-----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, UCh7ErS7gcfYI7ADdp5VYs/FRLecLhv7CQSMqNSfW/1W1TsXwoFps+wRb/w0lcMs jobXpyO8+O78DMOj6qHSSQ== /in/edgar/work/20000914/0000950137-00-004135/0000950137-00-004135.txt : 20000922 0000950137-00-004135.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950137-00-004135 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20000914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHITEHALL JEWELLERS INC CENTRAL INDEX KEY: 0000868984 STANDARD INDUSTRIAL CLASSIFICATION: [5944 ] IRS NUMBER: 361433610 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15615 FILM NUMBER: 723270 BUSINESS ADDRESS: STREET 1: 155 N WACKER DR STREET 2: SUITE 500 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3127826800 MAIL ADDRESS: STREET 1: 155 NORTH WACKER STREET 2: SUITE 500 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: MARKS BROS JEWELERS INC DATE OF NAME CHANGE: 19960301 10-Q 1 c57466e10-q.txt QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: July 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- --------------------- Commission File number: 0-028176 Whitehall Jewellers, Inc. (Exact name of registrant as specified in its charter) Delaware 36-1433610 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 155 No. Wacker, Chicago, IL. 60606 (Address of principal executive offices) 312/782-6800 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of the Registrant's common stock, $.001 par value per share, outstanding as of July 31, 2000 was 15,379,054 and the number of the Registrant's Class B common stock, $1.00 par value, as of such date was 148. 2 WHITEHALL JEWELLERS, INC. INDEX TO FORM 10-Q FOR THE QUARTER ENDED JULY 31, 2000 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Statements of Operations for the three months and six months ended July 31, 2000 and 1999 (unaudited) Balance Sheets - July 31, 2000, January 31, 2000 and July 31, 1999 (unaudited) Statements of Cash Flows for the six months ended July 31, 2000 and 1999 (unaudited) Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II - OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K 2 3 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Whitehall Jewellers, Inc. Statements of Operations for the three months and six months ended July 31, 2000 and 1999 (unaudited)(in thousands, except for per share data)
Three months ended Six months ended July 31, July 31, July 31, July 31, 2000 1999 2000 1999 ---------- ----------- ---------- ---------- Net sales $ 76,139 $ 65,886 $ 149,774 $ 124,821 Cost of sales (including buying and occupancy expenses) 46,651 39,263 91,055 75,211 --------- --------- --------- --------- Gross profit 29,488 26,623 58,719 49,610 Selling, general and administrative expenses 27,576 21,543 52,758 41,373 --------- --------- --------- --------- Income from operations 1,912 5,080 5,961 8,237 Interest expense 1,157 1,392 2,321 2,649 --------- --------- --------- --------- Income before income taxes 755 3,688 3,640 5,588 Income tax expense 291 1,420 1,402 2,152 --------- --------- --------- --------- Net income before cumulative effect of accounting change 464 2,268 2,238 3,436 Cumulative effect of accounting - - - Change, net of tax (3,068) --------- --------- --------- --------- Net income (loss) $ 464 $ 2,268 $ (830) $ 3,436 ========= ========= ========= ========= Basic earnings per share: Net income before cumulative effect of accounting change $ 0.03 $ 0.16 $ 0.14 $ 0.23 ========= ========= ========= ========= Cumulative effect of accounting Change, net of tax $ - $ - $ (0.19) $ - ========= ========= ========= ========= Net income (loss) $ 0.03 $ 0.16 $ (0.05) $ 0.23 ========= ========= ========= ========= Weighted average common share and common share equivalents 16,654 14,454 16,267 14,646 ========= ========= ========= ========= Diluted earnings per share: Net income before cumulative effect of accounting change $ 0.03 $ 0.15 $ 0.13 $ 0.23 ========= ========= ========= ========= Cumulative effect of accounting Change, net of tax $ - $ - $ (0.18) $ - ========= ========= ========= ========= Net income (loss) $ 0.03 $ 0.15 $ (0.05) $ 0.23 ========= ========= ========= ========= Weighted average common share and common share equivalents 17,106 14,942 16,925 14,991 ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements. 3 4 Whitehall Jewellers, Inc. Balance Sheets (unaudited, in thousands)
July 31, January 31, July 31, 2000 2000 1999 ---------- -------------- ---------- ASSETS Current Assets: Accounts receivable, net $ 3,709 $ 3,159 $ 2,285 Layaway receivables, net -- 5,638 4,087 Merchandise inventories 179,322 147,691 133,667 Other current assets 821 1,109 1,223 Prepaid income tax 492 -- 527 Deferred financing costs 383 362 362 Deferred income taxes, net 4,006 2,086 1,518 --------- --------- --------- Total current assets 188,733 160,045 143,669 Property and equipment, net 60,288 49,144 41,733 Goodwill 6,055 6,186 6,317 Deferred financing costs 1,119 948 1,129 Deferred income tax, net 613 613 926 --------- --------- --------- Total assets $ 256,808 $ 216,936 $ 193,774 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Outstanding checks, net $ 8,315 $ 17,207 $ 3,300 Revolver loan 44,765 41,117 57,554 Term loan, current 3,750 3,250 2,750 Accounts payable 52,666 37,005 37,993 Customer deposits 4,169 -- -- Accrued payroll 3,059 5,945 3,475 Income taxes -- 7,315 -- Other accrued expenses 24,057 16,868 14,129 --------- --------- --------- Total current liabilities 140,781 128,707 119,201 Term loan 12,000 14,000 15,750 Subordinated debt 640 640 640 Other long-term liabilities 1,876 1,661 1,627 --------- --------- --------- Total liabilities 155,297 145,008 137,218 Commitments and contingencies Stockholders' equity: Common stock 17 15 15 Class B common stock - - - Class C common stock - - - Class D common stock - - - Additional paid-in capital 103,341 60,426 60,265 Accumulated earnings 20,654 21,484 5,586 --------- --------- --------- 124,012 81,925 65,866 --------- --------- --------- Less: Treasury stock, at cost (2,349,076, 883,376 and 565,500 shares, respectively) (22,501) (9,997) (9,310) --------- --------- --------- Total stockholders' equity, net 101,511 71,928 56,556 --------- --------- --------- Total liabilities and stockholders' equity $ 256,808 $ 216,936 $ 193,774 ========= ========= =========
The accompanying notes are an integral part of the financial statements. 4 5 Whitehall Jewellers, Inc. Statements of Cash Flows for the six months ended July 31, 2000 and 1999 (unaudited, in thousands)
Six months ended ---------------- July 31, July 31, 2000 1999 ----------- ------------ Cash flows from operating activities: Net income $ (830) $ 3,436 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 4,331 3,265 Loss on disposition of assets 74 15 Cumulative effect of accounting change, net 3,068 - Changes in assets and liabilities: (Increase)decrease in accounts receivable, net (550) 862 (Increase) in layaway receivables, net - (573) (Increase) in merchandise inventories, net of gold consignment (29,043) (16,919) (Increase) decrease in other current assets (204) 106 Increase in customer deposits 215 - Increase in accounts payable 15,661 12,392 (Decrease) in accrued liabilities (2,797) (5,754) --------- --------- Net cash used in operating activities (10,075) (3,170) Cash flows from investing activities: Capital expenditures (15,235) (10,397) --------- --------- Net cash used in investing activities (15,235) (10,397) Cash flows from financing activities: Borrowing on revolver loan 231,416 163,993 Repayment of revolver loan (227,768) (138,340) Repayment of term loan (1,500) (1,500) Proceeds from gold consignment 2,016 3,015 Proceeds from exercise of stock options 380 262 Proceeds from equity offering, net 42,537 - Purchases of Treasury Stock (12,504) (9,310) Financing costs (375) - Decrease in outstanding checks, net (8,892) (4,553) --------- --------- Net cash provided by financing activities 25,310 13,567 --------- --------- Net change in cash and cash equivalents - - Cash and cash equivalents at beginning of period - - --------- --------- Cash and cash equivalents at end of period $ - $ - ========= =========
The accompanying notes are an integral part of the financial statements. 5 6 Whitehall Jewellers, Inc. Notes to Financial Statements 1. Description of Operations The financial statements of Whitehall Jewellers, Inc. (the "Company") include the results of the Company's chain of specialty retail fine jewelry stores. The Company operates exclusively in one business segment, specialty retail jewelry. The Company has a national presence with 331 stores as of July 31, 2000, located in 36 states, operating in regional or superregional shopping malls. 2. Equity Offering In March, 2000, the Company completed an offering of Common Stock (the "Offering"). The Company issued 2,325,500 shares of Common Stock, and received proceeds of $42.5 million net of underwriting discounts and offering costs. The Company used the proceeds to reduce the Company's indebtedness and for working capital and other general corporate purposes. 3. Common Stock Repurchase Program On July 14, 2000, the Board of Directors authorized the Company to repurchase up to $15.0 million of its Common Stock. Shares repurchased by the Company will reduce the weighted average number of common shares outstanding for basic and diluted earnings per share calculations. As of July 31, 2000, the Company had repurchased 1.5 million shares under this Stock Repurchase Program at a total cost of approximately $12.5 million. On August 23, 2000, the Company announced that its Board of Directors had increased the authorization to purchase shares under the Stock Repurchase Program from $15.0 million to $20.0 million of the Company's Common Stock. 4. Summary of Significant Accounting Policies Basis for Presentation The accompanying Balance Sheet as of January 31, 2000 was derived from the audited financial statements for the year ended January 31, 2000. The accompanying unaudited Balance Sheets as of July 31, 2000 and 1999, the Statements of Income for the three and six months ended July 31, 2000 and 1999 and the Statements of Cash Flows for the six months ended July 31, 2000 and 1999 have been prepared in accordance with generally accepted accounting principles for interim financial information. The interim financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The interim financial statements should be read in the context of the Financial Statements and footnotes thereto included in the Whitehall Jewellers, Inc. Annual Report for the fiscal year ended January 31, 2000. References in the Notes to Financial Statements to years and quarters are references to fiscal years and fiscal quarters. 5. Accounts Receivable, Net Accounts receivable are shown net of the allowance for doubtful accounts of $ 1,100,000, $ 720,000, and $1,456,000 as of July 31, 2000, January 31, 2000 and July 31, 1999, respectively. 6 7 6. Inventory As of July 31, 2000, January 31, 2000 and July 31, 1999, merchandising inventories consist of:
July 31, 2000 January 31, 2000 July 31, 1999 (in thousands) Raw Materials $ 11,668 $ 7,557 $ 5,661 Finished Goods 167,654 140,134 128,006 -------- -------- -------- Inventory $179,322 $147,691 $133,667 ======== ======== ========
Raw materials primarily consist of diamonds, precious gems, semi-precious gems and gold. Included within finished goods inventory are allowances for inventory shrink, scrap, and miscellaneous costs of $4,817,000, $3,517,000, and $3,964,000 as of July 31, 2000, January 31, 2000 and July 31, 1999, respectively. As of July 31, 2000, January 31, 2000 and July 31, 1999, consignment inventories held by the Company that are not included in the balance sheets total $ 48,116,000, $52,620,000, and $43,370,000, respectively. In addition, gold consignments of $26,310,000, $24,294,000 and $24,294,000 are not included in the Company's balance sheets as of July 31, 2000, January 31, 2000 and July 31, 1999, respectively. 7. Financing Arrangements Effective June 26, 2000, the Company amended its Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement (the "Credit Agreement") with its bank group to provide for a total facility of $166.5 million through June 30, 2004. Interest rates and the commitment fee charged on the unused portion of the facility float based upon the Company's quarterly financial performance. Under this Credit Agreement, the banks have a collateral security interest in substantially all of the assets of the Company. The Credit Agreement contains certain restrictions on capital expenditures, investments, payment of dividends, assumption of additional debt, acquisitions and divestitures, among others, and requires the Company to maintain certain financial ratios based on levels of funded debt, capital expenditures and earnings before interest, taxes, depreciation and amortization. Revolver Loan The revolving loan facility under the Credit Agreement is available up to a maximum of $150.0 million, including amounts consigned under the gold consignment facility, and is limited by a borrowing base computed based on a percentage of the value of the Company's inventory and accounts receivable. Interest rates and commitment fees on the unused facility float based on the Company's quarterly financial performance. The interest rates for borrowings under this agreement are, at the Company's option, based on Eurodollar rates or the banks' prime rate. Interest is payable monthly for prime borrowings and upon maturity for Eurodollar borrowings. Term Loans The term loan under the Credit Agreement is available up to a maximum of $15.8 million ($16.5 million, less principal repayments). The interest rates for these borrowings are, at the Company's option, based on Eurodollar rates or the banks' prime rate. Interest is payable monthly for prime borrowings and upon maturity for Eurodollar borrowings. Interest rates and the commitment fee charged on the unused facility float based on the Company's quarterly financial performance. 7 8 Gold Consignment Facility During the second quarter of fiscal 2000, the Company sold and simultaneously consigned an additional 7,000 troy ounces of gold for $2.0 million under a gold consignment facility resulting in a total of 76,500 troy ounces for $26.3 million outstanding under the gold consignment facility. The facility provides for the sale of a maximum 115,000 troy ounces or $40.0 million. Under the agreement, the Company pays consignment fees based on the London Interbank Bullion Rates payable monthly. Consignment rates and commitment fees on the unused portion of the gold consignment facility float based upon the Company's quarterly financial performance. On June 30, 2004, the Company is required to repurchase 76,500 troy ounces of gold under this agreement at the prevailing gold rate in effect on that date, or the facility will be renewed. Subordinated Notes Series C Senior Subordinated Notes due 2004 (the "Series C Notes") totaling $640,000 aggregate principal amount outstanding as of July 31, 2000, bear interest at 12.15% per annum payable in cash, with interest payments due quarterly. 8. Earnings per Common Share The following table summarizes the reconciliation of the numerators and denominators, as required by SFAS No. 128, for the basic and diluted EPS computations at July 31, 2000 and 1999.
Three months ended Six Months Ended July 31, July 31, July 31, July 31, 2000 1999 2000 1999 ------------ ------------ ------------ ----------- (in thousands, except per share amounts) Net earnings for basic and $ 464 $ 2,268 $ 2,238 $ 3,436 diluted EPS Cumulative effect of accounting change, net $ - $ - $ (3,068) $ - Net (loss) income for basic and diluted EPS $ 464 $ 2,268 $ (830) $ 3,436 Weighted average shares for 16,654 14,454 16,267 14,646 basic EPS Incremental shares upon conversions: Stock options 452 488 658 345 Weighted average shares for 17,106 14,942 16,925 14,991 diluted EPS
9. Accounting Change On December 3, 1999 the SEC issued certain accounting guidance in Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101, among other things, indicates that revenue from layaway sales should only be recognized upon delivery of merchandise to the customer. In consideration of this guidance, the Company implemented a change in accounting in the first quarter of fiscal year 2000. The Company has recorded a charge of approximately $5.0 million, $3.1 million net of tax, which has been reported as a cumulative effect of this accounting change in the first quarter of 2000. 8 9 PART I - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Three Months Ended July 31, 2000 Net sales for the second quarter of fiscal 2000 increased $10.2 million, or 15.6%, to $76.1 million from $65.9 million in the second quarter of fiscal 1999. Comparable store sales increased $0.5 million, or 0.8%, in the second quarter of fiscal 2000 from the second quarter of fiscal 1999. Sales from new stores contributed $11.5 million to the overall net sales increase. These increases were offset by a sales decrease of $0.9 million related to closed stores and by a decrease of $0.9 million due to the change in accounting for revenue recognition on layaways. The total number of merchandise units sold increased by approximately 5.5% in the second quarter of fiscal 2000 from the second quarter of fiscal 1999, while the average price per merchandise sale increased to $332 in fiscal 2000 from $302 in fiscal 1999. Comparable store sales increased in part due to the increased use of non-recourse credit and expanded direct mail marketing programs. The Company opened 16 new stores and closed 2 stores in the second quarter of fiscal 2000 increasing the number of stores open to 331 as of July 31, 2000 compared to 272 as of July 31, 1999. Gross profit increased $2.9 million, or 10.8%, to $29.5 million in the second quarter of fiscal 2000 compared to the same period in fiscal 1999. Gross profit as a percentage of net sales decreased to 38.7% in the second quarter of fiscal 2000 from 40.4% in the second quarter of fiscal 1999. Occupancy, depreciation and buying expenses grew more quickly than the rate of sales growth in the second quarter of fiscal 2000 compared to the same period in fiscal 1999. Selling, general and administrative expenses increased $6.0 million, or 28.1%, to $27.6 million in the second quarter of fiscal 2000 from $21.5 million in the second quarter of fiscal 1999. This increase was primarily attributable to new stores opened. As a percentage of net sales, selling, general and administrative expenses increased to 36.2% in the second quarter of fiscal 2000 from 32.7% in the second quarter of fiscal 1999. The dollar increase primarily relates to higher payroll expenses of $4.0 million, higher credit costs of $0.9 million, higher other expenses of $0.6 million and higher advertising costs of $0.5 million. Credit sales as a percentage of net sales increased to 44.0% in the second quarter of fiscal 2000 from 42.6% in the second quarter of fiscal 1999, primarily as a result of increased sales through increased credit promotions. Interest expense decreased $0.2 million to $1.2 million in the second quarter of fiscal 2000 from $1.4 million in the second quarter of fiscal 1999. The impact of lower average borrowings was partially offset by higher market interest rates. Income tax expense decreased $1.1 million to $0.3 million in the second quarter of fiscal 2000 from $1.4 million in the second quarter of fiscal 1999, reflecting an effective annual tax rate of 38.5% in both periods. Results of Operations for the Six Months Ended July 31, 2000 Net sales for the six months ended July 31, 2000 increased $25.0 million, or 20.0%, to $149.8 million from $124.8 million in the six months ended July 31, 1999. Comparable store sales increased $5.6 million, or 4.7%, in the first six months of fiscal 2000 from the same period in fiscal 1999. Sales from new stores contributed $21.3 million to the overall net sales increase while $0.6 million of the increase resulted from a lower provision for returns. These increases were offset by a sales decrease of $1.4 million related to closed stores and by a decrease of $1.1 million due to the change in accounting for revenue recognition on layaways. The total number of merchandise units sold increased by approximately 9.4% in the first half of fiscal 1999, while the average price per merchandise sale increased to $330 in fiscal 2000 9 10 from $301 in fiscal 1999. Comparable store sales increased in part due to the increased use of non-recourse credit, expanded direct mail marketing programs and strong store inventory assortments. The Company opened 44 new stores and closed three stores in the first six months of fiscal 2000 increasing the number of stores open to 331 as of July 31, 2000 compared to 272 as of July 31, 1999. Gross profit increased $9.1 million, or 18.4%, to $58.7 million in the first six months of fiscal 2000 compared to the same period in fiscal 1999. Gross profit as a percentage of sales decreased to 39.2% in the first six months of fiscal 2000 from 39.7% in the same period of fiscal 1999. Occupancy, depreciation and buying expenses grew more quickly than the rate of sales growth in the first six months of fiscal 2000 compared to the same period in fiscal 1999. Selling, general and administrative expenses increased $11.4 million, or 27.6%, to $52.8 million for the first six months of fiscal 2000 from $41.4 million in the first six months of fiscal 1999. This increase was primarily attributable to new stores opened. As a percentage of net sales, selling, general and administrative expenses increased to 35.2% in the first half of fiscal 2000 from 33.1% in the first half of fiscal 1999. The dollar increase primarily relates to higher payroll expenses of $7.6 million, higher other expenses of $1.3 million, increased credit expense of approximately $1.7 million and higher advertising costs of $0.7 million. Credit sales as a percentage of net sales increased to 42.5% in the first half of fiscal 2000 from 41.9% in the first half of fiscal 1999, primarily as a result of increased sales through increased credit promotions. Interest expense decreased $0.3 million to $2.3 million in the first six months of fiscal 2000 from $2.6 million in the first six months of fiscal 1999. The impact of lower average borrowings was partially offset by higher market interest rates. Income tax expense decreased $0.7 million to $1.4 million in the first half of fiscal 2000 from $2.1 million in the prior period, reflecting an effective annual tax rate of 38.5% in both periods. Liquidity and Capital Resources The Company's cash requirements consist principally of funding increases in inventory at existing stores, capital expenditures and acquisitions of new stores and working capital (primarily inventory) associated with the Company's new stores. The Company's primary sources of liquidity have historically been bank borrowings under the Company's revolver and cash flow from operations. The Company's inventory levels and working capital requirements have historically been highest in advance of the Christmas season. The Company has funded these seasonal working capital needs through borrowings under the Company's revolver and increases in trade payables and accrued expenses. In March, 2000, the Company completed an offering of Common Stock (the "Offering"). The Company issued 2,325,500 shares of Common Stock, and received proceeds of $42.5 million net of underwriting discounts and offering costs. The Company used the proceeds to reduce the Company's indebtedness and for working capital and other general corporate purposes. On July 14, 2000, the Board of Directors authorized the Company to repurchase up to $15.0 million of its Common Stock. The repurchase program authorizes the Company to purchase shares over an 18-month period in the open market or through privately negotiated transactions. On August 23, 2000 the Company announced that its Board of Directors increased the authorization to repurchase shares under the repurchase program from $ 15.0 million to $20.0 million of the Company's Common Stock. As of the date of this report, the Company has repurchased 1.6 million shares under this repurchase program at a total cost of approximately $13.8 million. The repurchase program has been financed using the Company's revolving credit facility. Effective June 26, 2000, the Company amended and expanded its Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement (the "Credit 10 11 Agreement") with its bank group to provide for a total facility of $166.5 million through June 30, 2004. The Company has a $150.0 million revolving facility(including amounts borrowed under a gold consignment facility), and a $15.8 million term loan (originally $16.5 million, less principal repayments) through June 30, 2004. A gold consignment facility of $40.0 million is available under the revolving credit facility. Interest rates and the commitment fee charged on the unused facility float based upon the Company's quarterly financial performance. The amendment, among other things, permits the Company to repurchase up to $15.0 million of it's common stock and modifies certain financial covenant ratios. On August 18,2000, the Company amended the Credit Agreement to increase the amount of repurchases of common stock permitted from $15.0 to $20.0 million. The Company's cash flow used in operating activities increased to $10.1 million in the six months ended July 31, 2000 from $3.2 million used in operating activities in the six months ended July 31, 1999. Lower income from operations together with increases in merchandise inventories ($29.0 million) and decreases in accrued liabilities ($2.8 million) were offset by increases in accounts payable ($15.7 million), higher depreciation and amortization ($4.3 million). The increase in merchandise inventories primarily related to inventory for new store openings, including anticipated store openings in the third quarter of fiscal 2000 and completed new store openings in the first half of fiscal 2000. In the first half of 2000, the primary sources of the Company's liquidity included proceeds from the Offering of $42.5 million net of offering expenses, a $3.6 million net increase in the amount outstanding under the Company's revolver, proceeds of $2.0 million from gold consignment, partially offset by a decrease of $8.9 million in outstanding checks. The Company utilized cash in the first six half of fiscal 2000 primarily to fund capital expenditures of $15.2 million, primarily related to the opening of 44 new stores in the first half of 2000, to fund the purchase of the Company's Common Stock ($12.5 million), and to repay a portion of the term loan ($1.5 million). Management expects that cash flow from operating activities and funds available under its revolving credit facility should be sufficient to support the Company's current new store expansion program and seasonal working capital needs for the foreseeable future. Inflation Management believes that inflation generally has not had a material effect on results of its operations. Item 3 - Quantitative and Qualitative Disclosure About Market Risk This information is set forth in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2000, and is incorporated herein by reference. There have been no material changes to the Company's market risk during the six months ended July 31, 2000. 11 12 PART II - OTHER INFORMATION Item 5 - Other Information Forward-Looking Statements All statements, trend analysis and other information contained in this report relative to markets for the Company's products and trends in the Company's operations or financial results, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend" and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, among other things: (1) the extent and results of the Company's store expansion strategy and associated occupancy costs and access to funds for new store openings; (2) the seasonality of the Company's business; (3) economic conditions, the retail sales environment and the Company's ability to execute its business strategy and the related effects on comparable store sales and other results; (4) the extent and success of the Company's marketing and promotional programs; (5) the extent to which the Company is able to retain and attract key personnel as well as personnel costs; (6) competition; (7) the availability and cost of consumer credit; (8) relationships with suppliers; (9) the Company's ability to maintain adequate information systems capacity and infrastructure; (10) the Company's leverage and cost of funds; (11) the Company's ability to maintain adequate loss prevention measures; (12) fluctuations in raw material prices including diamond, gem and gold prices; (13) the extent and results of the Company's E-commerce strategies and those of others;(14) regulation affecting the industry generally, including regulation of marketing practices; (15) the successful integration of acquired locations and assets into the Company's existing operations; and (16) the risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission. Item 6 - Exhibits and Reports on Form 8-K Exhibit 27 Financial Data Schedule (SEC/EDGAR only) Exhibit 10.1 Employment and Severance Agreement, dated as of January 24, 2000, between the Company and Jon Browne Exhibit 10.2 Incentive Stock Option Agreement, dated as of January 24, 2000, between the Company and Jon Browne Exhibit 10.3 Second Amendment to Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement dated as of October 5, 1999, by and among Whitehall Jewellers, Inc., the Banks (as defined therein), BankBoston, N.A. as Agents for the Banks, and LaSalle Bank National Association and ABN AMRO Bank, N.V. as Agents for the Banks Exhibit 10.4 Third Amendment to Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement dated as of February 9, 2000, by and among Whitehall Jewellers, Inc., the Banks (as defined therein), BankBoston, N.A. as Agents for the Banks, and LaSalle Bank National Association and ABN AMRO Bank, N.V. as Agents for the Banks Exhibit 10.5 Fourth Amendment to Amended and Restated Revolving Credit, Term Loan and 12 13 Gold Consignment Agreement dated as of June 26, 2000, by and among Whitehall Jewellers, Inc., the Banks (as defined therein), BankBoston, N.A. as Agents for the Banks, and LaSalle Bank National Association and ABN AMRO Bank, N.V. as Agents for the Banks Exhibit 10.6 Fifth Amendment to Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement dated as of August 18, 2000, by and among Whitehall Jewellers, Inc., the Banks (as defined therein), BankBoston, N.A. as Agents for the Banks, and LaSalle Bank National Association and ABN AMRO Bank, N.V. as agents for the Banks (b) Reports on Form 8-K SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WHITEHALL JEWELLERS, INC. (Registrant) Date: September 14, 2000 By: /s/ Jon H. Browne -------------------------- Jon H. Browne Executive Vice President - Chief Financial Officer and Treasurer (principal financial officer) 13 EX-10.1 2 c57466ex10-1.txt EMPLOYMENT AND SEVERANCE AGREEMENT 1 EXHIBIT 10.1 EMPLOYMENT AND SEVERANCE AGREEMENT THIS AGREEMENT is entered into as of the 24th day of January, 2000 by and between Whitehall Jewellers, Inc., a Delaware corporation, and Jon Browne ("Executive"). W I T N E S S E T H WHEREAS, the Company desires to employ the Executive as an Executive Vice President and the Executive desires to accept such employment, upon the conditions set forth herein; WHEREAS, in this capacity Executive will be a key employee of the Company and his services and knowledge are valuable to the Company; WHEREAS, the Board (as defined in Section 1) has determined that it is in the best interests of the Company and its stockholders to secure Executive's services, and to encourage Executive's full attention and dedication to the Company, the Board has authorized the Company to enter into this Agreement. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and Executive hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause means (1) the commission by Executive of a felony involving moral turpitude or (2) any material breach of any statutory or common law duty to the Company or any subsidiary involving wilful malfeasance. (c) "Change in Control" means: (1) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 25% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of 2 a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities), (B) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (C) any acquisition by an Exempt Person, or (D) any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving the Company, if, immediately after such reorganization, merger or consolidation, each of the conditions described in clauses (i), (ii) and (iii) of subsection (3) of this Section (1)(c) shall be satisfied; (2) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; (3) approval by the stockholders of the Company of a reorganization, merger or consolidation unless, in any such case, immediately after such reorganization, merger or consolidation, (i) more than 60% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and more than 60% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger or consolidation (or any corporation controlled by the Company) and any Person which beneficially owned, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of common stock of such corporation or 25% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger or consolidation; or (4) approval by the stockholders of the Company of (i) a plan of complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or 2 3 substantially all of the assets of the Company other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 60% of the then outstanding shares of common stock thereof and more than 60% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company) and any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of the then outstanding shares of common stock thereof or 25% or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Company" means Whitehall Jewellers, Inc., a Delaware corporation. (f) "Date of Termination" means (1) the effective date on which Executive's employment by the Company terminates as specified in a prior written notice by the Company or Executive, as the case may be, to the other, delivered pursuant to Section 12 or (2) if Executive's employment by the Company terminates by reason of death, the date of death of Executive. (g) "Exempt Person" means each of Hugh M. Patinkin, John R. Desjardins, Matthew M. Patinkin and any Affiliate (as such term is defined in Rule 12b-1 under the Securities Exchange Act of 1934, as in effect on the date hereof, "Affiliate") thereof. (h) "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events: (1) any of (i) the assignment to Executive of any duties materially lower in responsibility than Executive's responsibilities with the Company as of the date Executive commences employment with the Company or, if a Change in Control has occurred, immediately prior to such Change in Control, (ii) a change in Executive's title or office as "Executive Vice President" (other than additions thereto) or in Executive's reporting responsibilities with the Company as in effect on the date of this Agreement or, if a Change in Control has occurred, immediately prior to such Change in Control or (iii) any removal or involuntary termination of Executive from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect Executive to any position with the Company held by Executive as of the commencement of Executive's 3 4 employment or, if a Change of Control has occurred, immediately prior to such Change in Control; (2) a reduction by the Company in Executive's rate of annual base salary as in effect on the date of this Agreement or, if a Change in Control has occurred, immediately prior to such Change in Control, or as the same may be increased from time to time thereafter; (3) any requirement of the Company that Executive (i) be based anywhere other than at the facility where the Executive is located on the date of this Agreement (or a new headquarters facility within a 30-mile radius of the Company's current headquarters) or (ii) travel on Company business to an extent substantially more burdensome than the travel obligations of Executive as of the commencement of Executive's employment or, if a Change of Control has occurred, immediately prior to such Change in Control; (4) the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which Executive is participating as of the commencement of Executive's employment or (or as of the expiration of any applicable waiting period), if a Change in Control has occurred, prior to such Change in Control, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits in the aggregate, or the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plan, (ii) provide Executive and Executive's dependents welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for Executive as of the commencement of Executive's employment (or as of the expiration of any applicable waiting period) or, if a Change in Control has occurred, prior to such Change in Control or, or if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies, (iii) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for Executive as of the commencement of Executive's employment (or as of the expiration of any applicable waiting period) or, if a Change in Control has occurred, prior to such Change in Control or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies, (iv) provide an office or offices of a size and with furnishings and other appointments, together with personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to Executive by the Company and its affiliated companies as of the commencement of Executive's employment or, if a Change in Control has occurred, prior to such Change in Control or, if more favorable to Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies, (v) provide Executive with paid vacation (with respect to which there shall be no waiting period) in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in 4 5 effect for Executive as of the commencement of Executive's employment or, if a Change in Control has occurred, prior to such Change in Control or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies, or (vi) reimburse Executive promptly for all reasonable employment expenses incurred by Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for Executive as of the commencement of Executive's employment or, if a Change in Control has occurred, prior to such Change in Control, or if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; or (5) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 11(b). For purposes of this Agreement, any good faith determination of Good Reason made by Executive shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive shall not constitute Good Reason. (i) "Nonqualifying Termination" means a termination of Executive's employment (1) by the Company for Cause, (2) by Executive for any reason other than a Good Reason, (3) as a result of Executive's death or (4) by the Company due to Executive's absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of Executive's incapacity due to physical or mental illness; provided, however, that a termination of Executive's employment for any reason whatsoever during the "Window Period" (hereinafter defined) shall not constitute a Nonqualifying Termination. (j) "Termination Period" means the period of time beginning with the date hereof and ending on the earliest to occur of (1) Executive's death and (2) three years following a Change in Control. (k) "Window Period" means the 30-day period commencing six months after the date of a Change in Control. 2. Position; Responsibilities. The Company shall employ Executive initially as an Executive Vice President -- commencing January 24, 2000 (the "Commencement Date"). Executive shall perform such executive and administrative duties as the chief executive officer of the Company (the "Company CEO") or Board may assign to Executive from time to time. While an employee of the Company Executive shall perform faithfully the duties assigned Executive to the best of Executive's abilities and devote Executive's full and undivided business time and attention to the transaction of the Company's business and not engage in any other business activities except with the approval of the Company CEO. The Company or Executive may terminate Executive's employment at any time provided that the other provisions of this agreement are complied with. 5 6 3. Compensation; Options. (a) Base Salary. As compensation for Executive's services hereunder, the Company shall pay to Executive base salary at an annual rate of $220,000 or such higher salary as may be established by the Company from time to time. (b) Bonus. Executive shall be entitled to participate in the Company's Management Bonus Plan or other bonus plan made available to elected officers of the Company generally. (c) Benefits. Executive shall be entitled to all fringe benefits made available to elected officers of the Company generally (currently including vacation days, health benefits, life insurance coverage, automobile benefits and reimbursement of expenses) from time to time. In addition, if the Executive is subject to a "waiting period" with respect to any welfare benefits applicable to Executive or Executive's dependents, the Company will reimburse Executive for premiums paid by Executive for health insurance during such waiting period to the extent that the Company would have reimbursed or paid for premiums under the Company's welfare benefit plans if no waiting period had applied. (d) Options. Executive shall be granted stock options under one or more of the Company's stock option plans effective as of the Commencement Date for 50,000 shares of the Company's common stock at an exercise price per share equal to the average of the high and low transaction prices of a share of such common stock on the New York Stock Exchange on the Commencement Date (the "Exercise Price"). Such options (the "Options") shall be issued pursuant to the stock option agreement attached hereto as Exhibit A. The Options shall be incentive stock options for purposes of Section 422 of the Code, to the extent permitted by law and as provided in the stock option agreement covering such options. All of the Options other than those that are incentive stock options shall be nonqualified stock options. 4. Payments Upon Termination of Employment. (a) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Company shall pay to Executive (or Executive's beneficiary or estate) within 30 days following the Date of Termination, as compensation for services rendered to the Company: (1) a lump sum cash amount equal to the sum of (i) Executive's full annual base salary from the Company and its affiliated companies through the Date of Termination, to the extent not theretofore paid, (ii) Executive's annual bonus in an amount at least equal to the higher of (x) one-half of the maximum bonus the Executive could earn during the fiscal year during which such Change in Control occurs and (y) the average of the Executive's annual bonus (annualized for any fiscal year consisting of less than 12 full months) with respect to which bonus paid or payable, including by reason of any deferral, to Executive by the Company and its affiliated companies in respect of the two fiscal years of the Company (or such portion thereof during which Executive performed services for the Company if Executive shall have been employed by the Company for less than such two fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs, multiplied by a fraction, the numerator of which is the number of days in the fiscal year in which the Change in Control occurs through 6 7 the Date of Termination and the denominator of which is 365 or 366, as applicable, and (iii) any compensation previously deferred by Executive (together with any interest and earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid; plus (2) a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 6) in an amount equal to (i) 2.5 times (1.0 times if a Change in Control has not occurred) Executive's highest annual base salary from the Company and its affiliated companies in effect during the 12-month period prior to the Date of Termination plus (ii) 2.5 times ([1.0 times if a Change in Control has not occurred) Executive's highest annualized (for any fiscal year consisting of less than 12 full months or with respect to which Executive has been employed by the Company for less than 12 full months), bonus paid or payable, including by reason of any deferral, to Executive by the Company and its affiliated companies in respect of the five fiscal years of the Company (or such portion thereof during which Executive performed services for the Company if Executive shall have been employed by the Company for less than such five fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs; provided however, that any amount paid pursuant to this Section 4(a)(2) shall be paid in lieu of any other amount of severance relating to salary or bonus continuation to be received by Executive upon termination of employment of Executive under any severance plan, policy or arrangement of the Company. (b) For a period of 2.5 years (12 months if a Change in Control has not occurred) commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, accident, disability and life insurance with respect to Executive and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to Executive, as provided generally with respect to other peer executives of the Company and its affiliated companies, and the Company and Executive shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination. (c) If during the Termination Period the employment of Executive shall terminate by reason of a Nonqualifying Termination, then the Company shall pay to Executive within 30 days following the Date of Termination, a cash amount equal to the sum of (1) Executive's full annual base salary from the Company through the Date of Termination, to the extent not theretofore paid and (2) any compensation previously deferred by Executive (together with any interest and earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid. 5. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, benefit or distribution by the Company or its affiliated companies to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any successor provision, or any interest or penalties are incurred by Executive 7 8 with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 5(c), all determinations required to be made under this Section 5, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Executive shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by the Company to Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made, including subsequent interest, taxes and penalties ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 5(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. (c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: 8 9 (1) give the Company any information reasonably requested by the Company relating to such claim, (2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (3) cooperate with the Company in good faith in order effectively to contest such claim, and (4) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 5(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 5(c), Executive becomes entitled to receive, and receives, any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 5(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 5(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and 9 10 shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 6. Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 7. Reimbursement of Expenses. (a) If any contest or dispute shall arise under this Agreement involving termination of Executive's employment with the Company (which shall be deemed to include, without limitation, issues relating to Executive's stock options) or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, incurred by Executive in connection with such contest or dispute, together with interest at a rate equal to the base rate of The First National Bank of Boston from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives Executive's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, Executive's claims in such contest or dispute, Executive shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to Executive pursuant to this Section 7; provided, further, that no such reimbursement shall be required if Executive had a reasonable basis for the position taken by Executive with respect to such claims. (b) The Company shall reimburse Executive for reasonable legal fees and expenses incurred by Executive for the review and/or negotiation by legal counsel of this Agreement. 8. Intentionally Omitted. 9. Scope of Agreement. Nothing in this Agreement shall be deemed to entitle Executive to continued employment with the Company or its subsidiaries. 10. Directors and Officers Liability Insurance; Indemnification. The Company agrees that, notwithstanding a Termination of Executive's employment with the Company, the Company shall, for at least three years after the Date of Termination, use all reasonable efforts to have Executive included as a named insured or otherwise covered for actions or failures to act by Executive in his capacity as a director or officer of the Company to at least the same extent as other executive officers or directors, as the case may be, of the Company under any directors and officers liability insurance policies maintained by the Company; provided that the additional cost of providing coverage with a retroactive date including Executive's period of service or with an extended reporting period or a combination of both does not materially increase the cost of the Company's directors and officers insurance. The Company agrees that it will not alter the indemnification provisions in its charter or by-laws so as to give Executive less protection thereunder with respect to periods during which Executive serves or served the Company as an executive officer or other employee as is afforded other executive officers or peer employees, as the case may be, with respect to periods during which they serve the Company. 10 11 11. Successors; Binding Agreement. (a) This Agreement shall not be terminated by any merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 11, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Agreement and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination. (c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate. 12. Notice. (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Executive, to Jon Browne, 2322 Maple Avenue, Northbrook, Illinois 60062, and if to the Company, to Whitehall Jewellers, Inc., 155 N. Wacker Drive, Chicago, Illinois 60606, attention: Secretary, or (2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (b) A written notice of Executive's Date of Termination by the Company or Executive, as the case may be, to the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) specify the termination date (which date shall be not less than 15 days after the giving of such notice). The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the 11 12 Company from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder. 13. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not Executive obtains other employment. (b) If there shall be any dispute between the Company and Executive in the event of any termination of Executive's employment (which shall be deemed to include, without limitation, issues relating to Executive's options), then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the determination by Executive of the existence of Good Reason was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to Executive and his dependents or other beneficiaries, as the case may be, under paragraphs (a) and (b) of Section 4, the Company shall pay all amounts, and provide all benefits, to Executive and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to paragraphs (a) and (b) of Section 4 as though such termination were by the Company without Cause or by Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking by or on behalf of Executive to repay all such amounts to which Executive is ultimately adjudged by such court not to be entitled. 14. Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 15. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 16. Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including, without limitation, the right of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. The rights of, and benefits payable to, Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company. 12 13 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written. WHITEHALL JEWELLERS, INC. By: ---------------------------------------- Hugh M. Patinkin Chairman, President and Chief Executive Officer By: ---------------------------------------- Jon Browne 13 EX-10.2 3 c57466ex10-2.txt INCENTIVE STOCK OPTION AGREEMENT 1 EXHIBIT 10.2 WHITEHALL JEWELLERS, INC. INCENTIVE STOCK OPTION AGREEMENT FOR EMPLOYEES Whitehall Jewellers, Inc., a Delaware corporation (the "Company"), hereby grants to Jon Browne (the "Optionee") as of January 24, 2000 (the "Option Date"), pursuant to the provisions of the Whitehall Jewellers, Inc. 1997 Long-Term Incentive Plan (the "Plan"), an option to purchase from the Company (the "Option") 50,000 shares of its Common Stock, $.001 par value ("Stock"), at the price of $26.625 per share upon and subject to the terms and conditions set forth below. References to employment by the Company shall include employment by a subsidiary of the Company. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Designation as Incentive Stock Option and Option Subject to Acceptance of Agreement. The Option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent the Option is exercised pursuant to its terms after the period set forth in Section 422(a) of the Code or exceeds the limitation set forth in Section 422(d) of the Code or otherwise does not meet the requirements for an incentive stock option under Section 422 of the Code, the Option shall not be treated as an incentive stock option under such Section 422. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 2.1. Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after the tenth anniversary of the Option Date (the "Expiration Date"). 2.2. Exercise of Option During Employment. (a) Except as otherwise provided in this Section 2.2, Section 2.3 or pursuant to any acceleration provisions of the Plan, the Option shall become exercisable on the ninth anniversary of the Option Date. (b) The Option shall become exercisable prior to the ninth anniversary of the Option Date to the extent the Company satisfies annual performance goals established by Committee prior to the beginning of each of the fiscal years of the Company ending January 31, 2001, January 31, 2002 and January 31, 2003. (i) If the Company's level of performance for the fiscal year of the Company ending January 31, 2001 is at least 90 percent of the target level of performance designated by the Committee for such year, then the Option shall become exercisable, as of the date the Committee determines the actual level of performance for such year, with respect to one-sixth of the number of shares 2 initially subject to the Option, multiplied by the Applicable Percentage, as defined below. (ii) If the Company's cumulative level of performance for the fiscal years of the Company ending January 31, 2001 and January 31, 2002 is at least 90 percent of the cumulative target levels of performance designated by the Committee for such years, then the Option shall become exercisable, as of the date the Committee determines the actual cumulative level of performance for such years, with respect to the excess of one-half of the number of shares initially subject to the Option over the number of the shares with respect to which the Option became exercisable pursuant to clause (i), multiplied by the Applicable Percentage. (iii) If the Company's cumulative level of performance for the fiscal years of the Company ending January 31, 2001, January 31, 2002 and January 31, 2003 is at least 90 percent of the cumulative target levels of performance designated by the Committee for such years, then the Option shall become exercisable, as of the date the Committee determines the actual cumulative level of performance for such years, with respect to the excess of the full number of shares initially subject to the Option over the number of shares with respect to which the Option became exercisable pursuant to clauses (i) and (ii), multiplied by the Applicable Percentage. The "Applicable Percentage" for purposes of this Section 2.2(b) shall be the percentage corresponding to the level of the Company's performance for the applicable year as a percentage of the target level of performance for such year, as set forth in the following table:
- ------------------------------------------------------------------------------------------------- Company Performance as a Percentage of Target Level of Performance Applicable Percentage - ------------------------------------------------------------------------------------------------- less than 90% 0% - ------------------------------------------------------------------------------------------------- 90% 50% - ------------------------------------------------------------------------------------------------- 91% 55% - ------------------------------------------------------------------------------------------------- 92% 60% - ------------------------------------------------------------------------------------------------- 93% 65% - ------------------------------------------------------------------------------------------------- 94% 70% - ------------------------------------------------------------------------------------------------- 95% 75% - ------------------------------------------------------------------------------------------------- 96% 80% - ------------------------------------------------------------------------------------------------- 97% 85% - ------------------------------------------------------------------------------------------------- 98% 90% - ------------------------------------------------------------------------------------------------- 99% 95% - ------------------------------------------------------------------------------------------------- 100% or more 100% - -------------------------------------------------------------------------------------------------
2 3 (c) Notwithstanding the foregoing, the Option shall become fully exercisable, to the extent not so already exercisable, upon a "Change in Control," as that term is defined in the Optionee's Employment and Severance Agreement with the Company dated as of January 24, 2000, (the "Severance Agreement"). 2.3. Exercise of Option Following Termination of Employment. (a) If the Optionee's employment by the Company terminates by reason of retirement other than for Good Reason, as defined in the Severance Agreement ("Good Reason"), on or after age 65, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees until and including the earlier to occur of (i) the date which is six months after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (b) If the Optionee's employment by the Company terminates by reason of death or Disability, the Option shall be exercisable to the extent it is exercisable on the date of death or, in the case of Disability, the effective date of the Optionee's termination of employment by reason of Disability (the "Disability Termination Date") and shall become exercisable on the date of death or the Disability Termination Date, as the case may be, for an additional number of shares equal to one-third of the shares of Stock subject to the Option as to which the Option was not exercisable immediately prior to the Optionee's death or the Disability Termination Date, and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earlier to occur of (i) the date which is one year after the date of death or the Disability Termination Date and (ii) the Expiration Date. (c) If the Optionee's employment with the Company is terminated by the Company for Cause, the Option shall terminate automatically on the effective date of Optionee's termination of employment. (d) If the Optionee's employment with the Company is terminated by the Optionee for any reason other than Good Reason, retirement on or after age 65 other than for Good Reason, death or Disability or is terminated by the Company for any reason other than Cause, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees until and including the earlier to occur of (i) the date which is three months after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (e) Notwithstanding the foregoing, upon a termination of the Optionee's employment with the Company that does not constitute a Nonqualifying Termination under the Severance Agreement (a "Nonqualifying Termination") the Option shall become fully exercisable and remain exercisable until the earliest of (i) the Expiration Date, (ii) two years after such termination of employment and (iii) the date the Option is surrendered and canceled for cash or other consideration pursuant to Section 6.8 of the Plan. To the extent that this provision conflicts with the Plan as a result of the Option being an Incentive Stock Option, the Option shall 3 4 be treated as a non-qualified stock option but only with respect to that portion of the Option that is accelerating pursuant to this subparagraph (e). (f) If the Optionee dies during the period set forth in Section 2.3(a) following termination of employment by reason of retirement on or after age 65 other than for Good Reason, or if the Optionee dies during the period set forth in Section 2.3(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(d) following termination of employment for any reason other than retirement on or after age 65 other than for Good Reason, Disability or termination by the Company for Cause, then the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earlier to occur of (i) the date which is one year after the date of death and (ii) the Expiration Date. 2.4 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised in whole or in part by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock (provided that if the then exercisable portion of the Option is for less than one share, then for all of such portion) to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) by authorizing the Company to withhold whole shares of Stock which would otherwise be delivered upon exercise of the Option having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iv) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (v) a combination of (i), (ii) and (iii), and (2) by executing such documents as the Company may reasonably request. So long as the Stock is quoted on NASDAQ or quoted or listed on any recognized quotation service or national securities exchange, the Committee shall have discretion to disapprove (but only in the case of clause (ii) if such disapproval is reasonable and if imposition of a reasonableness standard with respect to disapproval of clause (iii) does not prevent withholding transactions pursuant to clause (iii) from complying with the applicable conditions of Rule 16b-3 under the Exchange Act, only in the case of clause (iii) if such disapproval is reasonable) of an election pursuant to clauses (ii) or (iii). Any fraction of a share of Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid. 2.5 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.5. The Option shall terminate, to the extent not exercised pursuant to Section 2.4 or earlier terminated pursuant to Section 2.3, on the Expiration Date. 4 5 (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, canceled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, canceled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be at least as favorable to the Optionee as this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than (i) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void. 3.2. Investment Representation. The Optionee hereby represents and covenants that (a) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its reasonable judgment deem necessary or advisable to comply with the Securities Act, applicable state securities laws or the regulations or requirements of any such regulatory authority. The Company agrees to use reasonable efforts, so long as it is required to file periodic reports under Section 13 of the Exchange Act to register the Stock issuable to Optionee pursuant to the Option on Form S-8 or a successor form and maintain the effectiveness of such registration. 3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the 5 6 Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). So long as the Stock is quoted on NASDAQ or quoted or listed on any recognized quotation service or a national securities exchange, the Committee shall have sole discretion to disapprove (but only in the case of clause (2) if such disapproval is reasonable and if imposition of a reasonableness standard with respect to disapproval of clause (3) does not prevent withholding transactions pursuant to clause (3) from complying with the applicable conditions of Rule 16b-3 under the Exchange Act, only in the case of clause (3) if such disapproval is reasonable) of an election pursuant to clauses (2) or (3). Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Optionee's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee (such adjustment to be made reasonably and in good faith by the Committee) without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. Such a decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 6 7 3.5. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not approved by the Company (which approval will not be unreasonably withheld). The Company agrees to use all reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 3.6. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8. Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company or any affiliate of the Company. 3.9. Decisions of Board or Committee. Subject to the last sentence of this Section 3.9, the Board or the Committee shall have the right to resolve all questions and make all determinations which may arise in connection with the Option or its exercise (which rights the Committee shall exercise reasonably and in good faith), and any interpretation, determination or other action so made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive. Notwithstanding the foregoing, the determination of "Good Reason," "Change in Control" and "Nonqualifying Termination" shall be determined by mutual agreement of the Board or the Committee, on the one hand, and the Optionee, on the other hand, or failing such agreement by a court of competent jurisdiction. 3.10. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Stock, the full number of shares subject to the Option from time to time. 3.11. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 7 8 3.12. Section 16. The Company shall use all reasonable efforts to cooperate with Optionee (if Optionee is subject to Section 16 of the Exchange Act) to assure that any cash payment in accordance with Section 6.8(a) of the Plan is made in compliance with such Section 16 and the rules and regulations thereunder. 4. Miscellaneous Provisions. 4.1. Meaning of Certain Terms. (a) As used herein, employment by the Company shall include employment by a corporation which is a "subsidiary corporation" of the Company, as such term is defined in section 424 of the Code. References in this Agreement to sections of the Code shall be deemed to refer to any successor section of the Code or any successor internal revenue law. (b) As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person and the term "Permitted Transferee" shall include any transferee pursuant to a transfer permitted under the Plan and Section 3.1 hereof. 4.2. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.3. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Whitehall Jewellers, Inc., 155 North Wacker Drive, Suite 500, Chicago, Illinois 60606, Attention: Secretary, and if to the Optionee, to Jon Browne, 2322 Maple Avenue, Northbrook, Illinois 60062. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.4. Governing Law. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 4.5. Fair Market Value Determinations. Fair Market Value shall mean the average of the high and low transaction prices of a share of Common Stock as reported in the National Association of Securities Dealers Automated Quotation National Market System on the date as of which such value is being determined, or, if the Common Stock is listed on a national securities exchange, the average of the high and low transaction prices of a share of Common Stock on the principal national stock exchange on which the Common Stock is traded on the date 8 9 as of which such value is being determined, or, if there shall be no reported transactions for such date, on the next preceding date for which transactions were reported. If a determination of Fair Market Value is being made under the Option with respect to a period during which the Stock is neither quoted on NASDAQ nor quoted or listed on a recognized quotation service or a national securities exchange, and the Representative (as hereinafter defined) gives notice that it disagrees with the Committee's determination of Fair Market Value within ten days following the Optionee's receipt of written notice of the Committee's determination of Fair Market Value, the determination of Fair Market Value shall be made by a nationally recognized investment banking firm acceptable to the Representative and the Committee. If the Committee and the Representative are unable to agree within five days on the choice of an investment banking firm to perform the valuation, each of the Committee and the Representative shall promptly choose one investment banking firm and the two firms so chosen shall choose a third investment banking firm which shall alone determine Fair Market Value. If no third independent investment banking firm can be agreed upon by the first two independent investment banking firms within fifteen days, such third independent investment banking firm shall be selected promptly by an arbitrator chosen in accordance with the rules for commercial arbitration of the American Arbitration Association then in effect. The investment banking firm shall submit its determination of Fair Market Value to the Committee and the Optionee as soon as reasonably possible, but in no event later than sixty days after the date such investment banking firm is selected as provided above. The determination of Fair Market Value by the investment banking firm shall be final and binding on both the Committee and the Optionee. The Company shall bear all costs and expenses incurred in connection with the determination by such investment banking firm of Fair Market Value. The investment banking firm may use whatever valuation methods it deems relevant or appropriate under the circumstances. Fair Market Value shall be determined based upon the investment banking firm's opinion as follows: (i) if such opinion expresses the Fair Market Value in terms of a range of values, the mean of such range shall be deemed to be Fair Market Value or (ii) if such opinion expresses Fair Market Value as an absolute number, such number shall be deemed to be the Fair Market Value. For purposes of this Section 4.5 the term "Representative" shall mean Hugh Patinkin until such time as he is unwilling or unable to so act, at which time a new Representative (who shall be an individual having an interest under the Option, a similar option granted under the Plan or any similar agreement with the Company) designated by a majority of Hugh Patinkin, John Desjardins, Matthew Patinkin, and Lynn Eisenheim (or their legal representatives or permitted transferees, if applicable) while such persons (or such representatives or transferees) are a party to (or have succeeded to an interest in) this Option or such a similar option or agreement. 4.6 Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 9 10 [SIGNATURE PAGE TO JON BROWNE STOCK OPTION AGREEMENT] WHITEHALL JEWELLERS, INC. By: ---------------------------- Name: Title: Accepted this day of ---- , 2000 - ----------------- Optionee 10 EX-10.3 4 c57466ex10-3.txt 2ND AMEND. TO AMENDED & RESTATED REVOLVING CREDIT 1 EXHIBIT 10.3 SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT AGREEMENT Second Amendment dated as of October 5, 1999 (the "Amendment") amending that certain Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement dated as of September 10, 1998 (as amended and in effect from time to time, the "Credit Agreement"), by and among (a) Whitehall Jewellers, Inc. (f/k/a Marks Bros. Jewelers, Inc.), a Delaware corporation (the "Borrower"); (b) BankBoston, N.A., LaSalle Bank N.A. (f/k/a LaSalle National Bank), ABN AMRO Bank N.V. and the other lending institutions which are now parties thereto (collectively, the "Banks"); and (c) BankBoston, N.A., as Collateral Agent, Administrative Agent and Syndication Agent for the Agents as herein defined and the Banks and LaSalle National Bank and ABN AMRO Bank N.V., each as Syndication Agent for the Agents and the Banks (the Collateral Agent, Administrative Agent and Syndication Agents are collectively referred to as the "Agents"). Capitalized terms used herein and which are not otherwise defined shall have the respective meanings ascribed thereto in the Credit Agreement. WHEREAS, the Borrower and the Banks have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SS.1. AMENDMENT TO SS.1.1 OF THE CREDIT AGREEMENT. (a) The definition of "Total Revolver Commitment" set forth in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "Total Revolver Commitment. The sum of the Commitments of the Banks, as in effect from time to time, such amount being equal to $90,000,000 as of the Closing Date; provided, however, solely for the period from October 5, 1999 through and including December 31, 1999, such amount shall be $100,000,000." (b) The definition of "Commitment" set forth in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "Commitment. With respect to each Bank, the amount set forth on Schedule 1 hereto as the amount of such Bank's commitment to make Revolving Credit Loans to, and to participate in the making of Purchases and Consignments and Swing Line Loans to, and the issuance, extension and renewal of Letters of Credit for the account of, the Borrower, as the same may be reduced from time to time, or if such commitment is terminated pursuant to the provisions hereof, zero, provided, however; solely for the period from October 5, 1999 through and 2 -2- including December 31, 1999, each Banks Commitment shall be increased by an amount equal to $10,000,000 multiplied by such Bank's Commitment Percentage." SS.2. AMENDMENT TO SS.12.3 OF THE CREDIT AGREEMENT. Section 12.3 of the Credit Agreement is hereby amended by deleting the word "exceed" set forth in the third line therein and substituting in lieu thereof the words "be less than". SS.3. CONDITIONS TO EFFECTIVENESS. This Amendment shall not become effective until the Administrative Agent receives: (a) a counterpart of this Amendment, executed by the each of the Borrower, the Agents and each of the Banks; (b) Amended and Restated Revolving Credit Notes, duly executed and delivered by the Borrower for each Bank; and (c) an amendment fee of $50,000 paid by the Borrower for the pro rata account of each Bank based on each Bank's Commitment. SS.4. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Borrower contained in the Credit Agreement were true and correct when made and continue to be true and correct on and as of the date hereof as if made on the date hereof except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and to the extent that such representations and warranties relate expressly to an earlier date. No Default or Event of Default has occurred and is continuing. SS.5. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. SS.6. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agents or the Banks consequent thereon. SS.7. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SS.8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a document under seal as of the date first above written. WHITEHALL JEWELLERS, INC. (f/k/a Marks Bros. Jewelers, Inc.) By: --------------------------------------------- Name: Title: BANKBOSTON, N.A., individually and as Administrative Agent, as Collateral Agent and as Syndication Agent By: --------------------------------------------- Name: Title: LASALLE BANK N.A., individually and as Syndication Agent By: --------------------------------------------- Name: Title: ABN AMRO BANK N.V., individually and as Syndication Agent By: --------------------------------------------- Name: Title: By: --------------------------------------------- Name: Title: 4 THE CHASE MANHATTAN BANK By: --------------------------------------------- Name: Title: BANK OF AMERICA, N.A. By: --------------------------------------------- Name: Title: EX-10.4 5 c57466ex10-4.txt 3RD AMEND. TO AMENDED & RESTATED REVOLVING CREDIT 1 EXHIBIT 10.4 THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT AGREEMENT Third Amendment dated as of February 9, 2000 (the "Amendment") amending that certain Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement dated as of September 10, 1998 (as amended and in effect from time to time, the "Credit Agreement"), by and among (a) Whitehall Jewellers, Inc. (f/k/a Marks Bros. Jewelers, Inc.), a Delaware corporation (the "Borrower"); (b) BankBoston, N.A., LaSalle Bank National Association (f/k/a LaSalle National Bank), ABN AMRO Bank N.V. and the other lending institutions which are now parties thereto (collectively, the "Banks"); and (c) BankBoston, N.A., as Collateral Agent, Administrative Agent and Syndication Agent for the Agents as herein defined and the Banks and LaSalle Bank National Association and ABN AMRO Bank N.V., each as Syndication Agent for the Agents and the Banks (the Collateral Agent, Administrative Agent and Syndication Agents are collectively referred to as the "Agents"). Capitalized terms used herein and which are not otherwise defined shall have the respective meanings ascribed thereto in the Credit Agreement. WHEREAS, the Borrower and the Banks have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SS.1. AMENDMENT TO SS.12.2 OF THE CREDIT AGREEMENT. Notwithstanding anything to the contrary contained in ss.12.2 of the Credit Agreement, the Borrower may make Capital Expenditures during the Borrower's fiscal year ending January 31, 2000 in an amount not to exceed $23,500,000 (the "1999 Capital Expenditures"); provided, however, that in no event shall any unutilized portion of the 1999 Capital Expenditures be utilized in any subsequent fiscal year. SS.2. CONDITIONS TO EFFECTIVENESS. This Amendment shall not become effective until the Administrative Agent receives a counterpart of this Amendment, executed by the each of the Borrower, the Agents and each of the Banks. SS.3. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Borrower contained in the Credit Agreement were true and correct when made and continue to be true and correct on and as of the date hereof as if made on the date hereof except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and to the extent that such representations and warranties relate expressly to an earlier date. No Default or Event of Default has occurred and is continuing. 2 -2- SS.4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. SS.5. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agents or the Banks consequent thereon. SS.6. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SS.7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK] 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a document under seal as of the date first above written. WHITEHALL JEWELLERS, INC. (f/k/a Marks Bros. Jewelers, Inc.) By: ---------------------------------------- Name: Title: BANKBOSTON, N.A., individually and as Administrative Agent, as Collateral Agent and as Syndication Agent By: ---------------------------------------- Name: Title: LASALLE BANK NATIONAL ASSOCIATION, individually and as Syndication Agent By: ---------------------------------------- Name: Title: ABN AMRO BANK N.V., individually and as Syndication Agent By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: 4 THE CHASE MANHATTAN BANK By: ------------------------------------------------ Name: Title: BANK OF AMERICA, N.A. By: ------------------------------------------------ Name: Title: EX-10.5 6 c57466ex10-5.txt 4TH AMEND. TO AMENDED & RESTATED REVOLVING CREDIT 1 EXHIBIT 10.5 FOURTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT AGREEMENT Fourth Amendment dated as of June 26, 2000 (the "Amendment") amending that certain Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement dated as of September 10, 1998 (as amended and in effect from time to time, the "Credit Agreement"), by and among (a) Whitehall Jewellers, Inc. (f/k/a Marks Bros. Jewelers, Inc.), a Delaware corporation (the "Borrower"); (b) Fleet Capital Corporation, LaSalle Bank National Association (f/k/a LaSalle National Bank), ABN AMRO Bank N.V. and the other lending institutions which are now parties thereto (collectively, the "Banks"); and (c) Fleet Capital Corporation, as Collateral Agent, Administrative Agent and Syndication Agent for the Agents as herein defined and the Banks and LaSalle Bank National Association and ABN AMRO Bank N.V., each as Syndication Agent for the Agents and the Banks (the Collateral Agent, Administrative Agent and Syndication Agents are collectively referred to as the "Agents"). Capitalized terms used herein and which are not otherwise defined shall have the respective meanings ascribed thereto in the Credit Agreement. WHEREAS, the Borrower and the Banks have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SS.1. AMENDMENTS TO DEFINITIONS. (a) Section 1.1 of the Credit Agreement is hereby amended by deleting the definition of "Maturity Date" in its entirety and replacing it with the following new definition: "Maturity Date. June 30, 2004." (b) Section 1.1 of the Credit Agreement is hereby amended by deleting the definition of "Total Revolver Commitment" in its entirety and replacing it with the following new definition: "Total Revolver Commitment. The sum of the Commitments of the Banks, as in effect from time to time, such amount being equal to $150,000,000 as of June 26, 2000." (c) Section 1.1 of the Credit Agreement is hereby amended by inserting after the definition of "Subsidiary" the following new definition: 2 -2- "Super Majority Banks. As of any date, the Banks (other than Delinquent Banks) whose aggregate portions of the outstanding amount of the Term Loan and whose aggregate Commitments together constitute at least sixty-six and two-thirds percent (66 2/3%) of the Total Commitment." SS.2. AMENDMENTS TO PRICING. Section 7.22 of the Credit Agreement is hereby amended by (a) deleting the last tier of the table set forth therein and replacing it with the following new tier: - -------------------------------------------------------------------------------------------------------------- less than 1.000% 1.375% 0.00% 0.25% 0.250% 1.50:1.00 - --------------------------------------------------------------------------------------------------------------
SS.3. AMENDMENTS TO NEGATIVE COVENANTS. (a) Section 11.3(f) of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with the following: "(f) Investments by the Borrower in the assets of any other Person or in all of the stock of any other Person ("Acquisition Investments"), provided that (i) (A) the maximum aggregate amount of all such Acquisition Investments after June __, 2000, shall not exceed $40,000,000 in the aggregate (the "Acquisition Cap"), (B) no single acquisition of a business or assets in the retail jewelry business may exceed $20,000,000 in the aggregate, (C) no single acquisition of a business or assets not currently in or used in the retail jewelry business may exceed $10,000,000 and such business or assets must be converted to the retail jewelry business within six months of the date of acquisition and (D) after giving effect to any Acquisition Investment the lesser of Borrowing Base and the Total Revolver Commitment shall exceed the Outstanding Facility Amounts by not less than $10,000,000, provided, however, that if the foregoing criteria in respect of this (i) are not satisfied in respect of any Acquisition Investment, the Borrower may effect such Acquisition Investment with the consent of the Super Majority Banks (it being understood that the Banks shall not seek any special fees in connection with the granting of such consent if the purchase price for such Acquisition Investment is greater than $20,000,000 and less than the amount available under the Acquisition Cap), (ii) after giving effect to any such proposed Acquisition Investment, in the case of any stock acquisition, the Borrower shall own 100% of the issued and outstanding capital stock of such other Person, (iii) immediately before each such proposed Acquisition Investment and after giving effect thereto, there shall be no Default or Event of Default, (iv) any Acquisition Investment which results in a change in control of the Person in which the Acquisition Investment is made shall have been approved by the Board of 3 -3- Directors of such Person prior to the making of such Acquisition Investment, and (v) the Borrower shall have complied in all respects with ss.10.19 hereof. In addition, if at the end of any fiscal quarter the ratio of Consolidated Total Funded Debt to Consolidated EBITDA (calculated in accordance with ss.7.22 hereof) is less than 2.00 to 1.00, the Acquisition Cap will be reset to $40,000,000 (irrespective of Acquisition Investments made prior to such date). Accounts Receivable, Inventory and Precious Metal of any Acquisition Investment shall (y) not be included in the Borrowing Base until the Administrative Agent has completed a collateral exam of such assets and (z) such assets will be included in the Borrowing Base at lending formulas and with eligibility criteria determined by the Administrative Agent based upon such exams." (b) Section 11.4 of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with the following: "11.4. DISTRIBUTIONS. The Borrower will not make any Distributions, except for (a) repurchases of the Borrower's Class B common stock in an aggregate amount not to exceed $150,000 for all such repurchases, and (b) repurchases of its common stock in an aggregate amount not to exceed $15,000,000, so long as no Default or Event of Default has occurred or is continuing." (c) Section 11.5.2 of the Credit Agreement is hereby amended by (i) deleting the words "and (f)" and replacing them with the words "(f)" and (ii) inserting after the words "of which will be approximately $2,000,000" the words "; and (g) notwithstanding anything to the contrary contained elsewhere in any loan documents, non-exclusive licenses of intellectual property including trademarks and tradenames, and outside the United States, exclusive licenses of such intellectual property". SS.4. AMENDMENTS TO FINANCIAL COVENANTS. (a) Section 12.1 of the Credit Agreement is hereby amended by deleting the table contained therein and replacing it with the following new table:
Period Ratio ------ ----- 5/01/00 - 10/31/00 3.00:1.0 11/01/00 - 10/31/01 2.50:1.0 11/01/01 and Thereafter 2.25:1.00
(b) Section 12.2 of the Credit Agreement is hereby amended by deleting the table contained therein and replacing it with the following new table: 4 -4-
Fiscal Year Amount ----------- ------ 2/01/00 - 1/31/01 $25,000,000 2/01/01 - 1/31/02 $29,000,000 2/01/02 - 1/31/03 $31,000,000 2/01/03 - 1/31/04 $33,000,000
(c) Section 12.5 of the Credit Agreement is hereby amended by deleting the table contained therein and replacing it with the following new table:
Period or Date Amount -------------- ------ 7/31/00 $40,500,000 10/31/00 $41,000,000 01/31/01-04/30/01 $42,000,000 07/31/01-10/31/01 $43,000,000 01/31/02 $50,000,000 04/31/02 $50,500,000 07/31/02 $51,000,000 10/31/02 $51,500,000 01/31/03 $55,000,000 04/30/03 $55,500,000 07/31/03 $56,000,000 10/31/03 $56,500,000 01/31/04 $57,000,000 04/30/04 $57,500,000
SS.5. GENERAL AMENDMENT RELATING TO SOVEREIGN BANK AS GOLD FRONTING BANK. (a) References in the following definitions of the Credit Agreement to the "Administrative Agent" shall hereinafter be deemed to be references to "Sovereign Bank as Gold Fronting Bank": "Consigned Precious Metal", "Consignment Base Rate", "Consignment Conversion Request", "Consignment Fixed Rate", "Fair Market Value", "Gold Commitment Percentage", "Gold Fronting Banks", "Redeliver(ed) or Redelivery" and "Spot Value"; (b) References in ss.6 (except for the first reference in paragraph 6.4(a)) to the "Administrative Agent" shall hereinafter be deemed to be references to "Sovereign Bank as Gold Fronting Bank": (c) References in the following sections of the Credit Agreement to the "Administrative Agent" or "Agents" shall hereinafter be deemed to be references to "the Administrative Agent and Sovereign Bank as Gold Fronting Bank": 5 -5- ss.ss.7.13.1, 17 and 20 (d) From time to time the Administrative Agent shall place administrative caps on the Fair Market Value of Consigned Precious Metal (the "Administrative Cap"). Initially the Administrative Cap shall be $22,000,000. Prior to making any Purchase and Consignments and upon any increase in the Fair Market Value which in either case would cause the Fair Market Value of Consigned Precious Metal to exceed the Administrative Cap, Sovereign Bank as Gold Fronting Bank shall notify the Administrative Agent and shall consult with the Administrative Agent to determine that the Borrowing Base exceeds the Outstanding Facility Amounts. SS.6. AMENDMENT TO SCHEDULES AND REALLOCATION OF TERM LOANS. Schedule 1 to the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with the Schedule 1 attached hereto. To the extent that any Bank's Term Loan is to be increased based upon the changes to Schedule 1, such Bank shall make such additional funds available to the Borrower on the effectiveness of this Amendment as Term Loans in the amount of such increase. To the extent that any Bank's Term Loan is to be reduced based upon the changes to Schedule 1, the Borrower shall make a payment to such Bank on the effectiveness of this Amendment in the amount of such decrease as a payment of such Bank's Term Loan. SS.7. CONDITIONS TO EFFECTIVENESS. This Amendment shall not become effective until the Administrative Agent receives (i) a counterpart of this Amendment, executed by each of the Borrower, the Agents and each of the Banks, (ii) amended and restated Revolving Credit Notes and Term Notes for each Bank executed by the Borrower in the amount of such Bank's Commitment and amount of the Term Loans, (iii) an opinion of Borrower's counsel in form and substance satisfactory to the Agent and (iv) an amendment fee in the amount of $374,625 (i.e. 22.5bps of the Total Revolver Commitment and the amount of the Term Loans, such fee to be allocated pro rata among the Banks. SS.8. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Borrower contained in the Credit Agreement were true and correct when made and continue to be true and correct on and as of the date hereof as if made on the date hereof except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and to the extent that such representations and warranties relate expressly to an earlier date. No Default or Event of Default has occurred and is continuing. SS.9. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. 6 -6- SS.10. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agents or the Banks consequent thereon. SS.11. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SS.12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK] 7 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a document under seal as of the date first above written. WHITEHALL JEWELLERS, INC. (f/k/a Marks Bros. Jewelers, Inc.) By: ------------------------------------------- Name: Title: FLEET CAPITAL CORPORATION, individually and as Administrative Agent, as Collateral Agent and as Syndication Agent By: ------------------------------------------- Name: Title: LASALLE BANK NATIONAL ASSOCIATION, individually and as Syndication Agent By: ------------------------------------------- Name: Title: ABN AMRO BANK N.V., individually and as Syndication Agent By: ------------------------------------------- Name: Title: By: ------------------------------------------- Name: Title: 8 THE CHASE MANHATTAN BANK By: ------------------------------------------- Name: Title: BANK OF AMERICA, N.A. By: ------------------------------------------- Name: Title: SOVEREIGN BANK NEW ENGLAND By: ------------------------------------------- Name: Title: EX-10.6 7 c57466ex10-6.txt 5TH AMEND. TO AMENDED & RESTATED REVOLVING CREDIT 1 EXHIBIT 10.6 FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT AGREEMENT Fifth Amendment dated as of August 18, 2000 (the "Amendment") amending that certain Amended and Restated Revolving Credit, Term Loan and Gold Consignment Agreement dated as of September 10, 1998 (as amended and in effect from time to time, the "Credit Agreement"), by and among (a) Whitehall Jewellers, Inc. (f/k/a Marks Bros. Jewelers, Inc.), a Delaware corporation (the "Borrower"); (b) Fleet Capital Corporation, LaSalle Bank National Association (f/k/a LaSalle National Bank), ABN AMRO Bank N.V. and the other lending institutions which are now parties thereto (collectively, the "Banks"); and (c) Fleet Capital Corporation, as Collateral Agent, Administrative Agent and Syndication Agent for the Agents as herein defined and the Banks and LaSalle Bank National Association and ABN AMRO Bank N.V., each as Syndication Agent for the Agents and the Banks (the Collateral Agent, Administrative Agent and Syndication Agents are collectively referred to as the "Agents"). Capitalized terms used herein and which are not otherwise defined shall have the respective meanings ascribed thereto in the Credit Agreement. WHEREAS, the Borrower and the Banks have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SS.1. AMENDMENTS TO CREDIT AGREEMENT. (a) Section 11.4 of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with the following: "11.4. DISTRIBUTIONS. The Borrower will not make any Distributions, except for (a) repurchases of the Borrower's Class B common stock in an aggregate amount not to exceed $150,000 for all such repurchases, and (b) repurchases of its common stock in an aggregate amount not to exceed $20,000,000, so long as no Default or Event of Default has occurred or is continuing." (b) References in ss.18 and 19 of the Credit Agreement to the "Administrative Agent" or "Agents" shall hereinafter be deemed to be references to "the Administrative Agent and Sovereign Bank as Gold Fronting Bank". SS.2. CONDITIONS TO EFFECTIVENESS. This Amendment shall not become effective until the Administrative Agent receives a counterpart of this Amendment, executed by each of the Borrower, the Agents and the Majority Banks. 2 -2- SS.3. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Borrower contained in the Credit Agreement (including, without limitation, the representation regarding litigation contained in Section 9.7 thereof) were true and correct when made and continue to be true and correct on and as of the date hereof as if made on the date hereof except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and to the extent that such representations and warranties relate expressly to an earlier date. No Default or Event of Default has occurred and is continuing. SS.4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. SS.5. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agents or the Banks consequent thereon. SS.6. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SS.7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). [THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK] 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a document under seal as of the date first above written. WHITEHALL JEWELLERS, INC. (f/k/a Marks Bros. Jewelers, Inc.) By: ------------------------------------------- Name: Title: FLEET CAPITAL CORPORATION, individually and as Administrative Agent, as Collateral Agent and as Syndication Agent By: ------------------------------------------- Name: Title: LASALLE BANK NATIONAL ASSOCIATION, individually and as Syndication Agent By: ------------------------------------------- Name: Title: ABN AMRO BANK N.V., individually and as Syndication Agent By: ------------------------------------------- Name: Title: By: ------------------------------------------- Name: Title: 4 THE CHASE MANHATTAN BANK By: ------------------------------------------- Name: Title: BANK OF AMERICA, N.A. By: ------------------------------------------- Name: Title: SOVEREIGN BANK NEW ENGLAND By: ------------------------------------------- Name: Title: EX-27 8 c57466ex27.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS JAN-31-2001 FEB-01-2000 JUL-31-2000 0 0 3,709 (1,100) 179,322 188,733 0 0 256,808 140,781 12,640 0 0 17 101,494 256,808 149,774 149,774 91,055 91,055 52,758 0 2,321 3,640 1,402 2,238 0 0 (3,068) (830) (0.05) (0.05)
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