-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DSEtjs1uFdwMpLhYa0TEmZGctAWd2H3g9rRkXu5x6yXRIMKCLjsmvPBxW1g4Fte7 8d6AslkJqNw56POf6YiqsQ== 0000950148-96-001912.txt : 19960903 0000950148-96-001912.hdr.sgml : 19960903 ACCESSION NUMBER: 0000950148-96-001912 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950531 FILED AS OF DATE: 19960830 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARRYS JEWELERS INC /CA/ CENTRAL INDEX KEY: 0000790360 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-JEWELRY STORES [5944] IRS NUMBER: 953746316 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15017 FILM NUMBER: 96624782 BUSINESS ADDRESS: STREET 1: 111 W LEMON AVE CITY: MONROVIA STATE: CA ZIP: 91016 BUSINESS PHONE: 8183034741 10-K/A 1 FORM 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-15017 BARRY'S JEWELERS, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 95-3746316 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 111 WEST LEMON AVENUE, MONROVIA, CA 91016 (Address of principal executive offices) Registrant's telephone number, including area code: (818) 303-4741 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each exchange on Title of each class which registered: NONE NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock (Title of class) Warrants (Title of class) 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. [X] Yes [ ] No 2 PART II ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data of the Company (through the effective date of the Reorganization Plan, referred to as "Predecessor") as of and for the years ended May 31, 1992 and 1991, and the month ended June 30, 1992, and the Company (referred to as such following the effective date of the Reorganization Plan) as of and for the year ended May 31, 1995 and 1994, and the eleven months ended May 31, 1993. The data should be read in conjunction with the financial statements, related notes and other financial information included herein.
Company Predecessor ------------------------------------- --------------------------------- Eleven Year Year Months Month Ended Ended Ended Ended May May 31, May 31, June 30, Year Ended May 31, 1995 1994 1993 1992 1992 1991 ---- ---- ------ ------ ------ ------ (As Restated) (4) (in thousands, except per share data and number of common stock outstanding) Net sales.......................... $136,055 $114,023 $99,270 $7,070 $112,384 $140,156 Finance and credit insurance charges................. 15,681 14,487 13,037 1,229 16,155 18,269 Selling, general and administrative expenses (1)...................... 50,966 46,341 41,863 3,859 53,667 68,058 Operating income (loss) ........................... 11,670 10,294 5,764 (541) (5,917) (12,246) Interest expense................... 9,764 7,746 6,401 644 13,906 18,877 Income (loss) before extraordinary item ............... 1,906 1,539 (637) (1,185) (19,823) (29,175) Net income (loss)(2) .............. 1,906 1,539 (637) 48,044 (19,823) (29,175) Net income (loss) per share (2) (3) ................ 0.48 0.53 (0.32) 48.02 (19.79) (29.12) Weighted average number of common shares outstanding (3)..... 3,968,998 2,902,359 2,008,182 1,000,413 1,001,651 1,001,763 Total assets ...................... 144,650 122,252 119,200 116,448 130,939 159,761 Total debt......................... 92,368 75,935 90,251 91,417 142,152 150,243
2 3 (1) Selling, general and administrative expenses for the eleven months ended May 31, 1993, the month ended June 30, 1992, the twelve months ended May 31, 1992 and the twelve months ended May 31, 1991 include $100,000, $450,000, $4,200,000 and $8,000,000, respectively, of nonrecurring restructuring expenses. See Note 4 to the Financial Statements in "Financial Statements - Notes to Financial Statements." (2) The month ended June 30, 1992 includes an extraordinary gain of $49,229,000 ($49.20 per share), which represents the gain on cancellation of Predecessor 12-5/8% Subordinated Notes and related accrued interest, net of write-off of deferred debt expenses, in connection with the Reorganization Plan. (3) In November 1994, a one-for-five reverse stock split of the Common Stock was effected; share and per share data have been restated to reflect such reverse stock split. (4) Subsequent to the original filing of the May 31, 1995 Form 10-K, the Company identified a mathematical error in the accumulation of its merchandise inventories as of May 31, 1995. The error was detected during the reconciliation of the physical inventory results for March 1996. The effect of the restatement was to decrease inventory by $1,547,000 at May 31, 1995 and net income by $883,000 or $.22 per common share for the year ended May 31, 1995. See Note 8 to the Financial Statements in "Financial Statements - Notes to Financial Statements." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth the percentage relationship to net sales of certain items included in Item 6, "Selected Financial Data." Data in this table and in the balance of Item 7 for the year ended May 31, 1993 include results of the Predecessor for the month ended June 30, 1992 and of the Company for the eleven months ended May 31, 1993. Results of operations for the year ended May 31, 1995, reflect the restatement as described in Note 8 to the Financial Statements included in "Financial Statements - Notes to Financial Statements."
Year Ended May 31 ---------------------------------- 1995 1994 1993 ---- ---- ------- Net Sales 100.0% 100.0% 100.0% Finance and credit insurance charges 11.5 12.7 13.4 Selling, general and administrative expenses (1) 37.5 40.6 43.0 Operating income 8.6 9.0 4.9 Interest expense 7.2 6.8 6.6 Income(loss) before extraordinary item 1.4 1.3 (1.7)
(1) See Note (1) on Page 3. 3 4 Fiscal Year Ended May 31, 1995 (As Restated) Compared with Fiscal Year Ended May 31, 1994 Net sales in fiscal 1995 were $136,055,000, an increase of $22,032,000, or 19%, from net sales of $114,023,000 in fiscal 1994. Sales of comparable stores (those open for the same period in both the current and preceding years) also increased, by 11%, versus the prior year. Increased sales reflect the benefits from the 23 new stores opened during fiscal year 1995 and higher inventories that include an expanded merchandise mix to appeal to a larger, more diverse share of the market. Finance and credit insurance charges on credit sales in fiscal 1995 were $15,681,000, an increase of $1,194,000, or 8%, from the prior year primarily due to an increase in the average total outstanding accounts receivable. Cost of goods, buying and occupancy expenses were 58% of net sales for fiscal 1995 compared to 55% for the prior year. The gross margin percentage declined in fiscal 1995 primarily due to the Company's new value pricing strategy instituted in response to increased competitive pressure in the retail jewelry industry and an increase in the Company's inventory shrinkage. Selling, general and administrative expenses were $50,966,000, an increase of $4,625,000, or 10%, from the prior year, primarily due to opening and operating the 23 new stores. Such increases were more than offset by the increase in net sales. Selling, general and administrative expenses declined as a percentage of net sales to 38% from 41% of the prior year. The provision for doubtful accounts was $10,193,000, an increase of $470,000 from the prior year. The provision was 8% of net sales for fiscal 1995 compared with 9% for the prior year. The lower provision in fiscal 1995 reflects improved collection results realized from the installation of automated credit systems in fiscal 1993, lower write-offs of accounts receivable balances, and improving economic conditions. Interest expense was $9,764,000, an increase of $2,018,000, or 26% from the prior year. This was a result of a higher average interest rate on the Company's long-term debt resulting from recapitalization transactions completed in December 1993 and due to higher average borrowing to finance the new stores and additional inventory per store. No provision for income taxes was recorded in the current year. The provision for income taxes for the prior year was $1,009,000. The decline in provision is due to a decrease in pre-tax income and the reduction of valuation allowances on certain deferred tax assets as management believes it is more likely than not that these assets will be realized. As described more fully below under "Liquidity and Capital Resources," the Company has available net operating loss carryovers to offset future taxable income. Since the carryovers utilized arose prior to the Reorganization Plan, for financial reporting purposes the reduction of tax payments for the year ended May 31, 1995 was reflected as a credit to common stock. 4 5 Fiscal Year Ended May 31, 1994 Compared with Fiscal Year Ended May 31, 1993 Net sales in fiscal 1994 were $114,023,000, an increase of $7,683,000, or 7%, from net sales of $106,340,000 in fiscal 1993. Sales of comparable stores (those open for the same period in both the current and preceding years) also increased 7%. Finance and credit insurance charges on credit sales in fiscal 1994 were $14,487,000, an increase of $221,000, or 2%, from the prior year primarily due to an increase in the average total outstanding accounts receivable. Cost of goods, buying and occupancy expenses were 55% of net sales for fiscal 1994 and 1993. Selling, general and administrative expenses were $46,341,000, an increase of $619,000, or 1%, from the prior year. Such expenses were 41% of net sales in fiscal 1994 and 43% in fiscal 1993. Excluding approximately $550,000 of nonrecurring restructuring expenses in fiscal 1993, selling general and administrative expenses increased $1,169,000 due to higher store operating costs, principally wages and advertising, resulting from increased sales volume. The provision for doubtful accounts was $9,723,000, a decrease of $1,220,000 from the prior year. The provision was 9% of net sales for fiscal 1994 compared with 10% for the prior year. The lower provision in fiscal 1994 reflects improved collection results realized from the installation of automated credit systems in fiscal 1993, lower write-offs of accounts receivable balances, and improving economic conditions. Interest expense was $7,746,000, an increase of $701,000, or 10% from the prior year. Total long-term debt was reduced $15 million by the recapitalization transactions completed on December 22, 1993, but the effect of that reduction was more than offset by higher average interest rates. The provision for income taxes in fiscal 1994 was $1,009,000. No provision (benefit) for income taxes was recorded for fiscal 1993 since the Company incurred a pre-tax loss for which no benefit could be recorded for financial reporting purposes. As described more fully below under "Liquidity and Capital Resources," the Company had available net operating loss carryovers to offset future taxable income. The utilization of these carryovers substantially eliminated income tax payments for the year ended May 31, 1994. Since the carryovers utilized arose prior to the Reorganization Plan, for financial reporting purposes the reduction of tax payments for the year ended May 31, 1994 was reflected as a credit to common stock. LIQUIDITY AND CAPITAL RESOURCES General Net cash provided by (used in) operating activities in fiscal 1995, 1994 and 1993 was ($9,598,000), $4,261,000 and $1,844,000 respectively. The increase in net cash used in operating 5 6 activities in fiscal 1995 was primarily due to opening the 23 new stores and an increase of average inventory per store compared to the prior year. Sales under the Company's credit program accounted for approximately 61% of fiscal 1995 sales, net of down payments. The Company's policy is to attempt to obtain a cash down-payment on all credit sales, with monthly payments established such that the payment of the credit balance will occur, generally, over a period ranging from 9 to 24 months. None of the receivables are of the installment variety with a fixed maturity; rather, all of the Company's customer receivables are revolving charge accounts. The Company currently collects (and has historically collected) approximately 9% of its accounts receivable balances each month. As of May 31, 1995, May 31, 1994, and May 31, 1993, the aggregate customer receivables balances were $81,054,000, $74,361,000 and $72,680,000, respectively. Aggregate credit collections during the twelve months ended May 31, 1995 were $85,004,000. A change in its customers' payment patterns could affect the Company's working capital requirements. Customers may also purchase jewelry for cash and by using major national credit cards. The Company's operations require working capital to fund the purchase of inventory and growth of customer receivables. Also, the seasonality of the Company's business requires a significant build-up of inventory for the December holiday selling period. These additional inventory needs must be funded during the late summer and fall months because of the necessary lead time to obtain additional inventory. The heavy holiday selling period leads to a seasonal build-up of customer receivables that must be funded during the winter and spring months. In addition, the Company requires working capital to fund capital expenditures. Capital expenditures for fiscal 1995, 1994 and 1993 were $6,516,000, $2,848,000 and $1,488,000, respectively. Historically, such expenditures have been made in connection with store openings and acquisitions, store remodeling, and the centralization and automation of the Company's information systems. The Company intends to continue improving its existing operations through increased inventory investment in existing high-volume locations while also carrying out a planned new store expansion. As part of this strategy the Company opened or acquired 23 new stores during fiscal 1995. Securitization On December 21, 1995, the Company completed the Securitization Facility hereinafter described. In the Securitization Facility, among other things, the Company (I) entered into the Originator Purchase Agreement, dated December 21, 1995, with Barry's Funding Corp. ("BFC"), a wholly-owned, special-purpose subsidiary of the Company, whereby BFC agreed to purchase from the Company, from time to time, all of the Company's right, title and interest in all customer accounts receivable generated by the Company ("Receivables") (the "Originator Agreement") and (II) entered into the Receivables Purchase Agreement, dated December 21, 1995, with BFC, Triple-A One Funding Corporation ("Triple-A One") and Capital Markets Assurance Corporation ("CapMAC"), as agent for Triple-A One ("Agent"), whereby Triple-A One agreed to make purchases from BFC of undivided ownership interests in the Receivables so purchased and owned by BFC, and the Company agreed to act as the servicer for purposes of collecting the Receivables. The Securitization Facility provides for a maximum funding commitment of $80 6 7 million to BFC, subject to the asset-based funding formula and other terms and conditions of the Securitization Facility. Triple-A One generates cash to purchase its undivided ownership interest in the Receivables by issuing investment grade commercial paper. BFC purchases the Receivables from the Company in consideration of the cash paid by Triple-A One and a subordinated note (the "Intercompany Note") issued by BFC to the Company. On December 22, 1995, Triple-A One completed the initial issuance of commercial paper and paid BFC $48 million in cash. BFC made its initial purchase of Receivables from the Company in December 1995, in the aggregate amount of approximately $79.5 million, for a purchase price of approximately $60 million, which was paid $47.95 million in cash and $12.1 million in the form of the Intercompany Note. In addition to the Receivables purchased by BFC from the Company, the Company initially capitalized BFC with $4.5 million of Receivables. As a result of the initial purchase transactions and throughout the term of the Securitization Facility, Triple-A One has and is expected to continue to have a 100% undivided ownership interest in all Receivables generated by the Company and purchased by BFC. In connection with the Securitization Facility, the Company also entered into an amended and restated revolving credit facility with the First National Bank of Boston, as lender and agent thereunder ("Bank of Boston"), pursuant to an amended and restated Revolving Credit Agreement that provides for maximum aggregate loans and letters of credit at any time outstanding of not more than $20,000,000 (the "Revolving Credit Agreement"). As amended and restated, the Revolving Credit Agreement provides for the making of loans based upon the amount of the Company's eligible inventory from time to time. The Company has granted the lender under the Revolving Credit Agreement a lien on substantially all of its assets and properties. Both the Securitization Facility and the Revolving Credit Agreement are three-year facilities. In accordance with the requirements of the Securitization Facility, each of the Company and BFC has agreed to conduct its affairs in relation to the other corporation in an arm's length manner reflecting terms and conditions that independent third parties would agree upon. In addition, each corporation has agreed not to guarantee or otherwise become responsible for the debts of the other. Among other things, the Company is not responsible for BFC's obligations to Triple-A One under the Securitization Facility documents, and BFC has not guaranteed and is not otherwise responsible for the Company's obligations to the bank(s) under the Revolving Credit Agreement. Proceeds of the initial purchase from the Company of Receivables by BFC were used in part to repay at par $20 million of the Company's $70 million in outstanding 11% Senior Secured Notes due 2000 (the "Notes") plus accrued and unpaid interest thereon to the date of repayment. The Notes bear interest at 11% per annum payable semiannually on April 30 and October 31, and are secured by an interest in the Company's assets that is second in priority to the obligations pursuant to the Revolving Credit Agreement. In connection with the Securitization Facility, the indenture governing the Notes was amended to remove from the collateral thereunder accounts receivable of the Company sold to BFC in accordance with the Securitization Facility. 7 8 As a result of the matter referred to in Note 8 of the Financial Statements included elsewhere herein, the Company was in violation of various covenants under its previous credit facility with Bank of Boston, the Securitization Facility and the Revolving Credit Agreement, and the Company's wholly-owned subsidiary, BFC, was in violation of various covenants under the Securitization Facility. Subsequently, on July 12, 1996, the Company and BFC obtained waivers of such violations and related amendments. On July 26, 1996, the Company was notified that the Agent of the Securitization Facility desires to extinguish the commitment under the facility. On August 15, 1996, the Company entered into a commitment letter with Bank of Boston relating to an $85 million revolving credit facility that would replace the existing Revolving Credit Agreement and the commitment under the Securitization Facility. The Company is currently working with the Bank of Boston with respect to definitive documentation of such new facility and with the Note holders for their consent to such transactions and anticipates the consummation thereof in the near future. The new revolving credit facility will be collateralized by the Company's inventory and accounts receivable. The Company believes that funds available under the Securitization Facility and the Revolving Credit Agreement or, upon the refinancing thereof, under the new revolving credit facility and funds generated from operations will provide sufficient working capital for the financing of inventory and accounts receivable as well as for the Company's expansion plans and other purposes, for the foreseeable future. As of May 31, 1995, the Company has available approximately $7,800,000 of remaining useable aggregate net operating loss carryovers for federal income tax return purposes expiring through 2008. As a result of the Company's Chapter 11 reorganization, an ownership change occurred and the utilization of the loss carryovers of the predecessor company was limited to approximately $1,160,000 of taxable income annually for up to 15 years, commencing June 1992. An ownership change occurs if, immediately after any owner shift or equity structure shift, the percentage of stock owned by one or more "5-percent shareholders" has increased by more than 50 percentage points over the lowest percentage held by such shareholders at any time during the testing period. Additionally, recapitalization transactions completed on December 22, 1993 resulted in the issuance of approximately 49 percent of the aggregate outstanding shares of Common Stock of the Company, and therefore resulted in approximately 49 percentage points of change of ownership for federal income tax purposes. Further, during 1994, a private investor purchased in excess of 5 percent of the Company's outstanding Common Stock in the open market, resulting in an additional 5 percentage points of change. Consequently, a third ownership change has occurred, which further limited the Company's ability to utilize its net operating loss and tax credit carryovers (including any net operating losses and tax credits generated since the first ownership change). For financial reporting purposes, utilization of net operating loss carryovers of the predecessor company is reflected as a credit to Common Stock. 8 9 QUARTERLY RESULTS OF OPERATION The following is a summary of the unaudited quarterly results of operations for the years ended May 31, 1995 and 1994. The following share and income per share data have been restated to reflect a one-for-five reverse stock split:
Three Months Ended ---------------------------------------------------------------- May 31, February 28, November 30, August 31, 1995 1995 1994 1994 ---- ---- ---- ---- (As Restated) (1) 1995 - ------------- Net sales $29,149,000 $50,948,000 $31,410,000 $24,548,000 Cost of goods sold, buying and occupancy 17,513,000 28,024,000 18,534,000 14,836,000 Income (loss) before income taxes (1,612,000) 5,971,000 (985,000) (1,468,000) Net income (loss) (205,000) 3,583,000 (591,000) (881,000) Income (loss) per share $(.05) $.90 $(.15) $(.22) Weighted average number of common shares outstanding 3,968,976 3,968,980 3,969,019 3,969,019
Three Months Ended ------------------------------------------------------------- May 31, February 28, November 30, August 31, 1994 1994 1993 1993 ---- ---- ---- ---- 1994 - ------------- Net sales $24,850,000 $41,407,000 $26,139,000 $21,627,000 Cost of goods sold, buying and occupancy 13,999,000 21,472,000 14,195,000 12,486,000 Income (loss) before income taxes (612,000) 4,553,000 (143,000) (1,250,000) Net income (loss) (401,000) 3,333,000 (143,000) (1,250,000) Income (loss) per share $(.10) $.95 $(.07) $(.62) Weighted average number of common shares outstanding 3,969,019 3,516,068 2,027,800 2,030,000
(1) Subsequent to the original filing of the May 31, 1995 form 10-K, the Company identified a mathematical error in the accumulation of its merchandise inventories as of May 31, 1995. The error was detected during the reconciliation of the physical inventory results for March 1996. The effect of the restatement was to decrease inventory by $1,547,000 at May 31, 1995 and net income by $883,000 or $.22 per common share for the year ended May 31, 1995. See Note 8 to the Financial Statements in "Financial Statements - Notes to Financial Statements." 9 10 INFLATION The impact of inflation on the cost of merchandise (including gems and metals), labor, occupancy and other operating costs can affect the Company's results. For example, most of the Company's leases require the Company to pay taxes, maintenance, insurance, repairs and utility costs, all of which are subject to inflationary pressures. To the extent permitted by competition, in general the Company passes increased costs to the customer by increasing sales prices over time. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K.
1. Financial statements: Page Number ----------- Report of Independent Auditors - Deloitte & Touche LLP F-1 Report of Independent Auditors - Ernst & Young LLP F-2 Balance Sheets as of May 31, 1995 (As Restated) and 1994 F-3 For the Years Ended May 31, 1995 (As Restated) and May 31, 1994 (Company), Eleven Months Ended May 31, 1993 (Company), and Month Ended June 30, 1992 (Predecessor): Statements of Operations F-5 Statements of Shareholders' Equity F-6 Statements of Cash Flows F-7 Notes to Financial Statements F-9
2. Financial Statement Schedules For the Years Ended May 31, 1995 (As Restated) and May 31, 1994 (Company), Eleven Months Ended May 31, 1993 (Company), and Month Ended June 30, 1992 (Predecessor): Schedule II - Valuation and Qualifying Accounts and Reserves F-24
All financial statement schedules, other than the above, for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required and therefore have been omitted. 10 11 3. Index to Exhibits:
(a) Exhibit No. Description ----------- ----------- 3.1* Restated Articles of Incorporation filed June 30, 1992 3.2* Restated Bylaws adopted as of June 30, 1992 3.3x Restated Articles of Incorporation filed November 16, 1994 in connection with the Reverse Stock Split. 4.1** Amended Plan of Reorganization, as modified, confirmed by entry of order on June 19, 1992 4.2* Indenture dated as of June 30, 1992 between Barry's Jewelers, Inc. and Bankers Trust Company, as Trustee, with respect to 12-5/8% Senior Subordinated Amortizing Notes due May 15, 1996 ("Subordinated Notes") 4.3* Warrant Agreement dated as of June 30, 1992 between Barry's Jewelers, Inc. and Bankers Trust Company, as Warrant Agent, with respect to Warrants to acquire Common Stock 4.4* Form of Common Stock certificate 4.5* Form of Subordinated Notes certificate 4.6* Form of Warrant certificate 4.7* Grant of Registration Rights dated June 30, 1992 4.8**** Indenture, dated as of December 22, 1993, between Barry's Jewelers, Inc. and First Trust National Association, as trustee (the "Trustee"), with respect to the 11% Senior Secured Notes due December 22, 2000, including form of Note certificate 4.8(a)x Amendment No. 1 to Indenture, dated as of February 14, 1994, between Barry's Jewelers, Inc. and the Trustee 4.8(b)x Amendment No. 2 to Indenture, dated March 18, 1994, between Barry's Jewelers, Inc. and the Trustee 4.9**** Exchange Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto
11 12 4.10**** Senior Secured Notes Registration Rights Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto 4.11**** Common Stock Registration Rights Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto 4.12 Collateral Agency and Intercreditor Agreement (See Exhibit 10.2) 4.13 Revolving Credit Agreement (See Exhibit 10.1) 4.14 Security Agreement (See Exhibit 10.3) 4.15 Trademark Collateral Security and Pledge Agreement (See Exhibit 10.4) 4.16o Amendment No. 3, dated as of December 21, 1995, to Indenture dated as of December 22, 1993 by and between the Company and the Trustee 4.17o Amendment Agreement No. 1, dated as of December 21, 1995, to Collateral Agency and Intercreditor Agreement dated as of December 22, 1993 among Bank of Boston, the Trustee and the Company 10.1**** Revolving Credit Agreement, dated as of December 22, 1993, by and among the Company, FNBB, as lender and as agent thereunder 10.2**** Collateral Agency and Intercreditor Agreement, dated as of December 22, 1993, among The First National Bank of Boston ("FNBB"), as collateral agent for the secured parties and as agent for the lenders (under the New Credit Agreement), the Trustee, on behalf of the holders of the Notes, and the Company 10.3**** Security Agreement, dated as of December 22, 1993, between the Company and FNBB, as collateral agent for the secured parties 10.4**** Trademark Collateral Security and Pledge Agreement, dated as of December 22, 1993, between the Company and FNBB, as collateral agent for the secured parties 10.5*** Lease dated February 1, 1990, between the El Monte Partnership as Landlord and Barry's Jewelers, Inc. as Tenant 10.6* Employee Incentive Stock Plan adopted June 30, 1992
12 13 10.7* Employee Stock Option Plan adopted June 30, 1992 10.8***** Employment Agreement dated March 1, 1993, between the Company and Terry L. Burman 10.8(a)****** Amendment to Employment Agreement dated November 2, 1993 between the Company and Terry L. Burman 10.9***** Consulting Agreement dated March 1, 1993, between the Company and Gerson I. Fox 10.10***** Consulting Agreement dated March 1, 1993, between the Company and David Blum 10.10(a)x Consulting Agreement between the Company and Alan R. Hoefer 10.11***** Executive Incentive Bonus Plan for the year ended May 31, 1994. 10.11(a)x Executive Incentive Bonus Plan for the year ended May 31, 1995. 10.12***** Lease dated December 1, 1990, between Gerson I. Fox and David Blum, as Lessors, and BBF Jewelers Management, Inc., as Lessee. 10.13**** Revolving Credit Agreement dated as of December 22, 1993 among Barry's Jewelers, Inc., The First National Bank of Boston as Agent and as the lender thereunder 10.13(a)x Amendment No. 1 to Credit Agreement and Waiver 10.13(b) Amendment No. 1 and Waivers of Certain Events of Default 10.14**** Security Agreement dated as of December 22, 1993 among Barry's Jewelers, Inc. and The First National Bank of Boston 10.15**** Trademark Collateral Security and Pledge Agreement dated as of December 22, 1993 among Barry's Jewelers, Inc. and The First National Bank of Boston 10.16**** Collateral Agency and Intercreditor agreement dated as of December 22, 1993 among The First National Bank of Boston, as Agent, First Trust National Association, as Trustee, and Barry's Jewelers, Inc. 10.17(check) Deferred Compensation Plan
13 14 10.18(check) Executive Deferral Plan 10.19(check) Executive Bonus Plan - Master Plan Document 10.20(check) Executive Bonus Plan - Trust Agreement 10.21x Employee Stock Purchase Plan 10.22o Originator Purchase Agreement dated as of December 21, 1995 among the Company and Funding 10.22(a) Waiver No.1 to Originator Purchase Agreement Dated as of December 21, 1995 10.23o Receivables Purchase Agreement dated as of December 21, 1995 among Funding, Triple-A One, CapMAC and the Company 10.23(a) Amendment No.3 and Waiver to Receivables Purchase Agreement Dated as of December 21, 1995 10.24o Intercreditor Agreement dated as of December 21, 1995 by and among Bank of Boston, Funding, the Company, Triple-A One, CapMAC and the Trustee 10.25o Amended and Restated Revolving Credit Agreement dated as of December 21, 1995 among the Company, Bank of Boston and the Lenders party hereto 10.26o Form of Amended and Restated Security Agreement dated as of December 21, 1995 among the Company and Bank of Boston 10.27o Amended and Restated Trademark Collateral Security and Pledge Agreement dated as of December 21, 1995 among the Company and Bank of Boston 10.28o Stock Pledge Agreement dated as of December 21, 1995 by and between the Company and Bank of Boston 21 Barry's Jewelers, Inc. has a subsidiary, Barry's Funding Corp. 23 Consents of Independent Auditors 99.1 Press Release dated July 12, 1996
14 15 * Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1992. ** Incorporated herein by reference to Current Report on Form 8-K filed June 23, 1992. *** Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1990. **** Incorporated herein by reference to Current Report on Form 8-K filed December 23, 1993. ***** Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1993. ****** Incorporated herein by reference to the indicated exhibits filed in response to Item 6, "Exhibits," of the Company's Quarterly Report on Form 10-Q for the Quarter ended November 30, 1993. (check) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1994. X Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1995. o Incorporated herein by reference to Current Report on Form 8-K filed December 21, 1995.
(b) Reports on Form 8-K Incorporated herein by reference to the Form 8-K dated November 1, 1994 in response to Item 4, Changes in Registrant's Certifying Accountant. 15 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BARRY'S JEWELERS, INC. August 30, 1996 By: /S/ROBERT W. BRIDEL ----------------------- ROBERT W. BRIDEL PRESIDENT AND CHIEF EXECUTIVE OFFICER 16 17 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Barry's Jewelers Inc. Monrovia, California We have audited the accompanying balance sheet of Barry's Jewelers Inc. (the "Company") as of May 31, 1995, and the related statements of operations, shareholders' equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 14a. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Barry's Jewelers Inc. as of May 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 8, the accompanying 1995 financial statements have been restated. /s/ DELOITTE & TOUCHE LLP Los Angeles, California August 3, 1995, except for Note 8, as to which the date is August 15, 1996. F-1 18 Report of Independent Auditors Board of Directors and Shareholders Barry's Jewelers, Inc. We have audited the accompanying balance sheet of Barry's Jewelers, Inc. as of May 31, 1994 and the related statements of operations, shareholders' equity, and cash flows for the year ended May 31, 1994 (Company), for the eleven month period ended May 31, 1993 (Company) and one month period ended June 30, 1992 (Predecessor). These financial statements are the responsibility of the Company's management. Our audit also included the financial statement schedule listed in the Index at Item 14(a). Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Barry's Jewelers, Inc. at May 31, 1994, and the results of its operations and its cash flows for the year ended May 31, 1994 (Company), the eleven month period ended May 31, 1993 (Company) and the one month period ended June 30, 1992 (Predecessor) in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Los Angeles, California August 8, 1994 F-2 19 BARRY'S JEWELERS, INC. BALANCE SHEETS
May 31, 1995 1994 -------------- ------------ (As Restated) (Note 8) ASSETS (Notes 1 and 2) Current assets: Cash $ 954,000 $ 1,098,000 Customer receivables, net of allowance for doubtful accounts of $11,662,000 (1995) and $11,162,000 (1994) 69,392,000 63,199,000 Merchandise inventories 53,835,000 42,575,000 Deferred taxes (Note 5) 1,000,000 118,000 Prepaid expenses and other current assets 2,027,000 886,000 ------------ ------------ Total current assets 127,208,000 107,876,000 Property and equipment: Leasehold improvements, furniture and fixtures 20,275,000 15,253,000 Machinery and equipment 3,438,000 2,612,000 ------------ ------------ 23,713,000 17,865,000 Less accumulated depreciation and amortization 8,013,000 5,741,000 ------------ ------------ Net property and equipment 15,700,000 12,124,000 Other assets, net of amortization of deferred debt issuance costs of $552,000 (1995) and $237,000 (1994) 1,742,000 2,252,000 ------------ ------------ Total assets $144,650,000 $122,252,000 ============ ============
See notes to financial statements. F-3 20 BARRY'S JEWELERS, INC. BALANCE SHEETS
May 31, 1995 1994 -------------- -------------- (AS RESTATED) (Note 8) LIABILITIES AND SHAREHOLDERS' EQUITY (Note 1) Current liabilities: Current portion of long-term debt (Notes 2 and 3) $ 488,000 $ 466,000 Accounts payable - trade 10,133,000 7,430,000 Accrued wages and benefits 2,649,000 2,507,000 Accrued interest 786,000 679,000 Other accrued liabilities 2,970,000 2,134,000 --------------- -------------- Total current liabilities 17,026,000 13,216,000 Long-term debt, less current maturities (Notes 2 and 3) 91,880,000 75,469,000 Lease commitments and contingencies (Note 6) Shareholders' equity (Notes 2, 3 and 7) Common stock, no par value: authorized - 8,000,000 shares; issued and outstanding, 3,968,975 shares (1995) and 3,969,019 shares (1994) 32,936,000 32,715,000 Retained earnings 2,808,000 902,000 Deferred compensation - (50,000) --------------- -------------- Total shareholders' equity 35,744,000 33,567,000 --------------- -------------- Total liabilities and shareholders' equity $ 144,650,000 $ 122,252,000 =============== ==============
See notes to financial statements. F-4 21 BARRY'S JEWELERS, INC. STATEMENTS OF OPERATIONS
COMPANY PREDECESSOR ------------------------------------------------- --------------- YEAR YEAR ELEVEN MONTHS MONTH ENDED ENDED MAY 31, ENDED MAY 31, ENDED MAY 31, JUNE 30, 1995 1994 1993 1992 --------------- --------------- ----------------- --------------- (AS RESTATED) (Note 8) Net sales $136,055,000 $114,023,000 $99,270,000 $7,070,000 Finance and credit insurance charges 15,681,000 14,487,000 13,037,000 1,229,000 --------------- --------------- ----------------- --------------- 151,736,000 128,510,000 112,307,000 8,299,000 Costs and expenses: Cost of goods sold, buying and occupancy 78,907,000 62,152,000 54,493,000 4,225,000 Selling, general and administrative expenses (Note 4) 50,966,000 46,341,000 41,863,000 3,859,000 Provision for doubtful accounts 10,193,000 9,723,000 10,187,000 756,000 --------------- --------------- ----------------- --------------- 140,066,000 118,216,000 106,543,000 8,840,000 --------------- --------------- ----------------- --------------- Operating income (loss) 11,670,000 10,294,000 5,764,000 (541,000) Interest expense, net 9,764,000 7,746,000 6,401,000 644,000 --------------- --------------- ----------------- --------------- Income (loss) before income taxes 1,906,000 2,548,000 (637,000) (1,185,000) Provision for income taxes (Note 5) - 1,009,000 - - --------------- --------------- ----------------- --------------- Income (loss) before extraordinary item 1,906,000 1,539,000 (637,000) (1,185,000) Extraordinary item (Note 3) - - - 49,229,000 --------------- --------------- ----------------- --------------- Net income (loss) $1,906,000 $1,539,000 ($637,000) $48,044,000 =============== =============== ================= =============== Income (loss) per share: Income (loss) before extraordinary item $0.48 $0.53 ($0.32) ($1.18) Extraordinary item - - - 49.20 --------------- --------------- ----------------- --------------- Net income (loss) per share $0.48 $0.53 ($0.32) $48.02 =============== =============== ================= =============== Weighted average number of common shares outstanding 3,968,998 2,902,359 2,008,182 1,000,413 =============== =============== ================= ===============
See notes to financial statements. F-5 22 BARRY'S JEWELERS, INC. STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK RETAINED ---------------------------- EARNINGS SHARES AMOUNT (DEFICIT) ------------- ------------- --------------- Balance at May 31, 1992 (Predecessor) 1,000,413 $12,248,000 ($44,528,000) Net income for the month ended June 30, 1992 - - 48,044,000 Elimination of retained earnings at Effective Date - 3,516,000 (3,516,000) Cancellation of common stock (1,000,413) (15,764,000) - ------------- ------------- --------------- Balance at June 30, 1992 (Predecessor) - - - ============= ============= =============== Balance at June 30, 1992 (Company) - - - Issuance of common stock at reorganization value at Effective Date 2,000,000 $16,899,000 - Net loss for the eleven months ended May 31, 1993 - - ($637,000) Collections on notes due from former directors - - - Shares issued pursuant to restricted stock plan 30,000 150,000 - ------------- ------------- --------------- Balance at May 31, 1993 (Company) 2,030,000 17,049,000 (637,000) Net income for the year ended May 31, 1994 - - 1,539,000 Shares issued pursuant to recapitalization 1,941,219 14,735,000 - Utilization of Predecessor net operating loss carryovers - 931,000 - Collections on notes due from former directors - - - Shares cancelled pursuant to restricted stock plan (2,200) - - Amortization of deferred compensation - - - ------------- ------------- --------------- Balance at May 31, 1994 (Company) 3,969,019 32,715,000 902,000 Net income for the year ended May 31, 1995 (As Restated) (Note 8) - - 1,906,000 Utilization of Predecessor net operating loss carryovers - 221,000 - Shares cancelled pursuant to reverse stock split (44) - - Amortization of deferred compensation - - - ------------- ------------- --------------- Balance at May 31, 1995 (Company) (As Restated) 3,968,975 $32,936,000 $2,808,000 ============= ============= =============== NOTES DUE FROM FORMER DEFERRED DIRECTORS COMPENSATION TOTAL ------------- ------------- -------------- Balance at May 31, 1992 (Predecessor) ($215,000) - ($32,495,000) Net income for the month ended June 30, 1992 - - 48,044,000 Elimination of retained earnings at Effective Date - - - Cancellation of common stock - - (15,764,000) ------------- ------------- -------------- Balance at June 30, 1992 (Predecessor) ($215,000) - ($215,000) ============= ============= ============== Balance at June 30, 1992 (Company) ($215,000) - ($215,000) Issuance of common stock at reorganization value at Effective Date - - 16,899,000 Net loss for the eleven months ended May 31, 1993 - - (637,000) Collections on notes due from former directors 77,000 - 77,000 Shares issued pursuant to restricted stock plan - ($100,000) 50,000 ------------- ------------- -------------- Balance at May 31, 1993 (Company) (138,000) (100,000) 16,174,000 Net income for the year ended May 31, 1994 - - 1,539,000 Shares issued pursuant to recapitalization - - 14,735,000 Utilization of Predecessor net operating loss carryovers - - 931,000 Collections on notes due from former directors 138,000 - 138,000 Shares cancelled pursuant to restricted stock plan - - - Amortization of deferred compensation - 50,000 50,000 ------------- ------------- -------------- Balance at May 31, 1994 (Company) - (50,000) 33,567,000 Net income for the year ended May 31, 1995 (As Restated) (Note 8) - - 1,906,000 Utilization of Predecessor net operating loss carryovers - - 221,000 Shares cancelled pursuant to reverse stock split - - - Amortization of deferred compensation - 50,000 50,000 ------------- ------------- -------------- Balance at May 31, 1995 (Company) (As Restated) $ - $ - $35,744,000 ============= ============= ==============
See notes to financial statements. F-6 23 BARRY'S JEWELERS, INC. STATEMENTS OF CASH FLOWS
COMPANY PREDECESSOR ------------------------------------------ ------------- ELEVEN YEAR YEAR MONTHS ENDED MONTH ENDED ENDED MAY 31, ENDED MAY 31, MAY 31, JUNE 30, 1995 1994 1993 1992 ------------- -------------- -------------- -------------- (AS RESTATED) (Note 8) OPERATING ACTIVITIES Net income (loss) $1,906,000 $1,539,000 ($637,000) $48,044,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary gain - - - (49,229,000) Depreciation and amortization 3,854,000 3,257,000 2,730,000 218,000 Compensation on issuance of common stock 50,000 50,000 50,000 - Provision for doubtful accounts 10,193,000 9,723,000 10,187,000 756,000 Loss on sale or abandonment of property and equipment 101,000 13,000 - - Deferred income taxes (882,000) (118,000) - - Changes in operating assets and liabilities: Customer receivables (16,386,000) (11,742,000) (12,199,000) 392,000 Merchandise inventories (11,260,000) 677,000 (3,800,000) 452,000 Prepaid expenses and other current assets (1,141,000) (42,000) 294,000 583,000 Other assets (42,000) (2,000) 71,000 (33,000) Accounts payable - trade 2,703,000 (1,432,000) 3,798,000 475,000 Accrued liabilities 1,306,000 2,338,000 630,000 (938,000) ------------- -------------- -------------- -------------- Net cash provided by (used in) operating activities (9,598,000) 4,261,000 1,124,000 720,000 INVESTING ACTIVITIES Purchase of property and equipment (6,516,000) (2,848,000) (1,488,000) - Proceeds on sale of assets 24,000 - 70,000 - ------------- -------------- -------------- -------------- Net cash used in investing activities (6,492,000) (2,848,000) (1,418,000) - FINANCING ACTIVITIES Implementation of Reorganization Plan: Pay pre-petition trade accounts payable - - - (4,516,000) Payment on 12-5/8% Subordinated Notes - - - (2,550,000) Cash applied to revolving facility - - - (2,841,000) ------------- -------------- -------------- -------------- Net cash used in Reorganization Plan - - - (9,907,000) Net proceeds from revolving facility 16,507,000 7,186,000 5,476,000 - Principal payments on long-term debt (561,000) (5,269,000) (6,642,000) (11,000) Cash in escrow - - - (333,000) Reduction of long-term debt pursuant to Recapitalization - (1,498,000) - - Recapitalization costs - (2,412,000) - - Decrease in notes due from former directors - 138,000 77,000 - ------------- -------------- -------------- -------------- Net cash provided by (used in) financing activities 15,946,000 (1,855,000) (1,089,000) (10,251,000) ------------- -------------- -------------- -------------- Increase (decrease) in cash (144,000) (442,000) (1,383,000) (9,531,000) Cash at beginning of period 1,098,000 1,540,000 2,923,000 12,454,000 ------------- -------------- -------------- -------------- Cash at end of period $954,000 $1,098,000 $1,540,000 $2,923,000 ============= ============== ============== ==============
See notes to financial statements. F-7 24 BARRY'S JEWELERS, INC. STATEMENTS OF CASH FLOWS
COMPANY PREDECESSOR ------------------------------------------- ------------- ELEVEN YEAR YEAR MONTHS ENDED MONTH ENDED ENDED MAY 31, ENDED MAY 31, MAY 31, JUNE 30, 1995 1994 1993 1992 ------------- -------------- -------------- ------------- (AS RESTATED) (Note 8) Supplemental disclosure of cash flow information: Cash paid for: Interest $9,105,000 $7,106,000 $6,458,000 $695,000 Income taxes $976,000 $56,000 - -
Supplemental schedule of noncash investing and financing activities: During 1995, a capital lease obligation of $487,000 was incurred when the Company entered into a lease for new equipment. During fiscal 1995 and 1994, the Company recognized the utilization of the Predecessor's net operating loss carryovers for tax purposes of $221,000 and $931,000, respectively, as an increase to common stock and a reduction to current taxes payable (see Note 5). See notes to financial statements. F-8 25 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1995 (AS RESTATED) AND 1994, ELEVEN MONTHS ENDED MAY 31, 1993 AND MONTH ENDED JUNE 30, 1992. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FRESH START REPORTING The American Institute of Certified Public Accountants has issued Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). Pursuant to SOP 90-7, the Company qualified for fresh start reporting as of June 30, 1992. Under this concept, all assets and liabilities are restated to current value of the reorganized entity, which approximates the Company's fair value at the date of reorganization. Barry's Jewelers, Inc. is referred to as the Predecessor through and including June 30, 1992 and as the Company subsequent to June 30, 1992. The Company obtained a valuation of the reorganized entity from its financial consultant to determine an estimate of the Company's reorganization value. The valuation estimated the reorganization value (total assets less noncurrent liabilities of the Company) to be approximately $17 million. The Company performed a final valuation at year-end of existing assets and liabilities and recorded adjustments to the historical book value at June 30, 1992 of certain leasehold improvements and furniture and fixtures of $1,135,000. The Company determined that the fair value of remaining assets and liabilities approximated their historical carrying value, and as such, no further valuation adjustments were recorded. In addition, the accumulated surplus of $3,516,000 of the Predecessor was eliminated and its capital structure was adjusted to conform with the approved reorganization plan described in Note 3. BUSINESS DESCRIPTION Barry's Jewelers, Inc. (the "Company") operates a chain of retail stores that sell fine jewelry and watches and utilize credit financing to enhance sales. The Company operated 162 stores on May 31, 1995, and 144 stores on May 31, 1994 and 1993. REVENUE RECOGNITION The Company recognizes revenue upon delivery of merchandise to the customer and either the receipt of a cash payment or approval of a credit agreement. F-9 26 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CUSTOMER RECEIVABLES Customer receivables consist solely of revolving charge accounts with monthly payment amounts established such that the payment of the credit balance will occur, generally, over a period of nine to twenty-four months. In accordance with usual trade practice, customer receivables are included in current assets. The Company performs a credit evaluation using a point scoring system and other factors and grants credit to customers meeting the Company's requirements. Down payments are required on most credit sales. Additionally, the Company routinely assesses the collectibility of its customer receivables. The Company's receivables are with customers residing principally in California and Texas. The Company does business in 16 states, primarily Arizona, California, Colorado, Texas and Utah, as well as in Ohio, Indiana and North and South Carolina. MERCHANDISE INVENTORIES Merchandise inventories, substantially all of which represent finished goods, are stated at the lower of weighted average cost or market. Weighted average cost is determined on the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment in existence at June 30, 1992 were stated at fair values as of that date pursuant to fresh start reporting. Additions since June 30, 1992 are stated at cost. Depreciation and amortization of equipment and leasehold improvements are computed by the straight-line method over the shorter of the following periods or the life of the leases for leasehold improvements:
Years ------- > Leasehold improvements 10 - 15 Furniture and fixtures 5 - 10 Machinery and equipment 5
F-10 27 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEFERRED DEBT ISSUANCE COSTS Deferred debt issuance costs are amortized using the straight-line method over the terms of the various related financing agreements. INCOME TAXES The Company utilizes the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities and are measured at the enacted tax rates that will be in effect when these differences reverse. EARNINGS PER SHARE Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during the periods presented. Common stock equivalents consist of shares issuable upon the exercise of stock options and warrants, and are included in the calculation of the weighted average number of shares outstanding when their effect is dilutive. On November 1, 1994, the Company's Board of Directors declared a 1-for-5 reverse stock split of the Company's common stock and decreased authorized common shares to 8,000,000, effective November 16, 1994. All references in the financial statements to the number of shares and per share amounts have been retroactively adjusted for the reverse stock split and the decrease in the number of authorized shares. RECLASSIFICATIONS Certain reclassifications have been made to prior year amounts to conform to the current year presentation. F-11 28 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. RECAPITALIZATION AND DEBT On December 22, 1993, the Company completed certain recapitalization transactions (the "Recapitalization") pursuant to which the lenders under the then-existing revolving facility (the "Old Revolving Facility") and the then-existing term loan (the "Old Term Loan") exchanged the bank debt outstanding thereunder (approximately $86,498,000 at December 22, 1993 (the "Old Bank Debt")) for, in the aggregate, (i) 1,941,219 shares (as adjusted for the reverse stock split on November 1, 1994) of Common Stock (issued in exchange for $15 million debt conversion), (ii) $70,000,000 aggregate principal amount of 11% Senior Secured Notes (the "Senior Secured Notes") (issued at par), and (iii) cash of approximately $1,498,000. In addition, all accrued interest with respect to the Old Bank Debt was paid on such date. Simultaneously on December 22, 1993, the Company entered into a new revolving credit facility with a new bank (the "New Credit Agreement"). The New Credit Agreement, which has been subsequently amended among other things, to add Shawmut Bank, N.A. as a lender thereby, provides for revolving loans and undrawn letters of credit of up to $40 million (subject to limitations as provided under the New Credit Agreement) with formulas limiting borrowing availability based on the Company's eligible accounts receivable and merchandise inventories. Loans under the New Credit Agreement mature on January 31, 1997, are secured by substantially all of the Company's assets, and contain covenants and events of default which, among other things, limit capital expenditures, indebtedness and payment of dividends and require maintenance of certain financial ratios. Loans bear interest at a per annum rate calculated as (x) the higher of (a) the annual rate of interest announced from time to time by the lender as its "base rate," and (b) 0.5% above the Federal Funds Effective Rate (as defined in the New Credit Agreement) from time to time, plus (y) 1.5%. Eurodollar Rate Loans under the New Credit Agreement bear interest at a per annum rate calculated as the sum of the Eurodollar Rate (as defined in the New Credit Agreement) plus 2.75%. Loans outstanding of $21,625,000 at May 31, 1995 bear a weighted average interest rate of 9.21%. The Senior Secured Notes are due and payable on December 22, 2000, bear interest at 11% per annum, payable semiannually on April 30 and October 31, and have a security interest in the Company's assets that is effectively second in priority to the obligations pursuant to the New Credit Agreement. F-12 29 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. RECAPITALIZATION AND DEBT (CONTINUED) Long-term debt consists of the following:
May 31, 1995 1994 ----------- ----------- New Credit Agreement $21,625,000 $ 5,117,000 11% Senior Secured Notes 70,000,000 70,000,000 Equipment loans 23,000 178,000 12-5/8% Senior Subordinated Notes 320,000 640,000 Capital Lease 400,000 - ----------- ----------- 92,368,000 75,935,000 Less current portion 488,000 466,000 ----------- ----------- Long-term debt $91,880,000 $75,469,000 =========== ===========
Payments of $80,000 plus interest are due quarterly through May 1996 on the 12-5/8% Senior Subordinated Notes (see note 3). The aggregate maturities of long-term debt for the years subsequent to May 31, 1995 are as follows: 1996 $ 488,000 1997 21,801,000 1998 79,000 Thereafter 70,000,000 ----------- Total $92,368,000 ===========
3. REORGANIZATION PLAN On February 26, 1992, Barry's Jewelers, Inc. voluntarily initiated a case under Chapter 11 of the United States Bankruptcy Code and filed its prenegotiated plan of reorganization. On June 19, 1992, the United States Bankruptcy Court for the Central District of California entered an order confirming the Company's Amended Plan of Reorganization, as modified, under Chapter 11 of the United States Bankruptcy Code (the "Reorganization Plan"). The effective date of the Reorganization Plan was June 30, 1992 (Effective Date). F-13 30 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. REORGANIZATION PLAN (CONTINUED) The confirmed Reorganization Plan, as of the Effective Date, provided for the following: (a) Bank Borrowings The Company's credit obligations under the then-existing credit facility, consisting of $95 million principal amount outstanding, were restructured to include Old Term Loan and Old Revolving Facility (which, on the Effective Date, after giving effect to payments on such facilities on that date, were approximately $32,076,000 and $57,716,000, respectively). Interest on the Old Term Loan and Old Revolving Facility accrued at the rate of 2% and 1-3/8% per annum, respectively, over the Bank's prevailing prime rate, subject to increases in the event of default. Principal payments on the Old Term Loan were $341,833 per month until maturity. The Old Revolving Facility provided for advances, with formulas based on the Company's eligible accounts receivable and merchandise inventories, of up to $64,000,000. The Old Term Loan and the Old Revolving Facility were collateralized by substantially all present and future assets of the Company and contained covenants and events of default which, among other things, limit capital expenditures, indebtedness, payment of dividends and investments as well as required the Company to maintain certain financial ratios. See Note 2 for a description of the replacement of the Old Term Loan and the Old Revolving Facility with the New Credit Agreement and Senior Secured Notes on December 22, 1993. In addition, the banks received warrants to purchase an aggregate of 50,000 shares of post-reorganization common stock (Company's Common Stock), an amount equal to 2-1/2% of the shares outstanding as of the Effective Date, at a price of $16.75 per share of the Company's Common Stock, expiring June 30, 2002. (b) Predecessor 12-5/8% Subordinated Notes All of the $46,500,000 aggregate principal amount of the 12-5/8% Subordinated Notes issued in April 1986 (the "Predecessor 12-5/8% Subordinated Notes") were automatically canceled, and in exchange therefor, the holders received an aggregate of $2,550,000 in cash, 1,800,000 shares of the Company's Common Stock representing 90% of the shares outstanding on the Effective Date, and Senior Subordinated Notes due May 15, 1996 in an F-14 31 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. REORGANIZATION PLAN (CONTINUED) (b) Predecessor 12-5/8% Subordinated Notes (continued) aggregate principal amount of $1,200,000. Principal and interest are payable quarterly with the principal payments required to fully amortize the Company's 12-5/8% Subordinated Notes by May 15, 1996. No distribution was made in respect of accrued and unpaid interest on the Predecessor 12-5/8% Subordinated Notes (see note 2). (c) Predecessor Common Stock All shares of the Predecessor's Common Stock outstanding immediately prior to the Effective Date (Predecessor Common Stock) were canceled and the holders received in exchange an aggregate of 140,000 shares of Company Common Stock, representing 7% of the shares outstanding on the Effective Date, and warrants to purchase an aggregate of 160,000 shares of Company Common Stock, an amount which is equivalent to 8% of the shares outstanding as of the Effective Date, at a price of $16.75 per share, expiring June 30, 2002. (d) Other Claims Other Allowed Claims were paid in full in cash at the Effective Date or in accordance with their terms. (e) Management Pursuant to the Reorganization Plan, the Company instituted a new Employee Incentive Stock Plan and a new Employee Stock Option Plan. (For further discussion, see Note 7.) (f) Shares Issued and Outstanding Immediately prior to the Effective Date, the Predecessor had 1,000,413 shares of Common Stock outstanding. On the Effective Date, all shares of the Predecessor's Common Stock were canceled, and the Company issued 2,000,000 shares of Common Stock. F-15 32 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. REORGANIZATION PLAN (CONTINUED) (g) Extraordinary Item The extraordinary item in the month ended June 30, 1992 represents the gain on cancellation of the Predecessor's 12-5/8% Subordinated Notes and related accrued interest ($50,580,000), net of write-off of deferred debt expenses ($1,351,000). The gain resulting from the forgiveness of debt is not taxable for federal and state income tax purposes. 4. RESTRUCTURING CHARGES In connection with a restructuring of its long-term debt obligations and the Company's emergence from Chapter 11 on June 30, 1992, the Company recorded charges for professional fees of approximately $100,000 (eleven months ended May 31, 1993), $450,000 (month ended June 30, 1992) and $4,200,000 (1992). Such fees were originally budgeted to be incurred during the year ended May 31, 1992 but were more appropriately expensed as incurred during the emergence from Chapter 11. These restructuring charges are included in the accompanying financial statements as part of selling, general and administrative expenses. 5. INCOME TAXES At May 31, 1995 and 1994, the Company had available approximately $7,800,000 and $15,000,000, respectively of remaining pre-reorganization usable net operating loss (the "NOL") carryovers for federal income tax purposes expiring through 2008. Pursuant to Internal Revenue Service guidelines, the NOL is subject to further limitation immediately after any owner shift or equity structure shift, if the percentage of stock owned by one or more "five percent shareholders" has increased by more than 50 percentage points over the lowest percentage held by such five percent shareholders at any time during the testing period. In management's belief, the Company experienced such a change in ownership in fiscal 1995. Accordingly, the Company reduced the existing May 31, 1994 NOL by approximately 50%. The utilization of the remaining NOL is limited to $650,000 of taxable income annually for the next 12 years, and, for financial reporting purposes, is recorded as a credit to common stock. Utilization of the NOL for tax purposes resulted in a credit to common stock of approximately $221,000 and $931,000 at May 31, 1995 and 1994, respectively. In addition, the Company reduced F-16 33 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES (CONTINUED) the current provision for May 31, 1994 by approximately $273,000 through the utilization of operating loss carryovers which arose subsequent to the Reorganization. At May 31, 1995, there are no remaining NOL carryovers relating to operating losses occurring subsequent to the Reorganization. At May 31, 1995, the Company recorded a deferred tax benefit of approximately $882,000 due to a reduction in the valuation allowance, as management believes the realization of certain net deferred tax assets is more likely than not. For the fiscal year ended May 31, 1993, the Company did not record a benefit for income taxes because utilization of the NOL was not reasonably assured for financial reporting purposes. The provision for income taxes includes the following:
Year Ended May 31, 1995 1994 --------- ---------- Current: Federal . . . . . . . . . . . . . . . . . . . . . . . $ 853,000 $ 793,000 State . . . . . . . . . . . . . . . . . . . . . . . . 29,000 334,000 --------- ---------- 882,000 1,127,000 Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . (652,000) (118,000) State . . . . . . . . . . . . . . . . . . . . . . . . (230,000) - --------- ---------- (882,000) (118,000) --------- ---------- $ - $1,009,000 ========= ==========
The Company's effective tax rate differs from the statutory federal income tax rate as follows:
Year Ended May 31, 1995 1994 ---------- --------- Statutory rate . . . . . . . . . . . . . . . . . . . . . 35.0% 34.0% Surtax benefit . . . . . . . . . . . . . . . . . . . . . (1.0) - State taxes (net of federal tax) . . . . . . . . . . . . 3.6 3.1 Net operating loss carryforward . . . . . . . . . . . . - (15.9) Valuation allowance . . . . . . . . . . . . . . . . . . (34.8) 18.4 Alternative minimum tax credits . . . . . . . . . . . . (3.8) - Other . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 - ----- ----- Effective tax rate . . . . . . . . . . . . . . . . . - % 39.6% ===== =====
F-17 34 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES (CONTINUED) The components of deferred tax assets (liabilities and valuation allowance) are as follows:
May 31, 1995 1994 -------- --------- Current deferred tax assets: Accounts receivable . . . . . . . . . . . . . . . . . $ 4,682,000 $ 4,480,000 Inventory . . . . . . . . . . . . . . . . . . . . . . 1,073,000 833,000 Vacation accrual . . . . . . . . . . . . . . . . . . 340,000 325,000 State taxes . . . . . . . . . . . . . . . . . . . . . 60,000 40,000 ----------- ----------- 6,155,000 5,678,000 Noncurrent tax assets: Property and leasehold improvements . . . . . . . . . 325,000 636,000 Net operating loss carryforwards . . . . . . . . . . 2,891,000 5,798,000 Other . . . . . . . . . . . . . . . . . . . . . . . . 194,000 89,000 ----------- ----------- 3,410,000 6,523,000 ----------- ----------- Total deferred tax assets . . . . . . . . . . . . . . 9,565,000 12,201,000 Valuation allowance . . . . . . . . . . . . . . . . . (8,565,000) (12,083,000) ----------- ----------- Net deferred tax assets . . . . . . . . . . . . . . . $ 1,000,000 $ 118,000 =========== ===========
6. LEASE COMMITMENTS AND CONTINGENCIES The Company leases store and office facilities and certain equipment used in its regular operations under operating leases which expire at various dates through 2005. The store leases provide for additional rentals based upon sales and for payment of taxes, insurance and certain other expenses. Rent expense charged to operations is as follows:
Company Predecessor ------------------------------------------------- ------------ Eleven Year Year Months Month Ended Ended Ended Ended May 31, May 31, May 31, June 30, 1995 1994 1993 1992 ----------- ----------- ---------- -------- Minimum rentals $9,914,000 $8,201,000 $7,492,000 $666,000 Additional rentals 2,816,000 2,236,000 1,978,000 131,000 ----------- ----------- ---------- -------- $12,730,000 $10,437,000 $9,470,000 $797,000 =========== =========== ========== ========
F-18 35 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. LEASE COMMITMENTS AND CONTINGENCIES (CONTINUED) Included in the above table is rent expense paid to officers/shareholders related to certain stores and the office facility, of $787,000 (1995), $784,000 (1994), $725,000 (eleven months ended May 31, 1993), and $66,000 (month ended June 30, 1992). Minimum rental commitments for all noncancelable leases in effect as of May 31, 1995 are as follows:
Shareholders Others Total ------------ ------ ----- 1996 $ 645,000 $ 8,726,000 $ 9,371,000 1997 629,000 7,335,000 7,964,000 1998 629,000 5,949,000 6,578,000 1999 629,000 5,313,000 5,942,000 2000 629,000 4,271,000 4,900,000 Thereafter 3,147,000 11,805,000 14,952,000 ---------- ----------- ----------- $6,308,000 $43,399,000 $49,707,000 ========== =========== ===========
The Company is from time to time involved in routine litigation incidental to the conduct of its business. Based upon discussions with legal counsel, management believes that its litigation currently pending will not have a material adverse effect on the Company's financial position or results of operations. 7. SHAREHOLDERS' EQUITY Stock Options On July 29, 1992, pursuant to the Reorganization Plan, all previously outstanding employee stock options of the Predecessor were canceled on the Effective Date, and new options were issued to the former holders according to the 1992 Employee Stock Option Plan (the "1992 Stock Option Plan). On November 1, 1994, the shareholders approved the 1994 Employee Stock Option Plan (the "1994 Stock Option Plan"), which terminated the 1992 Stock Option Plan. The termination of the 1992 Stock Option Plan does not affect the outstanding options previously granted under the 1992 Stock Option Plan. At May 31, 1995, there were options to purchase 153,900 shares outstanding under the 1992 Employee Stock Option Plan. F-19 36 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. SHAREHOLDERS' EQUITY (CONTINUED) 1994 Employee Stock Option Plan: The Company's 1994 Employee Stock Option Plan (the "1994 Stock Option Plan") effective November 1, 1994 has a term of ten years and provides for the grant of Incentive Stock Options (ISOs) and Nonqualified Stock Options (NSOs). Options granted are at the fair market value at date of grant for ISOs (or not less than 85% of fair market value for NSOs) and, subject to termination of employment, expire no later than ten years from date of grant, are not transferable, and vest in three equal annual installments as specified by the Audit and Compensation Committee of the Board of Directors. A total of 220,000 shares of common stock may be issued under the 1994 Stock Option Plan. Non-employee directors automatically receive options to purchase 2,000 shares of common stock upon their being added to the Board of Directors and options to purchase 1,000 shares of common stock on the date of each annual meeting of shareholders. F-20 37 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. SHAREHOLDERS' EQUITY (CONTINUED) The following is a summary of the Company stock options granted through May 31, 1995, as adjusted for the reverse stock split (see note 1):
Shares ------ ISO's NSO'S ----- ----- Balance at June 30, 1992 - - Granted at $6.25 - $8.45 per share 152,399 8,000 Terminated (5,112) - ------- ------ Balance at May 31, 1993 147,287 8,000 ------- ------ Granted at $5.00 - $7.50 per share 2,599 5,600 Terminated (6,356) - ------- ------ Balance at May 31, 1994 143,530 13,600 ------- ------ Granted at $5.45 - $7.35 per share the 1992 Option Plan 2,600 - the 1994 Option Plan 94,400 8,800 Terminated the 1992 Option Plan (3,430) (2,400) ------- ------ Balance at May 31, 1995 237,100 20,000 ======= ======
Employee Incentive Stock Plan: The Employee Incentive Stock Plan provides for the grant by the Company of shares of common stock for no consideration (other than past services). The Employee Incentive Stock Plan has a term of ten years. A total of 100,000 shares of common stock were initially reserved for issuance pursuant to the Employee Incentive Stock Plan. As of June 30, 1992, pursuant to the Reorganization Plan, a total of 60,000 shares of common stock were granted to certain members of management of the Company. As a result of the Recapitalization, restrictions on such shares lapsed. An additional 30,000 shares of common stock were granted in 1993 to an officer of the Company subject to restrictions expiring May 31, 1995. The fair market value of the shares of $150,000 at the date of grant is being charged to expense over the three-year vesting period. F-21 38 BARRY'S JEWELERS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. SHAREHOLDERS' EQUITY (CONTINUED) Shares of common stock reserved for future issuance are summarized as follows: Employee Incentive Stock Plan 10,000 1992 Employee Stock Options 153,900 1994 Employee Stock Options 220,000 Warrants (see note 3) 210,000 -------- 593,900 ========
Employee Stock Purchase Plan On November 1, 1994, shareholders of the Company approved the Company's Employee Stock Purchase Plan, which enables substantially all employees of the Company with more than one year of service to purchase shares of the Company's common stock at not less than 85% of the fair market value at the date of purchase during one or more offering periods specified by the Company. A total of 50,000 shares has been authorized for issuance under this plan. At May 31, 1995, no shares of common stock have been purchased under this plan. Other Plans The Board of Directors adopted a qualified 401(k) retirement plan effective June 1, 1995. Substantially all employees of the Company are eligible to participate in the Company's 401(k) plan upon attaining age 21 and six consecutive months of service. Employees may elect to contribute 1% to 15% of their compensation subject to certain IRS limitations. Employer matching contributions are determined annually by a Board of Directors resolution. Participants are partially vested in employer matching contributions after 2 years and fully vested after 5 years. Nonqualified Deferred Compensation Plan On June 1, 1994, a Nonqualified Deferred Compensation Plan was established for the benefit of a select group of management, highly compensated employees and/or Directors who contribute materially to the continued growth, development and business success of the Company. The plan is unfunded for tax purposes and for purposes of Title I of ERISA. F-22 39 8. RESTATEMENT Subsequent to the issuance of the Company's 1995 financial statements, management detected a mathematical mistake in the accumulation of the March 5, 1995 physical merchandise inventories. Accordingly, the accompanying financial statements for the year ended May 31, 1995 have been restated. The effects of this restatement are summarized as follows:
As Previously As Reported Restated As of May 31, 1995: Merchandise inventories $55,382,000 $53,835,000 Prepaid expenses and other current assets $ 1,812,000 $ 2,027,000 Other accrued liabilities $ 3,419,000 $ 2,970,000 Retained earnings $ 3,691,000 $ 2,808,000 For the year ended May 31, 1995: Cost of goods sold, buying and occupancy $77,360,000 $78,907,000 Income before income taxes $ 3,453,000 $ 1,906,000 Net income $ 2,789,000 $ 1,906,000 Net income per share $ .70 $ .48
As a result of the above restatement, the Company was not in compliance with certain covenants under the terms of its New Credit Agreement (see Note 2). However, during December 1995 and in conjunction with a transaction involving the securitization of its receivables, the Company replaced the New Credit Agreement with an amended and restated revolving credit facility (the "Revolving Credit Agreement") which provides for maximum aggregate loans and letters of credit outstanding at any time of not more than $20,000,000 and is collateralized by merchandise inventories. The Revolving Credit Agreement, as further amended on July 12, 1996, also contains certain covenants and restrictions which, among other things, limit capital expenditures, indebtedness and payment of dividends and requires maintenance of certain financial ratios. On July 26, 1996, the Company was notified that the agent of the securitization facility desires to extinguish the commitment under the facility. On August 15, 1996, the Company entered into a commitment letter with Bank of Boston relating to an $85,000,000 revolving credit facility that would replace the existing Revolving Credit Agreement and the commitment under the securitization facility. The Company is currently working with the Bank of Boston with respect to definitive documentation of such new facility and with the Senior Secured Note holders for their consent to such transactions and anticipates the consummation thereof in the near future. The new revolving credit facility will be collateralized by the Company's inventory and accounts receivable. F-23 40 SCHEDULE II BARRY'S JEWELERS, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS ----------------------------- BALANCE AT CHARGED TO TO OTHER BALANCE BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - AT END DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts: Year Ended May 31, 1995 (Company) $11,162,000 $10,501,000 $1,832,000 (a) $11,833,000 (b) $11,662,000 Year Ended May 31, 1994 (Company) 11,500,000 10,018,000 1,936,000 (a) 12,292,000 (b) 11,162,000 Eleven Months Ended May 31, 1993 (Company) 11,834,000 10,187,000 1,683,000 (a) 12,204,000 (b) 11,500,000 Month Ended June 30, 1992 (Predecessor) 12,075,000 756,000 158,000 (a) 1,155,000 (b) 11,834,000
(a) Recoveries from accounts written off. (b) Uncollectible accounts written off. F-24 EX-10.13.(B) 2 AM #1 TO WAIVER OF CERTAIN EVENTS OF DEFAULT 1 The First National Bank of Boston, individually and as agent 100 Federal Street Boston, MA 02110 July 12, 1996 Barry's Jewelers, Inc. 111 West Lemon Avenue Monrovia, California Re: Amendment No. 1 and Waivers of Certain Events of Default Ladies and Gentlemen: We refer to the Amended and Restated Revolving Credit Agreement dated as of December 21, 1995, by and among Barry's Jewelers, Inc. (the "Borrower"), The First National Bank of Boston and the other lenders party thereto (the "Lenders") and The First National Bank of Boston, as agent for the Lenders (the "Agent") (as amended and in effect from time to time, the "Credit Agreement"). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Credit Agreement. The Borrower has informed the Agent and the Lenders that the Borrower's financial statements delivered pursuant to Section 7.4(a) of the Credit Agreement materially misstate the Borrower's income for the fiscal year ending May 31, 1995 for the reasons set forth in the Borrower's press release, dated June 25, 1996, a copy of which is attached hereto as Exhibit A (the "Press Release"). This misstatement also causes misstatements in the Borrower's representations and warranties contained in Section 7.5 and 7.11 of the Credit Agreement, and the Borrower's noncompliance with Section 8.3 and 12.1 of the Credit Agreement. Such misstatements and failures to comply constitute Events of Default under Sections 13.1(c) and (e) of the Credit Agreement and the failure of the Borrower to give the Agent and the Lenders written notice of such Events of Default results in the Borrower's noncompliance with Section 8.5(a) of the Credit Agreement which noncompliance is also an Event of Default under Section 13.1(c) of the Credit Agreement (collectively, the "Specified Events of Default"). The Borrower has also informed the Agent and the Lenders that the Borrower is not in compliance with the Debt Service covenant set forth in Section 10.1 of the Credit Agreement for the fiscal quarter ending May 31, 1996. Such failure to comply constitutes an Event of Default under Section 13. 1(c) of the Credit Agreement. EXHIBIT 10.13(b) 2 -2- The Borrower has requested that the Lenders waive the Specified Events of Default as of the date hereof caused by the aforementioned misstatements and failures to comply. The Borrower has further requested that the Lenders amend Section 10.1 of the Credit Agreement to reduce the minimum Consolidated Operating Cash Flow to Consolidated Total Debt Service ratio required for the fiscal quarter ending May 31, 1996 from 1.30:1 to 1.15:1. Amendment: Each of the Borrower, the Lenders and the Agent hereby amend the Credit Agreement by deleting the table set forth at the end of Section 10.1 and substituting therefor the following table:
Period Ratio ------ ----- Closing Date - 02/29/96 1.30:1 03/01/96 - 05/31/96 1.15:1 06/01/96 - 08/31/96 1.30:1 09/01/96 - 11/30/96 1.40:1 12/01/96 - 08/31/97 1.50:1 09/01/97 - 11/30/97 1.60:1 Thereafter 1.70:1
Upon satisfaction of the conditions set forth in this letter agreement, the foregoing amendment shall be effective as of May 31, 1996. WAIVERS: The Lenders hereby waive the Specified Events of Default as of the date hereof, provided that the Borrower shall have received a waiver (and the Agent shall have received a copy thereof) from the appropriate parties to the Receivables Securitization Facilities Documents of each Event of Termination or Termination Date occurring as a result of any of the Specified Events of Default or the misstatement of the Borrower's income for the fiscal year ending May 31, 1995, which waiver shall be in form and substance satisfactory to the Agent, and provided further that (a) if any action, suit, proceeding or arbitration, whether in law or in equity, is commenced or filed against the Borrower or any of its Subsidiaries as a result of the misstatement of the Borrower's income for the fiscal year ending May 31, 1995 or the investigation (the "Investigation") by the Securities Exchange Commission (the "SEC") of the Borrower relating to the subject matter of the Press Release, such commencement or filing shall constitute a Default under the Credit Agreement and, if such action, suit, proceeding or arbitration is not dismissed within thirty (30) days of the date of such filing or commencement, an immediate Event of Default under the Credit Agreement or (b) if the SEC or any other governmental authority commences any formal action or proceedings against the Borrower, any of its Subsidiaries, or any of their respective directors, officers or employees (including, by way of example and not limitation, the issuance of a cease and desist order, the filing of a criminal indictment or the 3 -3- commencement of a civil suit seeking injunctive relief or the award of penalties, damages or liabilities) in connection with the matters described in the Press Release, the Agent may and, at the request of the Majority Lenders, shall declare the occurrence of an Event of Default under the Credit Agreement, which Event of Default shall become effective immediately upon the receipt by the Borrower of written notice of such declaration. Miscellaneous: The waivers granted herein are limited strictly to their terms and shall apply only to the specific provisions described herein. The Lenders shall not have any obligation to issue any further waiver with respect to the subject matter of the waivers granted herein or any other waivers. The waivers contained herein shall not extend to or affect any other obligations of the Borrower or its Subsidiaries contained in the Credit Agreement or any other Loan Documents and shall not impair or prejudice any rights consequent thereon. The Borrower hereby represents and warrants to the Lenders and the Agent that, except as specifically waived herein, each of the representations and warranties of any of the Borrower and its Subsidiaries contained in the Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with the Credit Agreement were true as of the date as of which they were made and are also true at and as of the date hereof, with the same effect as if made at and as of the date hereof (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default has occurred and is continuing. The effectiveness of this letter agreement shall be conditioned upon receipt by the Agent and the Lenders of this letter agreement accepted and agreed to by the Borrower. This letter agreement may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original and all of which together shall constitute one instrument. THIS LETTER AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW). 4 -4- This letter agreement shall constitute a Loan Document under and as defined in the Credit Agreement. Very truly yours, The First National Bank of Boston, individually and as Agent By: /s/ ELIZABETH A RATTO ------------------------------- Title: VICE PRESIDENT Accepted and Agreed: Barry's Jewelers, Inc. By: ------------------------------- Title: 5 -4- This letter agreement shall constitute a Loan Document under and as defined in the Credit Agreement. Very truly yours, The First National Bank of Boston, individually and as Agent By: ------------------------------- Title: Accepted and Agreed: Barry's Jewelers, Inc. By: /s/ THOMAS S. LISTON ------------------------------- Title: Vice Chairman & CFO EX-10.22.(A) 3 WAIVER #1 TO ORIG PURCHASING AGREEMENT 1 WAIVER NO. 1 to ORIGINATOR PURCHASE AGREEMENT Dated as of December 21, 1995 THIS WAIVER NO. 1 ("Waiver") dated as of July 11, 1996, is entered into between Barry's Funding Corp., a Delaware corporation ("BFC"), as Purchaser, and Barry's Jewelers, Inc., a California corporation ("Barry's Jewelers"), as Originator. Capitalized terms used herein without definition shall have the meanings ascribed thereto in the "Originator Purchase Agreement" referred to below, or in the "Investor Purchase Agreement" (as defined therein). PRELIMINARY STATEMENTS: A. BFC and Barry's Jewelers are parties to that certain Originator Purchase Agreement dated as of December 21, 1995, as amended pursuant to Amendment No. 1 dated as of April 19, 1996 and as further amended pursuant to Amendment No. 2 dated as of June 17, 1996 (as so amended, the "Originator Purchase Agreement"). B. The Originator has informed the Agent and the Purchaser that the Originator's financial statements delivered by the Originator to the Seller under Section 4.01(r) of the Originator Purchase Agreement materially misstate the Originator's income for the fiscal year ending May 31, 1995, for the reasons set forth in the Originator's press release, dated June 25, 1996, a copy of which is attached hereto as Annex 1 (the "Press Release"). C. The misstatement described in clause B of these Preliminary Statements constitutes a breach of certain representations and warranties set forth in Section 4.01(h) and 4.01(r) of the Originator Purchase Agreement, and gives rise to a breach of certain covenants of the Originator set forth in Section 5.01(d) of the Originator Purchase Agreement. Such misstatement and breaches constitute Events of Termination under Section 7.01(a), Section 7.01(c) or Section 7.01(d) of the Originator Purchase Agreement (as the case may be), and the "Events of Termination" under the Investor Purchase Agreement described in the clauses E and F of these Preliminary Statements give rise to an additional Event of Termination under Section 7.01(i) of the Originator Purchase Agreement (collectively, the "OPA Misstatement Events of Termination"). D. In addition, the Originator has acknowledged to the Agent and the Purchaser that the Originator is in breach of the EXHIBIT 10.22(a) 2 following covenants under the originator Purchase Agreement, to the extent described below: 1. Under the provisions of Section 5.02(a) of the Originator Purchase Agreement, the Originator has failed to furnish the required consolidating financial statements of the Purchaser (with appropriate officer's certifications) for the fiscal quarter which ended in February of 1996. 2. Under the provisions of Section 5.02(b) of the Originator Purchase Agreement, the Originator has failed to furnish the required monthly financial statements of the Purchaser and the Originator and its consolidated subsidiaries (with appropriate officer's certifications) for each of the months of January, March and April of 1996. 3. The failure of the Originator to deliver a written statement relating to the Events of Termination under the Originator Purchase Agreement described in these Preliminary Statements and the Events of Default described in the draft dated July 3, 1996 of a letter amendment and waiver dated July 12, 1996 from Bank of Boston to the Originator, purporting to amend or waive certain provisions of the Revolving Credit Agreement (the "Bank of Boston Waiver"), constitutes a breach of the Originator's covenant in Section 5.02(e) of the originator Purchase Agreement. Each of the foregoing breaches gives rise to an additional "Event of Termination" under Section 7.01(d) of the Originator Purchase Agreement (collectively, the "OPA Reporting Events of Termination", and together with the OPA Misstatement Events of Termination, the "Specified OPA Events of Termination"). E. The misstatement described in clause B of these Preliminary Statements also constitutes a breach of certain representations and warranties set forth in Section 4.01(h) of the Investor Purchase Agreement, and gives rise to a breach of certain covenants of BFC set forth in Section 5.01(d) and Section 5.01(j) of the Investor Purchase Agreement. Such misstatement and breaches constitute "Events of Termination" under Section 7.01(a), Section 7.01(c) or Section 7.01(d) of the Investor Purchase Agreement (as the case may be), and the Specified OPA Events of Termination give rise to an additional "Event of Termination" under Section 7.01(k) of the Investor Purchase Agreement (collectively, the "RPA Misstatement Events of Termination"). F. In addition, the "Servicer" under the Investor Purchase Agreement has acknowledged that BFC is in breach of the 2 3 following covenants under the Investor Purchase Agreement, to the extent described below: 1. Under the provisions of Section 5.02(a) of the Investor Purchase Agreement, BFC has failed to furnish to the Agent the required quarterly consolidating financial statements of BFC (with appropriate officer's certifications) for the fiscal quarter which ended in February of 1996. 2. Under the provisions of Section 5.02(b) of the Investor Purchase Agreement, BFC has failed to furnish to the Agent the required monthly financial statements of BFC and the Originator and its consolidated subsidiaries (with appropriate officer's certifications) for each of the months of January, March and April of 1996. 3. Under the provisions of Section 5.02(h) of the Investor Purchase Agreement, BFC has failed to furnish to the Agent the required quarterly compliance certificate of an appropriate officer of the Servicer for the fiscal quarter which ended in February of 1996. 4. Under the provisions of Section 5.02(o), the Agent requested, and BFC failed to deliver to the Agent prior to July 9, 1996, confirmation of BFC's compliance with the covenants set forth in Sections 5.03(r) and 5.03(s) of the Investor Purchase Agreement. 5. The failure of BFC to deliver a written statement to the Agent relating to the "Events of Termination" under the Investor Purchase Agreement described in these Preliminary Statements, and the Events of Default described in the draft dated July 3, 1996 of the Bank of Boston waiver, constitutes a breach of BFC's covenant in Section 5.02(e) of the Investor Purchase Agreement. Each of the foregoing breaches gives rise to an "Event of Termination" under Section 7.01(d) of the Receivables Purchase Agreement (collectively, the "RPA Reporting Events of Termination", and together with the RPA Misstatement Events of Termination, the "Specified RPA Events of Termination"). G. The Originator has requested that BFC agree to waive the Specified OPA Events of Termination in existence as of the date hereof to the extent caused by the above-referenced misstatement and breaches, and, subject in all events to the terms and conditions of this Waiver, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of the parties hereto hereby agrees as follows: 3 4 SECTION 1. Waiver. (a) Effective as of the date first written above and subject to the satisfaction of all of the conditions precedent set forth in Section 2(a) hereof, BFC hereby waives each of the Specified OPA Events of Termination in existence as of the date hereof, to the extent such Specified OPA Events of Termination are caused by the misstatement and breaches specifically described in the Preliminary Statements hereof. (b) The execution, delivery and effectiveness of this Waiver shall not, except to the extent expressly provided in clause (a) above, operate as a waiver of any right, power or remedy of BFC under any of the Purchase Documents, or constitute a waiver of any provision of any of the Purchase Documents. By way of example and not limitation with respect to the foregoing sentence, BFC shall not be deemed to have waived, by virtue of the effectiveness of the waiver described in clause (a) of this Section 1, the breach of any reporting covenant of the Originator under the Originator Purchase Agreement other than the reporting covenants specifically described in the Preliminary Statements hereof as giving rise to the OPA Reporting Events of Termination, whether or not any such breach is determined to have been in existence as of the effective date of the waiver described in clause (a) of this Section 1. SECTION 2. Conditions. The waiver of BFC described in Section 1(a) hereof shall become effective as of the date first written above, only upon: (i) receipt by BFC and the Agent (or its counsel) of counterpart signature pages of this Amendment, executed by each of BFC and Barry's Jewelers; and (ii) receipt by BFC and the Agent (or its counsel) of an executed waiver from the appropriate parties to the Revolving Credit Agreement of each Default or Event of Default known by any of BFC, the Servicer or Bank of Boston to be in existence as of the date hereof (including, without limitation, each Default or Event of Default occurring as a result of any of the Specified RPA Events of Termination or the Specified OPA Events of Termination, or the misstatement of the Originator's income for the fiscal year ending May 31, 1995), which waiver shall be in form and substance satisfactory to BFC. SECTION 3. Confirmation, Acknowledgement and Agreement. Barry's Jewelers hereby acknowledges and confirms to BFC that, in accordance with the terms of Section 6.03(b)(ii) and Amendment No. 1 to the Originator Purchase Agreement, a Lock-Box Account at Glendale Federal Bank has been established subject to an appropriate Lock-Box Agreement with the Agent and such bank as the "Lock-Box Bank", and that substantially all Obligors of Purchased Receivables shall have received by U.S. mail, by no 4 5 later than August 31, 1996, written instructions from the Servicer to direct all items of payment constituting Collections which are remitted by mail to the post office box associated with such Lock-Box Account, for deposit into such Lock-Box Account. Each of BFC and Barry's Jewelers hereby acknowledges that the failure of substantially all such Obligors to receive the notice described in the foregoing sentence on or prior to July 31, 1996, shall constitute a breach of Section 6.03(b)(ii) of the Originator Purchase Agreement and a corresponding Event of Termination under Section 7.01(d) of the Originator Purchase Agreement, effective immediately upon close of business of the Originator on such day. SECTION 4. Covenants, Representations and Warranties of the Originator. (a) Upon the effectiveness of this Waiver, the Originator hereby (i) reaffirms all covenants, representations and warranties made by it in the Originator Purchase Agreement to the extent the same are not specifically waived hereby, (ii) agrees that all such covenants, representations and warranties shall be deemed to have been re-made as of the effective date of this Waiver, and (iii) represents and warrants that no Event or Termination is in effect or is continuing, or would be in effect or continuing but for the lapse of time, or the giving of notice, or both. (b) Each of the Seller and the Servicer hereby represents and warrants that this Amendment constitutes its legal, valid and binding obligation, enforceable against such Person in accordance with its terms. SECTION 5. Reference to and Effect on the Transaction Documents. (a) Except as specifically waived above, the terms and conditions of the Originator Purchase Agreement, of any other Purchase Documents and any other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect and are hereby ratified and confirmed. (b) The execution, delivery and effectiveness of this Waiver shall not operate as a waiver of any right, power or remedy of BFC under the Originator Purchase Agreement or any other Purchase Document or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, in each case except as specifically set forth herein. SECTION 6. Execution in Counterparts. This Waiver may be executed in any number of counterparts and by different 5 6 parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 7. Governing Law. THIS WAIVER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 8. Headings. Section headings in this Waiver are included herein for convenience of reference only and shall not constitute a part of this Waiver for any other purpose. 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed by their respective officers thereunto duly authorized as of the date first above written. PURCHASER: BARRY'S FUNDING CORP. By: /s/ THOMAS S. LISTON ---------------------------- Name: Thomas S. Liston Title: President ORIGINATOR: BARRY'S JEWELERS, INC. By: /s/ THOMAS S. LISTON ---------------------------- Name: Thomas S. Liston Title: Vice Chairman & CFO 7 8 ANNEX 1 ORIGINATOR'S PRESS RELEASE (Dated June 25, 1996) [Attached] 8 9 BARRY'S JEWELERS, INC. 111 WEST LEMON AVENUE MONROVIA, CA 91016 (818) 303-4741 FAX (818) 357-7596 CONTACTS: Thomas S. Liston Robert W. Bridel Eugene G. Heller Vice Chairman and President and Silverman Heller Associates Chief Financial Officer Chief Executive Officer (310) 208-2550 (818) 303-4741 (818) 303-4741 FOR IMMEDIATE RELEASE BARRY'S JEWELERS TO RESTATE FISCAL 1995 RESULTS, WILL TAKE ONE-TIME CHARGES IN FISCAL 1996 MONROVIA, California (June 25, 1996) - Barry's Jewelers, Inc. (Nasdaq NM:BARY) today reported that it will restate its results for fiscal year 1995 to reflect inventory shrinkage for that year of $1.5 million in excess of the amount originally recorded. The discrepancy was detected during the reconciliation of the Company's inventory for fiscal 1996. Additionally, although results are still being audited, the Company anticipates reporting a pretax loss of approximately $2 million for fiscal 1996, which includes approximately $1.5 million of one-time charges and $1 million of unanticipated inventory shrinkage. The one-time charges primarily include expenses incurred for the settlement of legal actions, the write-off of deferred financing fees related to the redemption of Senior Secured Notes, and fees related to the recent sale of 1.5 million shares of the Company's stock by Wells Fargo Bank to private investors. Thomas S. Liston, vice chairman and chief financial officer of Barry's Jewelers, said, "We are studying this unanticipated problem with our inventory accounting and we will immediately begin to further tighten our controls at both the wholesale and retail levels." (more) 10 BARRY'S TO RESTATE FISCAL 1995 RESULTS/2 Robert W. Bridel, Barry's recently appointed president and chief executive officer, said, "The systems put in place in recent years, including the Company's new credit management system, have been instrumental in returning Barry's to a sound financial footing. A new automated inventory management system has done much to improve our control over inventory. However, the discovery of this most recent situation indicates that more needs to be done in this area, and management is prioritizing the implementation of the necessary improvements. "While we are naturally disappointed with this temporary setback, Barry's remains financially sound and strategically focused," Mr. Bridel added. "This is evidenced by the fact that, without the aforementioned charges and greater than expected inventory shrinkage, we had anticipated reporting a profit for fiscal 1996. Additionally, our balance sheet is strong, with shareholders' equity of approximately $35.5 million as of May 31, 1996. Moreover, our stores -- particularly our new superstores -- are performing well, and our expansion program is proceeding on schedule. These factors make us confident in the Company's current direction and future outlook, and we are optimistically looking forward to the 1996 holiday selling season." Barry's also reported that the inventory shrinkage problem has placed the Company in default of certain provisions of its revolving inventory line and its securitization facility. The Company is currently in discussion with its lenders regarding waivers to those defaults and is confident that the situation will be resolved favorably. Barry's Jewelers, Inc., the nation's fourth largest independent retailer of fine jewelry, operates 161 retail jewelry stores in 17 states throughout the country, primarily in California, Texas, Arizona, North and South Carolina, Utah, Montana, Colorado, and Ohio. ### EX-10.23.(A) 4 AM #3 AND WAIVER TO RECEIVABLES PURCHASE AGREEMENT 1 AMENDMENT NO. 3 AND WAIVER to RECEIVABLES PURCHASE AGREEMENT Dated as of December 21, 1995 THIS AMENDMENT NO. 3 AND WAIVER ("Amendment") dated as of July 11, 1996, is entered into among Barry's Funding Corp., a Delaware corporation ("BFC"), as Seller, Triple-A One Funding Corporation, a Delaware corporation ("Triple-A"), as Purchaser, Barry's Jewelers, Inc. ("Barry's Jewelers"), as Servicer, and Capital Markets Assurance Corporation ("CapMAC"), as Agent. Capitalized terms used herein without definition shall have the meanings ascribed thereto in the "Receivables Purchase Agreement" referred to below. PRELIMINARY STATEMENTS: A. BFC, Triple-A, Barry's Jewelers and CapMAC are parties to that certain Receivables Purchase Agreement dated as of December 21, 1995, as amended pursuant to Amendment No. 1 dated as of April 19, 1996 and as further amended pursuant to Amendment No. 2 dated as of June 17, 1996 (as so amended, the "Receivables Purchase Agreement"). B. The Servicer has informed the Agent and the Purchaser that the Originator's financial statements delivered by the Originator to the Seller under Section 4.01(r) of the Originator Purchase Agreement, and furnished by the Seller to the Agent in connection with the Receivables Purchase Agreement, materially misstate the Servicer's income for the fiscal year ending May 31, 1995, for the reasons set forth in the Servicer's press release, dated June 25, 1996, a copy of which is attached hereto as Annex 1 (the "Press Release"). C. The misstatement described in clause B of these Preliminary Statements constitutes a breach of certain representations and warranties set forth in Section 4.01(h) and 4.01(r) of the Originator Purchase Agreement, and gives rise to a breach of certain covenants of the Originator set forth in Section 5.01(d) of the Originator Purchase Agreement. Such misstatement and breaches constitute "Events of Termination" under Section 7.01(a), Section 7.01(c) or Section 7.01(d) of the Originator Purchase Agreement (as the case may be), and the Events of Termination described in the clauses E and F of these Preliminary Statements give rise to an additional "Event of Termination" under Section 7.01(i) of the Originator Purchase Agreement (collectively, the "OPA Misstatement Events of Termination"). EXHIBIT 10.23(a) 2 D. In addition, the Servicer has acknowledged to the Agent and the Purchaser that the Originator is in breach of the following covenants under the Originator Purchase Agreement, to the extent described below: 1. Under the provisions of Section 5.02(a) of the Originator Purchase Agreement, the Originator has failed to furnish the required consolidating financial statements of the Seller (with appropriate officer's certifications) for the fiscal quarter which ended in February of 1996. 2. Under the provisions of Section 5.02(b) of the Originator Purchase Agreement, the Originator has failed to furnish the required monthly financial statements of the Seller and the Originator and its consolidated subsidiaries (with appropriate officer's certifications) for each of the months of January, March and April of 1996. 3. The failure of the Originator to deliver a written statement to the Agent relating to the "Events of Termination" under the Originator Purchase Agreement described in these Preliminary Statements and the Events of Default described in the draft dated July 3, 1996 of a letter amendment and waiver dated July 12, 1996 from Bank of Boston to the Originator, purporting to amend or waive certain provisions of the Revolving Credit Agreement (the "Bank of Boston Waiver"), constitutes a breach of the Originator's covenant in Section 5.02(e) of the Originator Purchase Agreement. Each of the foregoing breaches gives rise to an additional "Event of Termination" under Section 7.01(d) of the Originator Purchase Agreement (collectively, together with the OPA Misstatement Events of Termination, the "Specified OPA Events of Termination"). E. The misstatement described in clause B of these Preliminary Statements also constitutes a breach of certain representations and warranties set forth in Section 4.01(h) of the Receivables Purchase Agreement, and gives rise to a breach of certain covenants of the Seller set forth in Section 5.01(d) and Section 5.01(j) of the Receivables Purchase Agreement. Such misstatement and breaches constitute Events of Termination under Section 7.01(a), Section 7.01(c) or Section 7.01(d) of the Receivables Purchase Agreement (as the case may be), and the Specified OPA Events of Termination give rise to an additional Event of Termination under Section 7.01(k) of the Receivables Purchase Agreement (collectively, the "RPA Misstatement Events of Termination"). 2 3 F. In addition, the Servicer has acknowledged to the Agent and the Purchaser that the Seller is in breach of the following covenants under the Receivables Purchase Agreement, to the extent described below: 1. Under the provisions of Section 5.02(a) of the Receivables Purchase Agreement, the Seller has failed to furnish to the Agent the required quarterly consolidating financial statements of the Seller (with appropriate officer's certifications) for the fiscal quarter which ended in February of 1996. 2. Under the provisions of Section 5.02(b) of the Receivables Purchase Agreement, the Seller has failed to furnish to the Agent the required monthly financial statements of the Seller and the Originator and its consolidated subsidiaries (with appropriate officer's certifications) for each of the months of January, March and April of 1996. 3. Under the provisions of Section 5.02(h) of the Receivables Purchase Agreement, the Seller has failed to furnish to the Agent the required quarterly compliance certificate of an appropriate officer of the Servicer for the fiscal quarter which ended in February of 1996. 4. Under the provisions of Section 5.02(o), the Agent requested, and the Seller failed to deliver to the Agent prior to July 9, 1996, confirmation of the Seller's compliance with the covenants set forth in Sections 5.03(r) and 5.03(s) of the Receivables Purchase Agreement. 5. The failure of the Seller to deliver a written statement to the Agent relating to the Events of Termination under the Receivables Purchase Agreement described in these Preliminary Statements, and the Events of Default described in the draft dated July 3, 1996 of the Bank of Boston Waiver, constitutes a breach of the Seller's covenant in Section 5.02(e) of the Receivables Purchase Agreement. Each of the foregoing breaches gives rise to an "Event of Termination" under Section 7.01(d) of the Receivables Purchase Agreement (collectively, the "RPA Reporting Events of Termination", and together with the RPA Misstatement Events of Termination, the "Specified RPA Events of Termination"). G. The Seller and the Servicer have requested that the Agent and the Purchaser agree to waive the Specified RPA Events of Termination in existence as of the date hereof to the 3 4 extent caused by the above-referenced misstatement and breaches, and Agent and the Purchaser have requested that the Seller and the Servicer agree to amend the Receivables Purchase Agreement as set forth below. H. Subject in all events to the terms and conditions of this Amendment, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of the parties hereto hereby agrees as follows: SECTION 1. Waiver. (a) Effective as of the date first written above and subject to the satisfaction of all of the conditions precedent set forth in Section 3(a) hereof, each of the Agent and the Purchaser hereby waives each of the Specified RPA Events of Termination in existence as of the date hereof, to the extent such Specified RPA Events of Termination are caused by the misstatement and breaches specifically described in the Preliminary Statements hereof. (b) The execution, delivery and effectiveness of this Amendment shall not, except to the extent expressly provided in clause (a) above, operate as a waiver of any right, power or remedy of either of the Purchaser or the Agent under any of the Receivables Purchase Agreement or any of the Purchase Documents, or constitute a waiver of any provision of any of the Receivables Purchase Agreement or any of the Purchase Documents. By way of example and not limitation with respect to the foregoing sentence, neither the Agent nor the Purchaser shall be deemed to have waived, by virtue of the effectiveness of the waiver described in clause (a) of this Section 1, the breach of any reporting covenant of the Seller or the Servicer under the Receivables Purchase Agreement other than the reporting covenants specifically described in the Preliminary Statements hereof as giving rise to the RPA Reporting Events of Termination, whether or not any such breach is determined to have been in existence as of the effective date of the waiver described in clause (a) of this Section 1. SECTION 2. Amendment. The Receivables Purchase Agreement is, effective as of August 30, 1996, and subject to the satisfaction of the conditions precedent set forth in Section (3)b hereof, hereby amended to remove the reference in clause (i) of the definition of the term "Maximum Advance Rate" set forth in Section 1.01 thereof to the percentage "73.0%", and replace the same with a reference to the percentage "70.0%". SECTION 3. Conditions. (a) The waiver of the Agent and the Purchaser described in Section 1(a) hereof shall become effective as of the date first written above, only upon: 4 5 (i) receipt by the Agent or its counsel of counterpart signature pages of this Amendment, executed by each of BFC, Triple-A, Barry's Jewelers and CapMAC; (ii) delivery of written certification by Triple-A to each Liquidity Bank that no material adverse effect to such Liquidity Bank's rights, obligations or interests would result from the effectiveness of this Amendment; and (iii) receipt by the Agent or its counsel of an executed waiver from the appropriate parties to the Revolving Credit Agreement of each Default or Event of Default known by any of the Seller, the Servicer or Bank of Boston to be in existence as of the date hereof (including, without limitation, each Default or Event of Default occurring as a result of any of the Specified RPA Events of Termination or the Specified OPA Events of Termination, or the misstatement of the Originator's income for the fiscal year ending May 31, 1995), which waiver shall be in form and substance satisfactory to the Agent. (b) The amendment to the Receivables Purchase Agreement described in Section 2 hereof shall become effective, as of August 30, 1996, only upon satisfaction of each of the conditions described in clauses (i) and (ii) of Section 3(a) above. (c) Notwithstanding anything herein or elsewhere to the contrary, if any action, suit, proceeding or arbitration, whether in law or in equity is commenced or filed against the Originator or any of its Subsidiaries as a result of either the misstatement of the Originator's income for the fiscal year ending May 31, 1995, or the investigation (the "Investigation") by the Securities Exchange Commission (the "SEC") of the Originator relating to the subject matter of the Press Release, such commencement or filing shall constitute a Potential Event of Termination under the Receivables Purchase Agreement and, if such action, suit, proceeding or arbitration is not dismissed within thirty (30) days of the date of such filing or commencement, an immediate Event of Termination. (d) Notwithstanding anything herein or elsewhere to the contrary, if the SEC or any other Governmental Authority commences any formal action or proceedings against the Originator, any of its Subsidiaries, or any of their respective directors, officers or employees (including, by way of example and not limitation, the issuance of a cease and desist order, the filing of a criminal indictment or the commencement of a civil suit seeking injunctive relief or the award of penalties, damages or liabilities) in connection with the matters described in the Press Release, the Agent may declare the occurrence of an Event of Termination under the Receivables Purchase Agreement, which 5 6 Event of Termination shall become effective immediately upon the receipt by the Servicer of written notice of such declaration. SECTION 4. Confirmation, Acknowledgment and Agreement. (a) Each of the Seller and the Servicer hereby acknowledges and confirms to each of the Agent and the Purchaser that, in accordance with the terms of Section 6.03(b)(ii) and Amendment No. 1 to the Receivables Purchase Agreement, a Lock-Box Account at Glendale Federal Bank has been established subject to an appropriate Lock-Box Agreement with the Agent and such bank as the "Lock-Box Bank", and that substantially all Obligors of Purchased Receivables shall have received by U.S. mail, by no later than August 31, 1996, written instructions from the Servicer to direct all items of payment constituting Collections which are remitted by mail to the post office box associated with such Lock-Box Account, for deposit into such Lock-Box Account. Each of the Seller and the Servicer hereby acknowledges that the failure of substantially all such Obligors to receive the notice described in the foregoing sentence on or prior to July 31, 1996, shall constitute a breach of Section 6.03(b)(ii) of the Receivables Purchase Agreement and a corresponding Event of Termination under Section 7.01(d) of the Receivables Purchase Agreement, effective immediately upon close of business of the Servicer on such day. (b) Under the provisions of section 5.02(o), the Agent hereby requests that the Servicer provide, and the Servicer hereby agrees to so provide, notice of the Seller's compliance (or lack of compliance, as the case may be) with the covenants set forth in each of Sections 5.03(r) and 5.03(s) of the Receivables Purchase Agreement for each Monthly Period, together with the calculations (in reasonable detail) required on the part of the Servicer to make such statement, as determined as of the close of business of the Servicer for such Monthly Period, in each case as an additional line item in the Settlement Report for such Monthly Period. Notwithstanding anything herein or elsewhere to the contrary, each of the Seller and the Servicer hereby confirms that the Seller is in compliance with the covenants set forth in each of Sections 5.03(r) and 5.03(s) of the Receivables Purchase Agreement, as of the effective date of this Amendment, and has been in compliance with each such covenant at all times following the effective date of the Receivables Purchase Agreement. SECTION 5. Covenants, Representations and Warranties of the Seller and the Servicer. (a) Upon the effectiveness of this Amendment, each of the Seller and the Servicer hereby (i) reaffirms all covenants, representations and warranties made by it in the Receivables Purchase Agreement to the extent the same are not specifically 6 7 waived hereby, (ii) agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment, and (iii) represents and warrants that no Event or Termination or Potential Event of Termination is in effect or is continuing. (b) Each of the Seller and the Servicer hereby represents and warrants that this Amendment constitutes its legal, valid and binding obligation, enforceable against such Person in accordance with its terms. SECTION 6. Reference to and Effect on the Transaction Documents. (a) Upon the effectiveness of this Amendment, (i) each reference in the Receivables Purchase Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Receivables Purchase Agreement, as amended hereby, and (ii) each reference to the Receivables Purchase Agreement in any other Purchase Document or any other document, instrument or agreement executed and/or delivered in connection therewith, shall mean and be a reference to the Receivables Purchase Agreement as amended hereby. (b) Except as specifically waived or amended above, the terms and conditions of the Receivables Purchase Agreement, of all Purchase Documents and any other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or the Purchaser under the Receivables Purchase Agreement or any Purchase Document or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, in each case except as specifically set forth herein. SECTION 7. Consent. The Agent hereby consents, pursuant to Section 5.03(j) of the Receivables Purchase Agreement, to the waiver of the Specified OPA Events of Termination substantially in the form of Annex 2 hereto. SECTION 8. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 7 8 SECTION 9. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 10. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 8 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. SELLER: BARRY'S FUNDING CORP. By /s/ THOMAS S. LISTON ----------------------------------- Name: Thomas S. Liston Title: President PURCHASER: TRIPLE-A ONE FUNDING CORPORATION By: CAPITAL MARKETS ASSURANCE CORPORATION, its Attorney-in-fact By --------------------------------- Name: Title: 9 10 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. SELLER: BARRY'S FUNDING CORP. By ----------------------------------- Name: Title: PURCHASER: TRIPLE-A ONE FUNDING CORPORATION By: CAPITAL MARKETS ASSURANCE CORPORATION, its Attorney-in-fact By /s/ Una Kearns --------------------------------- Name: Una Kearns Title: Vice President 9 11 AGENT: CAPITAL MARKETS ASSURANCE CORPORATION, individually and as Agent By -------------------------------- Name: Title: SERVICER: BARRY'S JEWELERS, INC. By /s/ THOMAS S. LISTON --------------------------------- Name: Thomas S. Liston Title: Vice Chairman & CFO 10 12 AGENT: CAPITAL MARKETS ASSURANCE CORPORATION, individually and as Agent By /s/ Una Kearns ----------------------------------------- Name: Una Kearns Title: Vice President SERVICER: BARRY'S JEWELERS, INC. By ---------------------------------------- Name: Title: 10 13 ANNEX 1 ORIGINATOR'S PRESS RELEASE (Dated June 25, 1996) [Attached] 8 14 BARRY'S JEWELERS, INC. 111 WEST LEMON AVENUE MONROVIA, CA 91016 (818) 303-4741 FAX (818) 357-7596 CONTACTS: Thomas S. Liston Robert W. Bridel Eugene G. Heller Vice Chairman and President and Silverman Heller Associates Chief Financial Officer Chief Executive Officer (310) 208-2550 FOR IMMEDIATE RELEASE BARRY'S JEWELERS TO RESTATE FISCAL 1995 RESULTS, WILL TAKE ONE-TIME CHARGES IN FISCAL 1996 MONROVIA, California (June 25, 1996) -- Barry's Jewelers, Inc. (Nasdaq NM: BARY) today reported that it will restate its results for fiscal year 1995 to reflect inventory shrinkage for that year of $1.5 million in excess of the amount originally recorded. The discrepancy was detected during the reconciliation of the Company's inventory for fiscal 1996. Additionally, although results are still being audited, the Company anticipates reporting a pretax loss of approximately $2 million for fiscal 1996, which includes approximately $1.5 million of one-time charges and $1 million of unanticipated inventory shrinkage. The one-time charges primarily include expenses incurred for the settlement of legal actions, the write-off of deferred financing fees related to the redemption of Senior Secured Notes, and fees related to the recent sale of 1.5 million shares of the Company's stock by Wells Fargo Bank to private investors. Thomas S. Liston, vice chairman and chief financial officer of Barry's Jewelers, said, "We are studying this unanticipated problem with our inventory accounting and we will immediately begin to further tighten our controls at both the wholesale and retail levels." (more) 15 BARRY'S JEWELERS BARRY'S TO RESTATE FISCAL 1995 RESULTS/2 Robert W. Bridel, Barry's recently appointed president and chief executive officer, said, "The systems put in place in recent years, including the Company's new credit management system, have been instrumental in returning Barry's to a sound financial footing. A new automated inventory management system has done much to improve our control over inventory. However, the discovery of this most recent situation indicates that more needs to be done in this area, and management is prioritizing the implementation of the necessary improvements. "While we are naturally disappointed with this temporary setback, Barry's remains financially sound and strategically focused," Mr. Bridel added. "This is evidenced by the fact that, without the aforementioned charges and greater than expected inventory shrinkage, we had anticipated reporting a profit for fiscal 1996. Additionally, our balance sheet is strong, with shareholders' equity of approximately $35.5 million as of May 31, 1996. Moreover, our stores - -- particularly our new superstores -- are performing well, and our expansion program is proceeding on schedule. These factors make us confident in the Company's current direction and future outlook, and we are optimistically looking forward to the 1996 holiday selling season." Barry's also reported that the inventory shrinkage problem has placed the Company in default of certain provisions of its revolving inventory line and its securitization facility. The Company is currently in discussion with its lenders regarding waivers to those defaults and is confident that the situation will be resolved favorably. Barry's Jewelers, Inc., the nation's fourth largest independent retailer of fine jewelry, operates 161 retail jewelry stores in 17 states throughout the country, primarily in California, Texas, Arizona, North and South Carolina, Utah, Montana, Colorado, and Ohio. EX-23 5 CONSENTS OF INDEPENDENT AUDITORS 1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-67814 of Barry's Jewelers, Inc. on Form S-8 of our report dated August 3, 1995, except for Note 8, as to which the date is August 15, 1996 (which expresses an unqualified opinion and includes an explanatory paragraph relating to the restatement described in footnote 8), appearing in the Annual Report on Form 10-K/A of Barry's Jewelers, Inc. for the year ended May 31, 1995. /s/ DELOITTE & TOUCHE LLP Los Angeles, California August 28, 1996 EXHIBIT 23 2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) No. 33-67184 of our report dated August 8, 1994 with respect to the balance sheet of Barry's Jewelers, Inc. at May 31, 1994, and the related statements of operations, shareholders' equity, and cash flows for the year ended May 31, 1994 (Company), for the eleven month period ended May 31, 1993 (Company) and one month period ended June 30, 1992 (Predecessor), and the related financial statement schedule, included in the Annual Report (Form 10-K/A) of Barry's Jewelers, Inc. for its fiscal year ended May 31, 1995. /s/ ERNST & YOUNG LLP Los Angeles, California August 28, 1996 EXHIBIT 23 EX-99.1 6 PRESS RELEASE DATE 7/12/96 1 [LETTERHEAD] BARRY'S JEWELERS, INC. 1 WEST LEMON AVENUE MONROVIA, CA 91016 (818) 303-4741 FAX (818) 357-7596
CONTACTS: Thomas S. Liston Robert W. Bridel Eugene G. Heller Vice Chairman and President and Silverman Heller Associates Chief Financial Officer Chief Executive Officer (310) 208-2550 (818) 303-4741 (818) 303-4741
FOR IMMEDIATE RELEASE BARRY'S JEWELERS SECURES WAIVERS TO FINANCING DEFAULTS MONROVIA, California (July 12, 1996) -- Barry's Jewelers, Inc. (Nasdaq NM:BARY) today reported that it has obtained waivers of certain defaults under its revolving inventory line and its securitization facility. The defaults principally arose due to the Company's previously announced inventory shrinkage for fiscal years 1995 and 1996. The defaults were waived following discussions between Barry's management and the financing sources. Robert W. Bridel, president and chief executive officer of Barry's Jewelers, said, "We are very pleased to have promptly resolved this situation. We have redoubled our efforts to tighten inventory controls at all levels of our operation. We now intend to focus on preparing for what we believe will be a good holiday sales season for Barry's Jewelers." Barry's Jewelers, Inc., the nation's fourth largest independent retailer of fine jewelry, operates 161 retail jewelry stores in 17 states throughout the country, primarily in California, Texas, Arizona, North and South Carolina, Utah, Montana, Colorado, and Ohio. EXHIBIT 99.1 -----END PRIVACY-ENHANCED MESSAGE-----