting attributable to a prior fiscal year) as of
the end the fiscal year in which termination occurs had such termination
not occurred, and the denominator of which is 550,000.
5. RESTRICTIVE COVENANTS.
(a) The Executive agrees that during the Non-Competition Period
(and, as to paragraphs (3) and (4) of this Section 5(a), at any time
thereafter) 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 (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
5(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 (i) by
reason of his activities with respect to the Dana Michaels business, based
on such activities and such business as each exists as of the date of this
Agreement, or (ii) 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
8
<PAGE> 9
(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
paragraph (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;
(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 5(a)(4), provided that such
information may not be used in connection with any of the activities prohibited
under paragraphs (1) and (2) of this Section 5(a) for so long as such clauses
remain in effect).
For purposes hereof, the Non-Competition Period shall mean the Employment Period
and the period thereafter during which Termination Payments are being made,
provided, however, if this Agreement is terminated following a Change in Control
under circumstances described in Section 4(f), then the Non-Competition Period
shall end immediately upon such termination.
(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 5 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 5, the Company shall be entitled to immediate injunctive relief
and may obtain a temporary order restraining any threatened or further breach.
9
<PAGE> 10
Nothing in this Section 5 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 5 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 5 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.
(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 5, 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 5 (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 or 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 jurisdictions
being, for this purpose, severable, diverse and independent covenants, subject,
where appropriate, to the doctrine of RES JUDICATA.
6. RETURN OF DOCUMENTS AND PROPERTY. Upon the termination of the
Executive's employment with the Company, or at any time upon the request of the
Company, the Executive (or his heirs or personal representatives) shall deliver
to the Company, without retaining a copy thereof, (a) all documents and
materials (including, without limitation, computer files) containing
confidential information relating to the business and affairs of the Company and
its direct and indirect subsidiaries, and (b) all documents, materials and other
property (including, without
10
<PAGE> 11
limitation, computer files) belonging to the Company or its direct or indirect
subsidiaries, which in either case are in the possession or under the control of
the Executive (or his heirs or personal representatives).
7. EXECUTIVE'S REPRESENTATIONS. The Executive represents and warrants to
the Company that (i) he is able to perform fully his duties and responsibilities
contemplated by this Agreement and (ii) there are no restrictions, covenants,
agreements or limitations of any kind on his right or ability to enter into and
fully perform the terms of this Agreement.
8. ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall not be assignable by either the Company or the Executive,
provided that this Agreement is assignable by the Company to any affiliate of
the Company, to any successor in interest to the business of any of the Company,
or to a purchaser of all or substantially all of the assets of any of the
Company. The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. For purposes of clarity, any
failure of the Company to obtain such agreement prior to the effectiveness of
any such succession or assignment shall be a material breach of this Agreement
and shall entitle the Executive to terminate this Agreement for Good Reason. As
used in this Agreement, the term "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement provided for in this
Section 8 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
9. NOTICES. Any notice required or permitted under this Agreement shall be
deemed to have been effectively made or given if in writing and personally
delivered, mailed properly addressed in a sealed envelope, postage prepaid by
certified or registered mail, or delivered by a reputable overnight delivery
service. Unless otherwise changed by notice, notice shall be properly addressed
to the Executive if addressed to:
Isaac Arguetty
13801 40th Street South
West Palm Beach, FL 33414
and properly addressed to the Company if addressed to:
Jan Bell Marketing, Inc.
13801 N.W. 14th Street
Sunrise, Florida 33323
Attn: General Counsel
11
<PAGE> 12
10. SEVERABILITY. Wherever there is any conflict between any provision of
this Agreement and any statute, law, regulation or judicial precedent, the
latter shall prevail, but in such event the provisions of this Agreement thus
affected shall be curtailed and limited only to the extent necessary to bring
them within the requirements of the law. In the event that any provision of this
Agreement shall be held by a court of proper jurisdiction to be indefinite,
invalid, void or voidable or otherwise unenforceable, the balance of the
Agreement shall continue in full force and effect unless such construction would
clearly be contrary to the intentions of the parties or would result in an
unconscionable injustice.
11. COUNTERPARTS. 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.
12. EFFECT OF TERMINATION. Notwithstanding anything to the contrary
contained herein, if this Agreement or the Executive's employment is validly
terminated pursuant to Section 4 or expires by its terms, the provisions of
Sections 5, 6, 13 and 14 shall continue in full force and effect.
13. DISPUTES; ENFORCEMENT.
(a) Any controversy or claim arising out of or relating to this
Agreement, or any breach thereof (other than those arising under Section 5, to
the extent necessary for the Company to avail itself of the rights and remedies
provided under Section 5), 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, provided, however, that the parties agree that (i) the panel of
arbitrators shall be prohibited from disregarding, adding to or modifying the
terms of this Agreement; (ii) the panel of arbitrators shall be required to
follow established principles of substantive law and the law governing burdens
of proof; (iii) only legally protected rights may be enforced in arbitration;
(iv) the panel of arbitrators shall be without authority to award punitive or
exemplary damages; (v) the chairperson of the arbitration panel shall be an
attorney licensed to practice law in Florida who has experience in similar
matters; and (vii) any demand for arbitration made by the Executive must be
filed and served, if at all, within 365 days of the occurrence of the act or
omission complained of. Any claim or controversy not submitted to arbitration in
accordance with this Section 13 shall be considered waived and, thereafter, no
arbitration panel or tribunal or court shall have the power to rule or make any
award on any such claim or controversy. The award rendered in any arbitration
proceeding held under this Section 13 shall be final and binding, and judgment
upon the award may be entered in any court having jurisdiction thereof, PROVIDED
that the judgment conforms to established principles of law and is supported by
substantial record evidence.
(b) The Company shall pay promptly as incurred (and in any event within
10 days of its receipt of proper documentation of) all reasonable fees and
expenses (including
12
<PAGE> 13
attorneys'fees) that the Executive may incur following a Change in Control as a
result of the Company's contesting the validity, enforceability, or the
Executive's interpretation of, the provisions of this Agreement relating to the
Executive's entitlements pursuant to Section 4 (regardless of the outcome of any
litigation to enforce this Agreement).
(c) In the event proceedings are initiated by either party to enforce
the provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable costs, expenses, and attorney's fees from the other party,
except to the extent such costs, fees and expenses are covered by Section 13(b),
in which case Section 13(b) shall control.
14. MISCELLANEOUS; CHOICE OF LAW. This Agreement constitutes the entire
agreement, and supersedes all prior agreements, of the parties hereto relating
to the subject matter hereof, and there are no written or oral terms or
representations made by either party other than those contained herein. This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of Florida, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Florida or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the day and year first above written.
JAN BELL MARKETING, INC
By its Compensation Committee:
------------------------------
Sidney Feltenstein
------------------------------
Peter Offermann
EXECUTIVE
------------------------------
Isaac Arguetty
13
<TABLE> <S> <C>
<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 THE CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-04-1997
<PERIOD-END> AUG-02-1997
<CASH> 25,227
<SECURITIES> 0
<RECEIVABLES> 8,239
<ALLOWANCES> 1,440
<INVENTORY> 75,165
<CURRENT-ASSETS> 108,578
<PP&E> 51,042
<DEPRECIATION> 31,412
<TOTAL-ASSETS> 134,671
<CURRENT-LIABILITIES> 12,312
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 122,356
<TOTAL-LIABILITY-AND-EQUITY> 134,671
<SALES> 53,309
<TOTAL-REVENUES> 53,309
<CGS> 41,365
<TOTAL-COSTS> 41,365
<OTHER-EXPENSES> 12,956<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (579)
<INCOME-TAX> 64
<INCOME-CONTINUING> (643)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (643)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1>OTHER EXPENSES CONSIST OF ALL OPERATING COSTS AND EXCLUDES INTEREST,
NON-OPERATING INCOME AND INCOME TAXES.
</FN>
</TABLE>
