-----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, T2hmByd/vrHzS2h98F6+OqhMXLOK3NK+/PiXDCxCjFIBVihZD7ck4f8Ria00hAmi Oq5/q9icHnI4C3aCvj6nJg== 0000950134-98-007274.txt : 19980831 0000950134-98-007274.hdr.sgml : 19980831 ACCESSION NUMBER: 0000950134-98-007274 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980530 FILED AS OF DATE: 19980828 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARRYS JEWELERS INC /CA/ CENTRAL INDEX KEY: 0000790360 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-JEWELRY STORES [5944] IRS NUMBER: 953746316 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15017 FILM NUMBER: 98700855 BUSINESS ADDRESS: STREET 1: 111 W LEMON AVE CITY: MONROVIA STATE: CA ZIP: 91016 BUSINESS PHONE: 8183034741 10-K405 1 FORM 10-K FOR YEAR ENDED MARCH 31, 1998 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 30, 1998 COMMISSION FILE NUMBER 0-15017 --------------------- BARRY'S JEWELERS, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 95-3746316 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2914 MONTOPOLIS DRIVE, SUITE 200 78741 AUSTIN, TEXAS (Zip Code) (Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (512) 369-1400 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF EACH CLASS --------------- COMMON STOCK WARRANTS Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes. [X] No. [ ] Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of August 20, 1998, the aggregate market value of the voting stock, held by nonaffiliates of the issuer, was $478,364 based upon an average price of $.1875 multiplied by 2,551,272 shares of common stock outstanding on such date held by nonaffiliates. As of August 20, 1998, the issuer had a total of 4,029,372 shares of common stock outstanding. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a court. Yes. [X] No. [ ] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS INTRODUCTION INTRODUCTORY NOTE This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. See "-- Private Securities Litigation Reform Act." THE COMPANY Barry's Jewelers, Inc. (the "Company,") is a chain of specialty retail jewelry stores generally located in regional shopping malls. The Company's stores offer fine jewelry items in a wide range of styles and prices, with a principal emphasis on diamond and gemstone jewelry. As of May 30, 1998, the Company operated 117 retail jewelry stores, principally in California, Texas, Arizona, Utah, North Carolina, Colorado, Idaho, Montana and Indiana. As measured by the number of retail locations, the Company is one of the larger specialty retailers of fine jewelry in the country. The Company's corporate office is located at 2914 Montopolis Drive, Suite 200, Austin, Texas 78741, and its telephone number is (512) 369-1400. The Company changed its fiscal year end during 1998 from May 31 to the Saturday closest to May 31. For ease of presentation, the Company's 1998 fiscal year, which represents the period from June 1, 1997 through May 30, 1998, has been described in these financial statements as the year ended May 31, 1998. PROCEEDINGS UNDER CHAPTER 11 On May 11, 1997 (the "Petition Date"), the Company commenced a reorganization case by filing a voluntary petition (the "Chapter 11 Petition") for relief under Chapter 11 ("Chapter 11") of title 11 of the United States Code (as amended from time to time, the "Bankruptcy Code") in the United States Bankruptcy Court for the Central District of California, Los Angeles Division (the "Bankruptcy Court"), case number LA 97-27988-VZ. Since the Petition Date, the Company has continued in possession of its properties and, as debtor-in-possession, is authorized to operate and manage its businesses and enter into all transactions (including obtaining services, inventories, and supplies) in the ordinary course of business, or out of the ordinary course of business subject to approval of the Bankruptcy Court, after notice and hearing. Subsequent to the filing of the Chapter 11 Petition, the Company sought and obtained several orders from the Bankruptcy Court that were intended to stabilize its business. The most significant of these orders: (1) authorized and extended use of the Company's cash collateral through August 31, 1998; (2) approved a trade debtor-in-possession ("DIP") financing agreement (the "Trade DIP Financing Agreement"), which allowed the Company to obtain its merchandise orders of approximately $54 million on extended trade terms while providing the trade vendors with substantial support for the payment of their accounts receivable; (3) authorized the Company to return approximately $8 million of merchandise to vendors as credit against the vendors' prepetition claims in exchange for at least $11 million of new merchandise on extended trade terms (the "Vendor Return Program"); (4) authorized the Company to obtain merchandise on consignment (the "Consignment Agreement"); and (5) authorized payment of certain prepetition liabilities, principally prepetition wages and employee benefits, and payments for certain prepetition customer and related service claims. On April 30, 1998, the Company filed and served its "Original Disclosure Statement And Plan Of Reorganization, Dated April 30, 1998," proposed by the Company (the "Plan"). The Plan was developed through the cooperative efforts of the Company's management, the Creditors' Committee, the Bondholder 2 3 Committee, the Bank Group and the unofficial committee of shareholders, all of which support and recommend approval of the Plan. Following a hearing held on July 16, 1998 to consider the adequacy of the information contained in the disclosure statement portion of the Plan, the Bankruptcy Court entered its "Order Authorizing And Approving (A) Adequacy Of Disclosure With Respect To The Original Disclosure Statement And Plan Of Reorganization, Dated April 30, 1998, proposed by the Company; (B) Form, Scope, And Nature Of Solicitation, Balloting, Tabulation, And Notices With Respect Thereto; And (C) Related Confirmation Procedures, Deadlines, And Notices" (the "Disclosure Statement Order"), pursuant to which the Bankruptcy Court, among other things, approved the Plan as containing adequate information to enable creditors and equity security holders to make an informed judgment in determining whether to vote to accept or reject the Plan. Following the entry of the Disclosure Statement Order, the Company distributed the Plan to its creditors and shareholders for the purpose of soliciting acceptances thereto. The Bankruptcy Court established August 10, 1998 as the deadline for creditors and shareholders to return their ballots and the Company has received notice from the Bankruptcy Court indicating that the Plan was preliminarily accepted by the creditors and equity security holders. The Bankruptcy Court has scheduled a hearing to consider confirmation of the Plan on September 16, 1998. The Company's financial statements have been prepared on a going concern basis, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. The Company has had recurring losses from operations and a shareholders' deficiency. As a result of the Chapter 11 Petition filing and circumstances relating to this event, such realization of assets and satisfaction of liabilities is subject to uncertainty. The plan of reorganization could materially change the amounts reported in the accompanying consolidated financial statements, which do not give effect to adjustments to the carrying values of assets and liabilities, which may be necessary as a consequence of a plan of reorganization. The Company's ability to continue as a going concern is contingent upon, among other things, its ability to formulate a plan of reorganization that will be confirmed by Company's creditors, shareholders and the Bankruptcy Court, to achieve satisfactory levels of profitability and cash flow from operations, to maintain compliance with the trade financing agreement and terms of the cash stipulation, and the ability to obtain sufficient financing sources to meet future obligations, and to comply with the terms and covenants of any financing eventually obtained. PRIOR REORGANIZATION During 1992, the Company effected a comprehensive restructuring of its long-term debt obligations and capital structure. On February 26, 1992, the Company voluntarily initiated a case under Chapter 11 of the Bankruptcy Code and filed a pre-negotiated Plan of Reorganization in the United States Bankruptcy Court for the Central District of California (the "Court"). On June 19, 1992, the Court entered an order confirming the Company's Amended Plan of Reorganization (the "Prior Reorganization Plan"). The effective date of the Prior Reorganization Plan was June 30, 1992. STRATEGY The Company's operating strategy is to provide the best fine jewelry values to the retail jewelry consumer. This is accomplished by partnering with vendors to develop new products and expand assortments based on customer demand and perceived value and then by communicating this value message through targeted marketing programs. To enhance sales, the Company makes credit financing available to qualified customers through its own private label credit card and through various secondary credit sources. The Company's sales capabilities are supported by a trained and knowledgeable sales staff, an automated, centralized credit and collection system, and a centralized distribution system to replenish merchandise to the stores. MERCHANDISE STRATEGY Strong vendor partnering has enabled management to leverage a large portion of the Company's inventory through exclusive consignment arrangements, resulting in dominant assortments of quality jewelry. A talented team of merchandise buyers with jewelry manufacturing expertise has been assembled to allow the Company 3 4 to go beyond buying product, and focus on developing product solutions that meet specific competitive opportunities created by consumer demand. As a result, management believes the stores offer exceptional selection, and excellent values that enhance the Company's ability to offer a better value to the customer and, thereby, capture a larger market share. On July 22, 1997, the Company reached an agreement with its vendors and creditors regarding the terms of the Trade DIP Financing Agreement, Vendor Return Program, and Consignment Agreement. See "-- Proceedings Under Chapter 11." These vendor programs, along with an increase in available borrowing under the Company's Amended Revolving Credit Agreement pursuant to the terms of the Cash Stipulation (see Item 3. Legal Proceedings), allowed management to implement its new merchandise strategy. MERCHANDISE MIX The Company has repositioned its merchandise assortments to appeal to the mainstream jewelry consumer. Improved price points, updated styling and an expanded selection in high volume product categories such as bridal, diamond fashion and gold have been the primary focus of the new merchandising strategy. INVENTORY PURCHASING Buyers located in the Company's corporate offices purchase most of the stores' merchandise. Each store's inventory is replenished weekly or more often during peak selling seasons. Management believes that centralized merchandise purchasing provides the Company with quality controls and price advantages. Three vendors have accounted for 27%, 25%, and 21% of the Company's merchandise purchases for fiscal 1998, 1997, and 1996, respectively. Management believes that the Company's relationship with these three vendors, as well as its other vendors, is good. These vendors, and all vendors key to the Company's new merchandising strategy, have agreed to participate in the Trade DIP Financing Agreement and the Vendor Return Program. SUPPLY AND PRICE FLUCTUATIONS The world supply and price of diamonds are influenced considerably by the Central Selling Organization ("CSO"), which is the marketing arm of DeBeers Consolidated Mines, Ltd. ("DeBeers"), a South African company. Through the CSO, over the past several years, DeBeers has supplied approximately 80% of the world demand for rough diamonds, selling to gem cutters and polishers at controlled prices. The continued availability of diamonds to the Company's suppliers is dependent, to some degree, upon the political and economic situation in South Africa. While several other countries, including Australia, the Commonwealth of Independent States, Zaire, Angola, Tanzania and Sierra Leone are suppliers of diamonds, the Company cannot predict with any certainty the effect on the overall supply or price of diamonds in the event of an interruption of supplies from South Africa, the CSO or DeBeers. The Company is subject to other supply risks, including fluctuations in the price of precious gems and metals. The Company presently does not engage in any hedging activity with respect to possible fluctuations in the price of these items. If such fluctuations should be unusually large or rapid and result in prolonged higher or lower prices, there is no assurance that the necessary retail price adjustments will be made quickly enough to prevent the Company from being adversely affected. TRADE NAMES The Company currently operates under five trade names: Schubach, Mission, Samuels, Hatfields and A. Hirsh & Sons. Over the next two to three years, the Company intends to change the name of all of its stores to Samuels Jewelers. 4 5 STORE PERFORMANCE The following table sets forth selected data with respect to the Company's operations for the five fiscal years ended May 31, 1998.
1998 1997 1996 1995 1994 ---- ------ ---- ----- ---- Number of stores at beginning of year............... 130 161 162 144 144 Acquired during the year.......................... -- -- -- 15 -- Opened during the year............................ -- 17 7 8 1 Closed during the year(1)......................... (13) (48) (8) (5) (1) ---- ------ ---- ----- ---- Total at year end......................... 117 130 161 162 144 ==== ====== ==== ===== ==== Percentage increase (decrease) in sales of comparable stores(2).............................. 9.2% (10.0)% 2.2% 11.0% 7.4% Average sales per comparable store (in thousands)(2)..................................... $951 $ 709 $905 $ 871 $792
- --------------- (1) The 48 stores closed during fiscal 1997 are composed of 33 stores closed on or about May 11, 1997, as part of the Company's Chapter 11 Petition filing; 11 stores closed in connection with the restructuring, announced in January 1997, and 4 other stores closed during the year. (2) Comparable stores are stores that were open for all of the current and preceding year. CREDIT PROGRAM The Company's credit policy is intended to complement its overall sales strategy. The principal objective is the extension of credit to those customers who will produce the most reasonable rate of return. The Company also offers credit insurance to its customers. This insurance program, underwritten by a major insurance company, generally provides coverage for life, disability, unemployment and loss of property. Sales under the Company's credit program accounted for approximately 50% of fiscal 1998 sales and 56% of fiscal 1997 sales, net of down payments. The decline in credit sales mix is attributable to management's policy of tightening credit granting standards and by a merchandising and marketing strategy designed to attract a more affluent customer. Payment periods for the credit sales generally range from 24 to 36 months. Customers may also purchase jewelry for cash and by using major national credit cards. SEASONALITY The level of success of the Company is heavily dependent each year on the success of its Christmas selling season, which in turn depends on many factors beyond the Company's control, including the general business environment and competition in the industry. Sales during the Christmas season (which includes the period from the day following Thanksgiving Day to December 31) generally account for approximately 25% of net sales and all or nearly all of annual earnings. The Company had net sales of $28.3 million during the Christmas 1997 selling season. COMPETITION The retail jewelry industry is highly competitive. It is estimated that there are approximately 35,000 retail jewelry stores in the United States, most of which are independently operated and not part of a major chain. Numerous companies, including publicly and privately held independent stores and small chains, department stores, catalog showrooms, direct mail suppliers, and TV shopping networks, provide competition on a national and regional basis. The malls and shopping centers wherein many of the Company's stores are located typically contain several other national chain or independent jewelry stores, as well as one or more jewelry departments located in the "anchor" department stores. Certain of the Company's competitors are substantially larger than the Company and have greater financial resources. Management believes that the primary elements of competition in the retail jewelry business are quality of personnel, level of customer service, breadth, depth, price and quality of merchandise offered, credit terms and store location and design. Management believes that the Company has been unable to compete 5 6 successfully in prior years because of its failed merchandising programs, poor credit underwriting practices, cash flow constraints, excessive collection costs, poor inventory controls and below-average percentage of consignment inventory, executive turnover, restrictive financing arrangements, ineffective investment in technology and the resultant excessive administrative costs. In addition, the Company believes that, as the jewelry retailing industry consolidates, the ability to compete effectively may become increasingly dependent on volume purchasing capability, regional market focus, superior management information systems, and the ability to provide customer service through trained and knowledgeable sales staffs. However, the competitive environment is often affected by factors beyond a particular retailer's control, such as shifts in consumer preferences, economic conditions, population and traffic patterns. YEAR 2000 COMPLIANCE Many existing computer systems and applications, and other control devices, use only two digits to identify a year in the date field without considering the impact of the upcoming change in the century. As a result, such systems and applications could fail or create erroneous results unless corrected so that they can process data related to the year 2000 and beyond. The Company relies on its computer systems, applications and devices in operating and monitoring all major aspects of its business, including financial systems (such as general ledger, accounts payable and payroll modules), customer services, infrastructure, embedded computer chips, networks, telecommunications equipment and end products. The Company has obtained and is in the process of implementing a new integrated management information system that includes a system processor and operating system, applications software, point of sale hardware and additional microcomputers. The year 2000 issue was addressed during the planning process, and all new system technology is expected to be year 2000 compliant. The Company has no current intention to replace its current customer accounts receivable system, which is not year 2000 compliant. However, it is planning to outsource the billing and collection functions. The Company is currently exploring the feasibility of licensing other existing collection systems should the Company be unable to outsource the billing and collections functions by the year 2000. The Company is confident that remaining needs will be addressed before the end of 1999 and believes that the year 2000 issue will not pose significant operational problems or result in costs that would have a material adverse impact on its financial condition or results of operations. The Company also relies, directly and indirectly, on external systems of business enterprises such as customers, suppliers, creditors and financial organizations, and of government entities, for accurate exchange of data. The Company is in the process of communicating with its significant suppliers to determine the extent to which the Company's interface systems are vulnerable to those third parties' failures to remediate their own year 2000 issues. Even if the Company's internal systems are not materially affected by the year 2000 issue, it possibly could be affected through disruptions in the operations of the parties with which it interacts. Therefore, despite the Company's efforts to address the year 2000 impact on its internal systems and business operations, there can be no assurance that such impact will not result in a material disruption of its business or have a material adverse effect on its business, financial condition, or results of operations. EMPLOYEES At May 31, 1998, the Company had 1,007 full-time and part-time employees. Unions represented 34 employees, or 3% of the Company's employees, at such date. Union contracts covering these employees expired on August 31, 1996; however, negotiations to renew the contracts are continuing. The Company believes it provides working conditions and wages that compare favorably with those offered by other retailers in the industry and that its relations with its employees are good. The Company has never experienced any material labor unrest, disruption of operations or strikes. 6 7 PRIVATE SECURITIES LITIGATION REFORM ACT The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included under the captions "Business -- Proceedings Under Chapter 11" and in other parts of this Form 10-K and other materials filed or to be filed by the Company with the Securities and Exchange Commission contain statements that are forward-looking, such as statements relating to the Company's Cash Collateral Stipulation, Postpetition Consignment, Trade Financing and Vendor Return Program among others. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated Plan of Reorganization results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, the risk of continuing losses and cash flow constraints despite the Company's efforts to improve operations, including: the Vendor Return Program, the Consignment Merchandise Agreement, and Trade DIP Financing Agreement such that the Company will be able to purchase inventory for the 1997 holiday season and thereafter, and attain credit support from its creditors and vendors; failure to negotiate acceptable payment terms with creditors, vendors and landlords; and failure to have its plan for reorganization confirmed. ITEM 2. PROPERTIES The Company leases all its retail stores. Stores range in size from approximately 577 square feet to 3,690 square feet. Store leases generally have an initial term of 5 to 15 years and will expire at various dates through 2007. Currently, leases at 3 stores have expired, and two other have been rejected; the five stores are occupied on a month-to-month basis. Some leases contain renewal options for periods ranging from 5 to 10 years on substantially the same terms and conditions as the initial lease. Under most of the store leases, the Company is required to pay taxes, insurance, and its pro rata share of common area and maintenance expenses. Most of the leases also require the Company to pay the greater of a specified minimum rent or a contingent rent based on a percentage of sales as defined. The Company formerly leased approximately 38,000 square feet for its headquarters located in Monrovia, California. Because the Company obligations under its headquarters lease were significantly greater than market lease rates, the Company determined to reject the lease. After negotiations with its former lessor, the Company entered into a stipulation providing for the rejection of the lease, effective August 15, 1998. The stipulation was approved by the Bankruptcy Court. In connection with the Company's determination to reject its existing headquarters lease, the Company has relocated its corporate headquarters to Austin, Texas. The Company has entered into a new lease for its headquarters with the following substantive terms: (a) approximately 24,000 square feet, with rent of $0.47 per square foot per month on a triple net basis; and (b) a term of five years, with an option to renew for one additional five year term at the average monthly net rental rate charged for comparable premises. The Company also leased space in Irwindale, California, for its credit center. Under section 365(d)(4) of the Bankruptcy Code, unless otherwise ordered by a bankruptcy court, a Chapter 11 debtor must assume all leases of nonresidential property within 60 days of its Chapter 11 filing or such leases will be deemed rejected. Following the Petition Date, the Company also filed a motion for authority to reject the leases pertaining to 33 closed store locations and to reject an additional lease involving a store location that was never opened. The motion was approved by the Bankruptcy Court. In addition, the Company subsequently rejected an additional 14 leases and closed the under-performing store locations during the pendency of its bankruptcy case. Soon after the Petition Date, the Company also began to negotiate interim reductions in base rent under various leases and evaluated the specific terms of other leases in order to determine whether any required only "non-economic" modifications. Thereafter, the Company submitted non-economic lease modification proposals to the lessors of over 50 store locations. Pursuant to those proposals, the Company has assumed approximately 39 leases, as modified, during its bankruptcy case. 7 8 On motions by the Company, the Bankruptcy Court extended through July 31, 1998, the deadline for the Company to assume, assume and assign, or reject its remaining leases of nonresidential real property. After thorough analysis of its remaining approximately 77 leases, the Company moved to assume approximately 72 of those leases. In some instances, the Company has moved to assume the leases as modified pursuant to executed or anticipated lease amendments. The motions are set for hearing on August 26, 1998. Leases not the subject of a motion to assume filed on or before July 31, 1998 are deemed rejected by operation of Bankruptcy Code section 365(d)(4). As of August 25, 1998, the Company was operating 116 retail stores in the following states:
NUMBER OF STATE STORES ----- --------- California.................................................. 31 Texas....................................................... 31 Arizona..................................................... 7 Utah........................................................ 7 North Carolina.............................................. 6 Colorado.................................................... 5 Idaho....................................................... 5 Montana..................................................... 5 Others...................................................... 19 --------- TOTAL....................................................... 116 =========
ITEM 3. LEGAL PROCEEDINGS A. CHAPTER 11 FILING The Company commenced its reorganization case by filing a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on the Petition Date. Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Under Chapter 11, a debtor in possession attempts to reorganize its business for the benefit of itself, its creditors, and other parties in interest. The commencement of a Chapter 11 case creates an estate consisting of all of the legal and equitable interests of the debtor in property as of the date that the petition was filed. Sections 1101, 1107, and 1108 of the Bankruptcy Code provide that a debtor may continue to operate its business and remain in possession of its property as a "debtor in possession" unless the bankruptcy court orders the appointment of a trustee. Since the Petition Date, the Company has remained in possession of its property and continues to operate its business as a debtor in possession. The filing of a voluntary petition under Chapter 11 also operates as an automatic stay of, among other things, all attempts to collect on pre-petition claims from the debtor or otherwise interfere with the debtor's property or business. In Chapter 11 cases, unless otherwise ordered by the bankruptcy court, the automatic stay remains in full force and effect until the effective date of a confirmed plan of reorganization. The formulation of a plan of reorganization is the principal purpose of a Chapter 11 case. A plan sets forth the means for satisfying the claims against and interests in the debtor. On April 30, 1998, the Company filed and served its "Original Disclosure Statement and Plan of Reorganization, dated April 30, 1998, proposed by the Company (previously defined as the "Plan"). The Plan was developed through the cooperative efforts of the Company's management, the Creditors' Committee, the Bondholder Committee, the Bank Group and the unofficial committee of shareholders, all of which support and recommend approval of the Plan. The plan proposed by the Company, discussed below, provides for a reorganization of its capital structure to enable it to continue as a viable business enterprise, maximize the recoveries for creditors and shareholders, preserve the jobs of hundreds of employees, and avoid the potentially adverse impact of a liquidation on the Company's numerous trade vendors and other suppliers. 8 9 THE CASH COLLATERAL STIPULATION Prior to the Petition Date, the Company and its prepetition lenders (collectively, the "Bank Group") executed the "Stipulation Pursuant to Sections 361 and 363 Bankruptcy Code Authorizing Debtor's Use of Cash Collateral," by which the Bank Group consented to the use of its cash collateral on certain terms and conditions. After further negotiations, the Company, the Bank Group, the official committee of bondholders (the "Bondholder Committee") and the official committee of unsecured creditors (the "Creditors' Committee") entered into the "Amended Stipulation Pursuant to Sections 361 and 363 of the Bankruptcy Code Authorizing Debtor's Use of Cash Collateral and Granting Adequate Protection to Collateral Agent, Lenders and Bondholders" (the "Amended Cash Collateral Stipulation"), which authorized the Company to use the cash collateral, on specified terms and conditions, through February 28, 1998. The Amended Cash Collateral Stipulation was subsequently amended on several occasions to continue the Company's use of cash collateral through August 31, 1998. The parties have recently agreed to further extend the Company's use of cash collateral through October 14, 1998, subject to Bankruptcy Court approval. THE EXECUTIVE MANAGEMENT CONTRACTS In mid-February 1997, based upon recommendations received from industry and nonindustry sources and following interviews, the Company's Board of Directors (the "Board") determined to hire Samuel Merksamer as Chief Executive Officer and President and E. Peter Healey as Executive Vice President and Chief Financial Officer. Following the selection of Mr. Merksamer and Mr. Healey, the Board also hired Randy N. McCullough as Senior Vice President -- Merchandising, Chad C. Haggar as Vice President -- Operations, Bill R. Edgel as Vice President -- Marketing, and Paul W. Hart as Vice President -- Management Information Systems (collectively, the "Senior Executives"). Following negotiations with a Compensation Committee of the Board, each of the Senior Executives and the Company entered into an employment agreement dated as of May 1, 1997 (collectively, the "Executive Management Contracts"); such agreements provided for specified base salaries, annual and incentive bonuses, and termination benefits. After the Petition Date, the Company filed a motion for an order authorizing the assumption and performance of the Executive Management Contracts. Following the filing and service of that motion, however, discussions transpired among certain of the Company's major constituents regarding the terms of the Executive Management Contracts, and as a result of those discussions, the Senior Executives proposed modifications to the Executive Management Contracts, under which they agreed to reduce the total compensation payable thereunder. The Bankruptcy Court subsequently authorized the Company to enter into, and to assume, the Executive Management Contracts, thereby enabling the Company to retain intact its new management team and to incentivize key personnel during the course of the reorganization case. On March 27, 1998, Samuel Merksamer's employment as President and Chief Executive Officer of the Company terminated. Randy N. McCullough, who had recently been promoted to Executive Vice President and Chief Operating Officer, succeeded Mr. Merksamer as Chief Executive Officer. THE POSTPETITION CONSIGNMENT, TRADE FINANCING, AND VENDOR RETURN PROGRAMS The Company's ability to operate successfully depends in large part upon its ability to provide a wide variety of high-quality jewelry for display and sale to retail customers. One of the Company's most urgent priorities following the Petition Date, therefore, was to increase per-store inventory levels prior to the start of the crucial 1997 Christmas-Hanukkah season, during which the Company would generate a substantial portion of its sales for the year. The Company addressed the inventory problem in several ways. For example, the Company obtained Bankruptcy Court approval of a post petition consignment program pursuant to which certain key vendors committed to maintain a specified minimum amount of consigned merchandise with the Company. The Company also obtained authorization to pay for any prepetition consigned goods that it sold after the Petition Date with the consent of the applicable consignors, and the Company now has disposed of approximately half of its prepetition consigned inventory in that manner. 9 10 The Company also negotiated, executed, and obtained Bankruptcy Court approval of a "vendor return program," which provided for: (a) the Company to return to participating vendors certain merchandise sold by vendors to the Company prior to the Petition Date, in amounts of up to 75% of the applicable vendors' prepetition claims (as valued based upon the purchase price set forth in the prepetition invoices for the returned goods) and up to an aggregate of approximately $8 million, with such returns being credited to reduce the vendors' claims against the Company on a dollar-for-dollar basis; (b) the participating vendors to agree to provide revolving credit to the Company until the earlier of the confirmation of a plan of reorganization or one year, on 90 day terms in an amount of at least 250% of the value of the merchandise so returned; (c) the Company to fund a $2 million "trade trust," with the consent of the Bank Group and the Bondholder Committee, with which to secure its post petition credit obligations to participating vendors; (d) members of the Bondholder Committee to subordinate $4 million of their Secured Claims against the Company to the company's post petition trade payables to participating vendors; and (e) in the event that such trade trust was eliminated or reduced, members of the Bondholder Committee to agree to subordinate up to an additional $2 million of their secured claims against the Company to the Company's post petition trade payables to participating vendors. OTHER BUSINESS RESTRUCTURING EFFORTS Following the Petition Date, the Company proceeded to implement its business reorganization plan along an array of other fronts. Perhaps most importantly, the Company evaluated and restructured many of its store leases. As of the Petition Date, the Company chain-wide, per-store occupancy costs were approximately 10.3% of sales, and the occupancy costs at certain stores were almost double that amount. Such amounts were well above industry averages. The company also devised and obtained Bankruptcy Court approval of a comprehensive program to obtain and implement a new integrated management information system, including a systems processor and operating system, applications software, point-of-sale hardware, additional microcomputers, and a new home office telephone system, all of which will enable more efficient operation and reduce overhead expenses on a going-forward basis. In an effort to reduce its corporate occupancy costs, management, after extensive negotiations to reduce the rent on its corporate headquarter lease decided to relocate to a more affordable space. In May, 1998 the Company relocated its credit operations from Monrovia, California, to Irwindale, California, and in June 1998, it relocated its corporate functions from Monrovia, California, to Austin, Texas (see Item 2. Properties). Finally, the Company is pursuing a number of other options to help restore long-term profitability, including reductions in corporate overhead, changes in personnel; bringing in new consignment inventory and establishing other vendor-partnering programs to enhance merchandise assortment; and thereby attract a less credit-dependent customer base; raising credit-granting standards to industry norms; incentivizing accounts-receivable collection efforts; changing commission structure to properly motivate salespeople; reducing vault inventory by sending more merchandise to the stores; and pursuing alternatives to the existing in-house credit and collection process. THE BAR DATE AND CLAIMS OBJECTIONS Pursuant to a motion by the Company, the Bankruptcy Court established October 31, 1997, as the Bar Date for filing proofs of claim and interest against the Company's estate. Subsequently, claimants filed over 890 proofs of claim and interest. The Company has successfully objected to a number of the proofs of claims, and the Company intends to continue its analysis of the remaining claims and to raise objections to those claims as warranted. The Plan enables the Company or a "Claims Committee" to file additional objections to claims and interests through six months after the effective date of the Plan, and the Company has reserved all rights with respect to the allowance or disallowance of any and all claims and interests. 10 11 B. LITIGATION LIEN AVOIDANCE LITIGATION On October 21, 1997, in response to a Bankruptcy Court-approved deadline, the Company filed with the Bankruptcy Court a "Complaint To Avoid Purported Security Interests, to Limit Purported Security Interests, and for Declaratory Relief" (the "Lien Avoidance Complaint") in order to avoid and/or limit certain of the purported security interests held by BankBoston, as collateral agent for the Bank Group and the Bondholders. By the Lien Avoidance Complaint, the Company sought, among other things: (i) to avoid the purported security interest in inventory located in California having a unit retail value of $500 or less; (ii) a declaratory judgment determining that certain statutory landlord liens preserved for the benefit of the estate are senior to any purported security interest in and to the same assets; and (iii) a declaratory judgment determining that no security interest exists in the Company's retail store leases and proceeds thereof. At the request of the parties, the Bankruptcy Court has stayed further prosecution of the Lien Avoidance Complaint and continued all hearings with regard to the complaint until October 8, 1998. Under the terms of the Plan, the Lien Avoidance Complaint shall be dismissed with prejudice as of the Plan effective date. EXECUTIVE BONUS PLAN INTERPLEADER LITIGATION Prior to the Petition Date, the Company implemented both a Deferred Compensation Plan and an Executive Bonus Plan (collectively, the "Plans") in order to provide specified benefits to management and certain key employees. The Deferred Compensation Plan allows eligible employees to defer receipt of a portion of their current income on a pre-tax basis and to receive tax-deferred interest on the deferrals. The Executive Bonus Plan provides a payment of certain benefits to eligible employees upon the occurrence of certain specified "changes in control" of the Company. Any benefits paid to an eligible employee under the Executive Bonus Plan are offset against the benefits payable to such employee under the Deferred Compensation Plan. In connection with the Plans, the Company established what has been described as a "trust" (the "EBP Trust") to fund and secure the benefits for the Executive Bonus Plan participants, and the EBP Trust currently holds liquidated proceeds from life insurance policies on the lives of some or all of such participants. The trustee of the EBP Trust is Imperial Trust Company ("Imperial"). During the Company reorganization case, certain of the participants in the Executive Bonus Plan have made demands on Imperial for the payment of benefits that they allege are due and owing as a result of the Company having filed its Chapter 11 petition. Imperial, however, has refused to make payments to the participants absent an order of the Bankruptcy Court. Accordingly, on December 9, 1997, Imperial filed a "Complaint in Interpleader" (as amended, the "Interpleader Complaint"), naming the Company, the Creditors' Committee, and numerous individual plan participants as defendants, in order to determine the respective rights and obligations of the parties in and to the EBP Trust assets. The parties currently are engaged in settlement discussions. THE PLAN OF REORGANIZATION On April 30, 1998, the Company filed and served its "Original Disclosure Statement and Plan of Reorganization, dated April 30, 1998, proposed by the Company (previously defined as the "Plan"). The Plan was developed through the cooperative efforts of the Company's management, the Creditors' Committee, the Bondholder Committee, the Bank Group and the unofficial committee of shareholders, all of which support and recommend approval of the Plan. Following a hearing held on July 16, 1998 to consider the adequacy of the information contained in the disclosure statement portion of the Plan, the Bankruptcy Court entered its "Order Authorizing and Approving (a) Adequacy of Disclosure with Respect to the Original Disclosure Statement and Plan of Reorganization, dated April 30, 1998, proposed by the Company; (b) Form, Scope, and Nature of Solicitation, Balloting, Tabulation, and Notices with Respect Thereto; and (c) Related Confirmation Procedures, Deadlines, And Notices" (the "Disclosure Statement Order"), pursuant to which the Bankruptcy Court, among other things, 11 12 approved the Plan as containing adequate information to enable creditors and equity security holders to make an informed judgment in determining whether to vote to accept or reject the Plan. Following the entry of the Disclosure Statement Order, the Company distributed the Plan to its creditors and shareholders for the purpose of soliciting acceptances thereto. The Bankruptcy Court established August 10, 1998 as the deadline for creditors and shareholders to return their ballots and The Company has received notice from the Bankruptcy Court indicating that the Plan was preliminarily accepted by the creditors and equity security holders. The Bankruptcy Court has scheduled a hearing to consider confirmation of the Plan (the "Confirmation Hearing") on September 16, 1998. SUMMARY OF DISTRIBUTIONS The following summary of the Plan is qualified in its entirety by the actual terms of the Plan. The Plan is intended to provide for the maximum feasible recoveries for creditors and shareholders by enabling the Company to recapitalize and continue to operate as a viable business enterprise. Generally, the Plan provides for: (a) the payment in full of allowed administrative claims, priority claims, and priority tax claims; (b) the payment in full of the approximately $57.9 million in allowed secured claims of members of the Bank Group, including the payment of pre- and post-petition interest at the nondefault rate provided in the revolving credit agreement and the payment of the professional fees and expenses incurred by the Bank Group during the reorganization case; (c) the payment or other satisfaction of other allowed secured claims; (d) the distribution of 2.5 million shares of new common stock to Bondholders in satisfaction of their secured and unsecured claims; (e) the offer and sale of an additional 2.25 million shares of new common stock, for an aggregate price of $15 million, to Bondholders who elect to purchase such shares; (f) either (i) if the amount of all other allowed unsecured claims is equal to or exceeds $17 million, the payment of $2.55 million to holders of such other allowed unsecured claims, to be distributed on a pro rata basis among such holders, plus simple interest at the rate of five percent per annum from the effective date of the Plan until the date of the distribution to such holders; or (ii) if the amount of all other allowed unsecured claims is less than $17 million, the payment of fifteen percent of the amount of such allowed unsecured claims, plus simple interest at the rate of five percent per annum from the effective date of the Plan until the date of the distribution to such holders; and (g) in satisfaction of allowed interests, the issuance of 263,158 warrants, distributed on a pro rata basis to holders of existing common stock, which warrants will provide such holders with the right to purchase up to an aggregate of five percent of the new common stock, on a fully diluted basis, under specified terms and conditions. SUMMARY OF SOURCE OF FUNDS The sources of money earmarked to pay creditors and shareholders under the Plan include: (a) cash on hand (b) a $50 million Plan financing agreement with Foothill Capital Corporation as a lender and as agent for an anticipated lender group and (c) the $15 million in proceeds from the sale of new common stock to participating Bondholders. Moreover, as noted above, in lieu of cash payments or other distributions of property to Bondholders and holders of existing common stock, the reorganized company will issue new common stock and warrants, respectively, to such claimants. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS The following individuals currently serve as the Company's executive officers. Randy N. McCullough, 46, has been the Company's Chief Executive Officer since March 31, 1998. Mr. McCullough joined the Company in April 1997 and was the Company's Senior Vice President -- Merchandise since April 1997. Prior to joining the Company, Mr. McCullough served as President of 12 13 Silverman's Factory Jewelers from 1991 to March 1997. Prior to that time, Mr. McCullough was a senior manager with a leading national retail chain for over 18 years. E. Peter Healey, 45, has been the Company's Executive Vice President, Chief Financial Officer and Secretary since February 1997. From 1994 to 1996, Mr. Healey was the Vice President, Chief Financial Officer, Secretary and Treasurer of MS Financial, Inc. From 1985 to 1993, Mr. Healey was Vice President and Treasurer of Zale Corporation. Zale Corporation was previously involved as a debtor-in-possession in reorganization proceedings under Chapter 11 of the Bankruptcy Code, emerging from such proceedings in 1993. Bill R. Edgel, 32, has been the Company's Vice President -- Marketing since February 1997. Prior to joining the Company, Mr. Edgel served as Director of Credit Marketing of Macy's West, a division of Federated Department Stores, from 1996 to 1997. From 1995 to 1996, Mr. Edgel served as Director of Marketing for Merksamer Jewelers, Inc. Merksamer Jewelers, Inc. was previously involved as a debtor-in-possession in reorganization proceedings under Chapter 11 of the Bankruptcy Code, emerging from such proceedings in 1992. From 1993 to 1995, Mr. Edgel served as Advertising Manager/Creative Director for Troutman's Emporium, Inc. From 1992 to 1993, Mr. Edgel served as Partner/Creative Director of Vaki Advertising, Inc. Chad C. Haggar, 34, has been the Company's Sr. Vice President -- Operations since February 1997. Prior to joining the Company, Mr. Haggar served as Director of Stores of Fred Meyer, Inc. from 1996 to 1997. From before 1992 to 1996, Mr. Haggar served as Regional Manager of Merksamer Jewelers, Inc. Merksamer Jewelers, Inc. was previously involved as a debtor-in-possession in reorganization proceedings under Chapter 11 of the Bankruptcy Code, emerging from such proceedings in 1992. Paul W. Hart, 40, has been the Company's Vice President -- Management Information Systems since August 1997. Prior to joining the Company, Mr. Hart served as Vice President -- Management Information Systems of MS Financial, Inc. From 1974 to 1995, Mr. Hart was employed by Zale Corporation, serving as Director of Credit Systems from 1994 to 1995, and as its Manager of Business Systems Planning and Support from 1988 to 1994. Robert J. Herman, 37, has been the Company's Vice President, Controller and Assistant Secretary since February 1998. Prior to joining the Company, Mr. Herman served as the Controller for Datamark, Inc., from 1997 to February 1998. From 1994 to 1997, Mr. Herman served as the Controller for Silverman's Factory Jewelers. From 1987 to 1994, Mr. Herman was employed by Sunbelt Nursery Group, Inc., serving as its Controller from 1991 to 1994. 13 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION As a result of the Company's bankruptcy proceedings and its failure to maintain certain minimum listing requirements, the Company's Common Stock was delisted from NASDAQ on July 14, 1997 and is currently traded on the pink sheets. Trading during fiscal 1998 was extremely limited. In November 1994, a one-for-five reverse stock split of the Company's Common Stock was effected; all share and per share data in this Form 10-K have been restated to reflect such reverse stock split. WARRANTS Beginning in July 1992, the Company's warrants commenced trading in the over-the-counter market on NASDAQ. Since then, the trading volume has been very low. The Company's warrants were also delisted from NASDAQ on July 14, 1997. HOLDERS Management believes that there are approximately 200 beneficial owners of Common Stock as of August 24, 1998. DIVIDENDS The Company has paid no cash dividends on its Common Stock during the past three fiscal years, and management does not anticipate that it will do so in the foreseeable future. Currently, the Company is prohibited from paying any cash dividends under the terms of its Second Amended Revolving Credit Agreement and the indenture governing the Notes. 14 15 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected financial data of the Company as of and for each of the five fiscal years ended May 31, 1998. The data should be read in conjunction with the financial statements, related notes and other financial information included herein. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
FOR THE YEARS ENDED MAY 31, ---------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Net Sales............................. $113,873 $130,446 $140,145 $136,055 $114,023 Finance and credit insurance fees..... 11,316 13,900 16,008 15,681 14,487 -------- -------- -------- -------- -------- 125,189 144,346 156,153 151,736 128,510 -------- -------- -------- -------- -------- Operating (loss) income(1)(2)......... (4,009) (29,741) 8,651 11,670 10,294 -------- -------- -------- -------- -------- Interest expense, net................. 7,025 12,745 11,146 9,764 7,746 Reorganization costs.................. 11,134 2,322 -- -- -- Provision for income taxes............ -- 284 288 -- 1,009 -------- -------- -------- -------- -------- (Loss) income before extraordinary item............................... (22,168) (45,092) (2,783) 1,906 1,539 -------- -------- -------- -------- -------- Extraordinary item(3)................. -- (876) -- -- -- -------- -------- -------- -------- -------- Net (loss) income..................... $(22,168) $(45,968) $ (2,783) $ 1,906 $ 1,539 ======== ======== ======== ======== ======== BASIC AND DILUTED PER SHARE DATA:(4) (Loss) income before extraordinary item............................... $ (5.50) $ (11.25) $ (0.70) $ 0.48 $ 0.53 ======== ======== ======== ======== ======== Extraordinary item(3)................. $ -- $ (0.22) $ -- $ -- $ -- ======== ======== ======== ======== ======== Net (loss) income..................... $ (5.50) $ (11.47) $ (0.70) $ 0.48 $ 0.53 ======== ======== ======== ======== ======== Weighted average number of common and common Shares outstanding.......... 4,029 4,007 3,978 3,969 2,902 ======== ======== ======== ======== ========
MAY 31, ---------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Current assets.......................... $ 95,939 $105,390 $127,075 $127,208 $107,876 Working capital......................... 77,155 99,482 117,819 109,873 94,660 Total assets............................ 110,732 123,483 145,875 144,959 122,252 Total debt(5)........................... 126,812 130,271 103,579 92,368 75,935
- --------------- (1) Operating (loss) income for the fiscal year ended May 31, 1997, includes $1,336 of restructuring expenses primarily related to severance and costs associated with 11 stores closed during the fiscal year. (2) Operating (loss) income for the fiscal year ended May 31, 1997, includes $3,947 for impairment loss, and $3,033 for inventory valuation. (3) The year ended May 31, 1997, includes an extraordinary loss of $876 or $0.22 per share, incurred in connection with the early extinguishment of the Company's Securitization Facility. See "MD&A -- Liquidity and Capital Resources." (4) In November 1994, a one-for-five reverse stock split of the Common Stock was effected; share and per share data have been restated to reflect such reverse stock split. (5) As of May 31, 1998 and 1997, total debt includes liabilities subject to compromise under reorganization proceedings. 15 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PRIVATE SECURITIES LITIGATION REFORM ACT This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. See "Business -- Private Securities Litigation Reform Act." Fiscal Year Ended May 31, 1998 ("Fiscal 1998") Compared With Fiscal Year Ended May 31, 1997 ("Fiscal 1997") Net sales for fiscal 1998 were $113.9 million, a decrease of $16.5 million, or 12.7%, from net sales of $130.4 million for fiscal 1997. This decrease resulted primarily from the closure of 13 stores in fiscal 1998 and 33 stores in May 1997 offset by an increase in comparable store sales (those open in both the current and preceding year). Comparable store sales increased by $8.6 million, or 9.2% from fiscal 1997 to fiscal 1998. This increase resulted from improved merchandise offerings and improved marketing but was offset by the reduction of credit sales caused by changes in credit granting standards. Finance and credit insurance fees decreased from $13.9 million in fiscal 1997 to $11.3 million in fiscal 1998. This decrease of $2.6 million, or 18.7%, was primarily due to the decrease in average outstanding customer receivables resulting from store closures, changes in credit underwriting criteria, and lower reliance on credit to generate sales. Cost of goods sold, buying and occupancy expenses were 66.4% of sales in fiscal 1998 compared to 71.3% of sales in fiscal 1997. The increase in gross margin resulted from the sale of fresher merchandise purchased during fiscal 1998 under the new merchandising strategy, (which allowed for a reduction in competitive discounting) and a reduction in the inventory shrink percentage. In connection with the change in merchandising strategy developed by the Company's new management team, an inventory valuation reserve of $3.0 million was established as of May 31, 1997. The inventory valuation reserve was $2.2 million at May 31, 1998. The reduction of the inventory valuation reserve is the result of sales of merchandise below cost to reposition the Company's merchandise selection. Selling, general and administrative expenses were $47.0 million, a decrease of $10.0 million, or 17.5% from the prior year, primarily due to decreases in advertising expenses, professional services, shipping expenses, credit department expenses, payroll expense and other store related expenses. Selling, general and administrative expenses decreased as a percentage of net sales to 41.3% in fiscal 1998 from 43.7% in fiscal 1997. The decrease as a percentage of net sales is attributable primarily to the decrease in marketing expense and efficiencies in the Company's credit department. The provision for doubtful accounts was $6.6 million, a decrease of $12.2 million from the prior year. The provision for doubtful accounts was approximately 5.8% and 14.4% of net sales for fiscal 1998 and 1997, respectively. The decrease is primarily due to improvement in the performance of the Company's credit portfolio and changes in credit underwriting criteria. Additionally, in May 1997, the Company closed 33 stores. These store closures required an increase in the provision for doubtful accounts for fiscal 1997. Interest expense was $7.0 million, a decrease of $5.7 million from the prior year. As indicated in the Plan, the Senior Secured Notes will be exchanged for common stock in the new reorganized company. Accordingly, and in accordance with SOP 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" interest expense of $6.0 million on these notes was not recorded because management believes that it is unlikely that such interest will be paid and because the accrued interest on the Senior Secured Notes will not become an allowed claim. The Company recorded $11.1 million of reorganization costs in fiscal 1998. The reorganization costs primarily include professional fees, losses on the disposal of property and equipment related to 13 store closures and the closure of the Company's former headquarters in Monrovia, California, adjustments to pre-petition unsecured liabilities, provision for lease rejection claims and employee costs related to the Chapter 11 16 17 filing. The above expenses are offset by interest earned on accumulated cash resulting from the Chapter 11 filing. TAX LOSS CARRYFORWARDS At May 31, 1998, the Company had a net operating loss carryforward for federal income tax purposes of $96,206, which is scheduled to expire in the years May 31, 2006 through May 31, 2012. Of this, approximately $19,965 is scheduled to expire in the years May 31, 2006 through May 31, 2008, and is subject to the limitations imposed under Internal Revenue Code ("IRC") Section 382. Section 382 of the IRC provides a limitation (Section 382 limitation) on the use of net operating loss carryovers, net operating losses, and certain built-in losses and deduction items of a loss corporation that has an ownership change. For financial statement purposes, utilization of a net operating loss, under Section 382 of the IRC, is recorded as a credit to common stock. In September of 1998, the Company expects to finalize its current plan of reorganization, which will create another ownership change. Such ownership change will subject the remaining $76,241 of net operating loss carryforwards to the limitations imposed under IRC Section 382. The extent of the impairment will be known after the Company performs a detailed Section 382 analysis after the date of the ownership change. At May 31, 1998 and 1997, the Company has recorded a non-current deferred tax asset of $72, representing alternative minimum tax (AMT) credit carryforwards. Unlike net operating loss carryforwards, the AMT credit has an indefinite carryforward period. The Company maintains a valuation allowance against the net deferred tax assets, which, in management's opinion, reflects the net deferred tax asset which is more likely than not to be realized. Fiscal Year Ended May 31, 1997 ("Fiscal 1997") Compared With Fiscal Year Ended May 31, 1996 ("Fiscal 1996") Net sales in fiscal 1997 were $130.4 million, a decrease of $9.7 million, or 7%, from net sales of $140.1 million in fiscal 1996. The decrease was the combined result of the closure of 48 stores and a decrease of 10% in sales of comparable stores (those open for the same period in both the current and preceding years) versus the prior year. The comparable store sales decrease was due in part to implementation of a value-pricing strategy commenced earlier in the fiscal year. Additionally, net sales were adversely impacted by late receipt of merchandise in the stores for the Christmas selling season, which resulted in excessive stock outs, as well as an increase in the sales mix of promotionally priced merchandise and competitive discounts. Finance and credit insurance charges on credit sales in fiscal 1997 were $13.9 million, a decrease of $2.1 million, or 13%, from the prior year primarily due to a decrease in the average total outstanding customer receivables. Cost of goods sold, buying and occupancy expenses were 71% of net sales for fiscal 1997 compared to 60% for the prior year. The gross margin percentage declined in fiscal 1997 primarily as a result of the Company's value-pricing strategy, and the sales mix of promotionally priced merchandise and competitive discounts. In connection with the change in merchandising strategy as developed by the Company's new management team, an inventory valuation allowance of approximately $3.0 million was established as of May 31, 1997. The allowance reduces the carrying value of ending inventory to its estimated net realizable value. Selling, general and administrative expenses were $57.0 million, an increase of $5.1 million, or 10%, from the prior year, primarily due to increases in the costs of advertising, professional services, and shipping. Selling, general and administrative expenses increased as a percentage of net sales to 44% in fiscal 1997 from 37% for the fiscal 1996. The increase as a percentage of net sales is attributable to a combination of a decline in net sales and an increase in total expense. The provision for doubtful accounts was $18.8 million, an increase of $7.0 million from the prior year. The provision was approximately 14% and 8% of net sales for fiscal 1997 and 1996, respectively. The increase 17 18 of such provision was primarily due to an additional provision for customer receivables from closed stores, and a general provision increase as a result of an overall analysis of portfolio performance. The Company recorded approximately $1.3 million of restructuring expenses during fiscal 1997. The restructuring expenses consist primarily of severance and store closing costs at 11 stores. The Company recognized an impairment loss of approximately $3.9 million as a result of impaired leasehold improvements and fixtures at 37 closed stores, as well as impaired computer equipment and software related to the Company's merchandise management and point-of-sale systems. Interest expense was $12.7 million in 1997, an increase of $1.6 million from the prior year. Such increase was a result of higher average interest rates on the Company's long-term debt, and $325,000 of additional interest expense charged during the third quarter of fiscal 1997 in connection with obtaining an amendment to the Company's Amended Revolving Credit Agreement as discussed in "-- Liquidity and Capital Resources." The Company also recorded $876,000 of extraordinary charges due to the write-off of deferred finance fees in connection with the early extinguishment of its Securitization Facility during the first quarter of fiscal 1997. FINANCIAL CONDITION CREDIT PROGRAM The Company offers its merchandise sales on credit terms to qualified customers. The Company's policy is to attempt to obtain a cash down payment on all credit sales, with monthly payments established such that the payment of the credit balance will occur, generally, over a period ranging from 24 to 36 months. The Company's customer receivables are revolving charge accounts. The Company currently collects (and has historically collected) approximately 10% of its customer receivable balances each month. Sales under the Company's credit program accounted for approximately 50% of fiscal 1998 sales, net of down payments compared to 56% for fiscal 1997. As of May 31, 1998 and May 31, 1997, the aggregate customer receivables balances were $55.2 million and $64.9 million, respectively. Aggregate credit collections during the fiscal year ended May 31, 1998 were $73.9 million. During the third quarter of fiscal 1997, the Company changed its customer receivable write-off policy. Previously, the Company would fully reserve for accounts that fell within certain aged parameters but would continue internal collection efforts until such time as a determination was made that the accounts should be written off against the allowance for doubtful accounts, generally when the account was more than 29 months contractually delinquent. With the change in policy, the internal collection efforts for these fully reserved accounts has been discontinued and the accounts are being sent to outside collection agencies, generally within 6 months of becoming delinquent, at which time the account balances are written off against the allowance for doubtful accounts. The Company adopted this change as a result of its cost savings initiatives in an effort to reduce internal collection and other expenses. Concurrent with this change, in fiscal 1997 the Company accelerated the write-off of approximately $6.8 million of customer accounts against the allowance for doubtful accounts. INVENTORY At May 31, 1998, inventory was approximately $29.2 million, gross of a valuation allowance of $2.2 million, a decrease of approximately $15.2 million from May 31, 1997. This decrease is primarily due to fewer stores at May 31, 1998 compared to May 31, 1997 and a strategy of increasing consigned merchandise as a percentage of total inventory. 18 19 LIQUIDITY AND CAPITAL RESOURCES GENERAL The Company enters into consignment inventory agreements with its key vendors in the ordinary course of business. During fiscal 1998, consignment inventory on hand ranged from $20 to $40 million. These amounts are excluded from the merchandise inventory balance in the financial statements. The Company's operations require working capital to fund the purchase of inventory, lease payments, and the funding of normal operating expenses. The seasonality of the Company's business requires a significant build-up of inventory for the Christmas holiday selling period. These seasonal inventory needs generally must be funded during the late summer and fall months because of the necessary lead-time to obtain additional inventory. Additionally, the heavy holiday selling period leads to a seasonal build-up of customer receivables that must be funded during the winter and spring months. The Company reported cash flows from operating activities of approximately $15.1 million for fiscal 1998, as compared to cash flows provided by operating activities of $8.3 million for fiscal 1997 and cash flows used in operating activities of approximately $6.0 million for fiscal 1996. The Company's positive cash flow for fiscal 1998 resulted primarily from the Company's inventory decrease (net of consigned inventory) of approximately $9.7 million, (excluding $5.5 million of inventory returned in exchange for pre-petition liabilities) and increases in accounts payable and accrued liabilities of approximately $8.9 million and $3.2 million, respectively, for fiscal 1998. In addition, the Company requires working capital to fund capital expenditures. Capital expenditures for fiscal 1998, 1997 and 1996 were $3.0 million, $7.2 million, and $4.5 million, respectively. Such expenditures in fiscal 1998 were made primarily in connection with the purchase of a new integrated management information system and related hardware, and the remodeling of one store and the relocation of two stores during fiscal 1998. The opening of 17 new stores and the remodeling of 12 stores during fiscal 1997, and the opening of 7 new stores and remodeling of 14 stores during fiscal 1996 account for the expenditures in those fiscal years. As of May 31, 1998, the Company had $19.3 million of cash and cash equivalents as a result of the Chapter 11 filing and the prohibition on payments of prepetition debt. Approximately $7.0 million of the Company's cash and cash equivalents at May 31, 1998 was restricted pursuant to the terms of the Cash Stipulation. FINANCING TRANSACTIONS On January 27, 1997, the Company's Amended Revolving Credit Agreement was amended (the "Second Amended Revolving Credit Agreement"), and the bank waived the Company's noncompliance with certain financial covenants therein for the quarter ended November 30, 1996 and reduced its commitment to lend to the Company from $85 million to $70 million as of January 27, 1997. Outstanding borrowings bear interest at the agent bank's reference rate plus 1.5% unless an Event of Default (as defined in the Second Amended Revolving Credit Agreement) has occurred and is continuing, or is not waived, in which case such outstanding borrowings bear interest at 3.0% above the rate otherwise payable. The Second Amended Revolving Credit Agreement required the Company to comply with certain customary financial covenants and restrictions, some of which were adjusted in the January amendment to take into account the various charges incurred in connection with the Company's restructuring and cost savings initiatives implemented during the third and fourth quarters of fiscal 1997. The Company failed to meet certain financial covenants contained in the Second Amended Revolving Credit Agreement as of February 28, 1997, which constituted an Event of Default under the Second Amended Revolving Credit Agreement. The Event of Default prohibited the Company from paying the interest due on April 30, 1997 on the Notes. Commencement of the Chapter 11 case has automatically stayed any actions to enforce collection of amounts owed by the Company to the holders of the Second Amended Revolving Credit Agreement and Notes. Concurrent with the Chapter 11 proceedings, the commitment to lend under the Second Amended 19 20 Revolving Credit Agreement was terminated. The Company had $57.9 million outstanding on the Petition Date and at May 31, 1997. As of May 31, 1997, the Company had approximately $57.9 million of borrowings outstanding under its Second Amended Revolving Credit Agreement and $50 million outstanding on the Notes. The Company had $3.2 million of interest payable on the Notes. This amount represented the semi-annual interest payment that was due on April 30, 1997, but was not paid, plus accrued interest through May 31, 1997. The Company's average interest rate on its borrowings under the Second Amended Revolving Credit Agreement was 10.0% for the fiscal year ended May 31, 1998. INFLATION The impact of inflation on the cost of merchandise (including gems and metals), labor, occupancy and other operating costs can affect the Company's results. For example, most of the Company's leases require the Company to pay rent, taxes, maintenance, insurance, repairs and utility costs, all of which are subject to inflationary pressures. To the extent permitted by competition, in general the Company passes increased costs to the customer by increasing sales prices over time. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Financial Statement Schedule of the Company and the report of independent auditors are listed at Item 14 and are included beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 21 PART III ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, ETC. The information contained in the Company's definitive Proxy Statement relating to its 1998 Annual Meeting of Shareholders, with respect to Directors of the Registrant (Item 10), Executive Compensation (Item 11), Security Ownership of Certain Beneficial Owners and Management (Item 12), and Certain Relationships and Related Transactions (Item 13), are incorporated herein by reference in response to such items of Form 10-K. The information required by Item 10 with respect to executive officers is included in Part 4 under the caption "Executive Officers." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits 1. FINANCIAL STATEMENTS The following are included herein under Item 8: Financial Statements, Financial Statement Schedules and Exhibits Independent Auditors' Report -- Deloitte & Touche LLP Balance Sheets as of May 31, 1998 and 1997 Statements of Operations for the three years ended May 31, 1998. Statements of Stockholders' (Deficiency) Equity for the three years ended May 31, 1998. Statements of Cash Flows for the three years ended May 31, 1998. Notes to Financial Statements 2. FINANCIAL STATEMENT SCHEDULES: II. Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is included in the Financial Statements or notes thereto. 3. EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 -- Restated Articles of Incorporation filed November 16, 1994 in connection with the Reverse Stock Split(5). 3.2 -- Bylaws(10). 4.1(a) -- Indenture, dated as of December 22, 1993, between Barry's Jewelers, Inc. and First Trust National Association, as trustee (the "Trustee"), with respect to the 11% Senior Secured Notes due December 22, 2000, including the form of Note certificate(4). 4.1(b) -- Amendment No. 1 to Indenture, dated as of February 14, 1994, between Barry's Jewelers, Inc. and the Trustee(5). 4.1(c) -- Amendment No. 2 to Indenture, dated as of March 18, 1994, between Barry's Jewelers, Inc. and the Trustee(6).
21 22
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1(d) -- Amendment No. 3 to Indenture, dated as of December 21, 1995, between Barry's Jewelers, Inc. and the Trustee(6). 4.1(e) -- Amendment No. 4 to Indenture, dated as of August 30, 1996, between Barry's Jewelers, Inc. and the Trustee(9). 4.2 -- Exchange Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto(1). 4.3 -- Senior Secured Notes Registration Rights Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto(1). 4.4 -- Common Stock Registration Rights Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto(1). 4.5 -- Second Amended and Restated Revolving Credit Agreement, dated as of August 30, 1996, by and among the Company, The First National Bank of Boston ("FNBB"), as lender and agent thereunder(9). 4.6(a) -- Collateral Agency and Intercreditor Agreement, dated as of December 22, 1993, among FNBB, as collateral agent for the secured parties and as agent for the lenders (under the New Revolving Credit Agreement), the Trustee, on behalf of the holders of the Notes and the Company(1). 4.6(b) -- Amendment Agreement No. 1, dated as of December 21, 1995, to Collateral Agency and Intercreditor Agreement, dated as of December 22, 1993, among FNBB, the Trustee, and the Company(6). 4.6(c) -- Amendment Agreement No. 2, dated as of August 30, 1996, to Collateral Agency and Intercreditor Agreement, dated as of December 22, 1993, among FNBB, the Trustee, and the Company(5). 4.7 -- Second Amended and Restated Security Agreement, dated as of August 30, 1996, between the Company and FNBB, as collateral agent for the secured parties(9). 4.8 -- Second Amended and Restated Trademark Collateral Security and Pledge Agreement, dated as of August 30, 1996, between the Company and FNBB(9). 10.1 -- Lease dated February 1, 1990 between the El Monte Partnership as Landlord and Barry's Jewelers, Inc. as Tenant(8). 10.2 -- Executive Incentive Bonus Plan for the year ended May 31, 1994(2).* 10.3 -- Executive Incentive Bonus Plan for the year ended May 31, 1995(5).* 10.4 -- Lease dated December 1, 1990, between Gerson I. Fox and David Blum, as Lessors, and BBF Jewelers Management, Inc., as Lessee(2). 10.5 -- Deferred Compensation Plan(4).* 10.6 -- Executive Deferral Plan(6).* 10.7 -- Executive Bonus Plan -- Master Plan Document(4).* 10.8 -- Executive Bonus Plan -- Trust Agreement(4).* 10.9 -- Employee Stock Purchase Plan(5).* 10.10(a) -- Form of Trade Financing Agreement Term Sheet(10). 10.10(b) -- Form of Trade Financing Agreement(10). 10.10(c) -- Exhibit B to Form of Trade Financing Agreement(10). 10.10(d) -- Form of Consignment Agreement(10). 10.11 -- Termination Agreement dated March 27, 1998 between the Company and Samuel J. Merksamer(11).*
22 23
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.12 -- Termination Agreement dated April 8, 1998 between the Company and Thomas S. Liston(11).* 10.13 -- Termination Agreement dated April 8, 1998 between the Company and Robert Bridel(11).* 10.14 -- Employment Agreement dated May 1, 1998, between the Company and Randy N. McCullough(11).* 10.15 -- Employment Agreement dated May 1, 1998, between the Company and E. Peter Healey(11).* 10.16 -- Employment Agreement dated May 1, 1998, between the Company and Chad C. Haggar(11).* 10.17 -- Employment Agreement dated May 1, 1998, between the Company and Bill R. Edgel(11).* 10.18 -- Employment Agreement dated May 1, 1998, between the Company and Paul W. Hart(11).* 23 -- Consent of Independent Auditors(10). 27 -- Financial Data Schedule(11).
- --------------- * Management contract or compensatory plan or arrangement. (1) Incorporated herein by reference to the Company's Current Report on Form 8-K filed December 22, 1993. (2) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1993. (3) Incorporated herein by reference to the indicated exhibits filed in response to Item 6, "Exhibits," of the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993. (4) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1994. (5) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1995. (6) Incorporated herein by reference to the Company's Current Report on Form 8-K filed December 21, 1995. (7) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K/A for the year ended May 31, 1995. (8) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1990. (9) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1996. (10) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1997. (11) Filed herewith. (b) Reports on Form 8-K The Company filed two Current Reports under Item 5 of Form 8-K on April 17 and April 24, 1998. 23 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BARRY'S JEWELERS, INC. August 27, 1998 By: /s/ RANDY N. MCCULLOUGH ---------------------------------- Randy N. McCullough President and Chief Executive Officer August 27, 1998 By: /s/ E. PETER HEALEY ---------------------------------- E. Peter Healey Executive Vice President and Chief Financial Officer (Principal Financial Officer) August 27, 1998 By: /s/ ROBERT J. HERMAN ---------------------------------- Robert J. Herman Vice President and Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on August 27, 1998:
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM EBERLE Chairman of the Board of Directors August 27, 1998 - -------------------------------------------------- William Eberle /s/ DAVID COCHRAN Director August 27, 1998 - -------------------------------------------------- David Cochran /s/ JOHN W. GILDEA Director August 27, 1998 - -------------------------------------------------- John W. Gildea /s/ CAROL R. GOLDBERG Director August 27, 1998 - -------------------------------------------------- Carol R. Goldberg /s/ CLEAVELAND D. MILLER Director August 27, 1998 - -------------------------------------------------- Cleaveland D. Miller /s/ WILLIAM P. O'DONNELL Director August 27, 1998 - -------------------------------------------------- William P. O'Donnell
25 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Barry's Jewelers, Inc. Austin, Texas We have audited the accompanying balance sheets of Barry's Jewelers, Inc. (Debtor-in-Possession) (the "Company") as of May 31, 1998 and 1997, and the related statements of operations, shareholders' (deficiency) equity, and cash flows for each of the three years in the period ended May 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements referred to above present fairly, in all material respects, the financial position of Barry's Jewelers, Inc. as of May 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 1 to the financial statements, the Company has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to shareholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is currently operating its business as Debtor-in-Possession under the jurisdiction of the Bankruptcy Court, and continuation of the Company as a going concern is contingent upon, among other things, its ability to formulate a Plan of Reorganization, which will be approved by its creditors and confirmed by the Bankruptcy Court, and its ability to generate sufficient cash flows from operations and financing sources. The uncertainties inherent in the bankruptcy process and the Company's recurring losses from operations and shareholders' deficiency raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are discussed in Note 1 to the financial statements. The financial statements do not include adjustments that might result from the outcome of this uncertainty. /s/ DELOITTE & TOUCHE LLP Los Angeles, California August 25, 1998 F-1 26 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS (Notes 1 and 6)
MAY 31, MAY 31, 1998 1997 -------- -------- Current assets: Cash and cash equivalents (Note 6)........................ $ 19,301 $ 7,322 Customer receivables, net of allowances for doubtful accounts of $7,099 (1998) and $10,300 (1997)........... 48,076 54,552 Merchandise inventories (Notes 3, 5 and 8)................ 26,993 41,374 Prepaid expenses and other current assets (Note 10)....... 1,569 2,142 -------- -------- Total current assets.............................. 95,939 105,390 Property and equipment: (Note 1) Leasehold improvements, furniture and fixtures............ 17,824 20,726 Computers and equipment................................... 5,724 4,110 -------- -------- 23,548 24,836 Less: accumulated depreciation and amortization........... 10,250 9,413 -------- -------- Net property and equipment................................ 13,298 15,423 Deferred income taxes (Note 7)............................ 72 72 Other assets, principally deferred debt issuance costs, net of accumulated amortization of $2,427 (1998) and $1,834 (1997) (Note 6)................................. 1,423 2,598 -------- -------- Total assets...................................... $110,732 $123,483 ======== ======== LIABILITIES AND SHAREHOLDERS' DEFICIENCY (Notes 1 and 6) Current liabilities: Accounts payable -- trade................................. $ 9,086 $ 221 Other accrued liabilities (Note 4)........................ 9,698 5,687 -------- -------- Total current liabilities......................... 18,784 5,908 Liabilities subject to compromise under reorganization proceedings (Notes 5 and 6)............................... 126,812 130,271 Commitments and contingencies (Notes 8 and 9) Shareholders' deficiency: (Note 9) Common stock, no par value; authorized 8,000,000 shares; issued and outstanding, 4,029,372 shares in 1998 and 1997...................................................... 33,247 33,247 Accumulated deficit......................................... (68,111) (45,943) -------- -------- Total shareholders' deficiency.................... (34,864) (12,696) -------- -------- Total liabilities and shareholders' deficiency.... $110,732 $123,483 ======== ========
See Notes to Financial Statements. F-2 27 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) STATEMENTS OF OPERATIONS (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED MAY 31, ------------------------------ 1998 1997 1996 -------- -------- -------- Net sales................................................... $113,873 $130,446 $140,145 Finance and credit insurance fees........................... 11,316 13,900 16,008 -------- -------- -------- 125,189 144,346 156,153 -------- -------- -------- Costs and expenses: Cost of goods sold, buying and occupancy (Note 3)......... 75,567 93,002 83,769 Selling, general and administrative expenses.............. 47,045 57,036 51,974 Provision for doubtful accounts........................... 6,586 18,766 11,759 Impairment loss (Note 2).................................. -- 3,947 -- Restructuring expenses (Note 1)........................... -- 1,336 -- -------- -------- -------- 129,198 174,087 147,502 -------- -------- -------- Operating (loss) income................................... (4,009) (29,741) 8,651 Interest expense, net (excludes $5,989 of interest expense in fiscal 1998 on Senior Secured Notes, Note 6)........... 7,025 12,745 11,146 -------- -------- -------- Loss before reorganization costs, income taxes, and extraordinary item........................................ (11,034) (42,486) (2,495) Reorganization costs (Notes 2, 8 and 10).................... 11,134 2,322 -- -------- -------- -------- Loss before income taxes and extraordinary item............. (22,168) (44,808) (2,495) Income taxes (Note 7)....................................... -- 284 288 -------- -------- -------- Loss before extraordinary item.............................. (22,168) (45,092) (2,783) Extraordinary item (Note 6)................................. -- (876) -- -------- -------- -------- Net loss.................................................... $(22,168) $(45,968) $ (2,783) ======== ======== ======== Basic and Diluted Per share data: Loss before extraordinary item............................ $ (5.50) $ (11.25) $ (0.70) Extraordinary item (Note 6)............................... $ -- $ (0.22) $ -- -------- -------- -------- Loss...................................................... $ (5.50) $ (11.47) $ (0.70) ======== ======== ======== Weighted-average number of common shares outstanding...... 4,029 4,007 3,978 ======== ======== ========
See Notes to Financial Statements. F-3 28 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) STATEMENTS OF SHAREHOLDERS' (DEFICIENCY) EQUITY (DOLLARS AND SHARES IN THOUSANDS)
COMMON STOCK RETAINED ---------------- EARNINGS SHARES AMOUNT (DEFICIT) TOTAL ------ ------- --------- -------- Balance at May 31, 1995................................ 3,969 $32,936 $ 2,808 $ 35,744 Net loss for the year................................ (2,783) (2,783) Utilization of pre-reorganization net operating loss carryovers (Note 7)............................... 173 173 Shares issued pursuant to employee stock purchase plan (Note 9)..................................... 30 87 87 ----- ------- -------- -------- Balance at May 31, 1996................................ 3,999 33,196 25 33,221 Net loss for the year................................ (45,968) (45,968) Shares issued pursuant to employment contracts (Note 9)................................................ 20 37 37 Shares issued pursuant to employee stock purchase plan (Note 9)..................................... 10 14 14 ----- ------- -------- -------- Balance at May 31, 1997................................ 4,029 $33,247 $(45,943) $(12,696) Net loss for the year................................ (22,168) (22,168) ----- ------- -------- -------- Balance at May 31, 1998................................ 4,029 $33,247 $(68,111) $(34,864) ===== ======= ======== ========
See Notes to Financial Statements. F-4 29 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED MAY 31, ------------------------------ 1998 1997 1996 -------- -------- -------- Cash Flows from Operating Activities: Net loss.................................................. $(22,168) $(45,968) $ (2,783) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 4,166 4,992 4,626 Impairment of long-lived assets........................ -- 3,947 -- Extraordinary loss..................................... -- 876 -- Compensation on issuance of common stock............... -- 37 -- Provision for doubtful accounts........................ 6,586 18,766 11,759 Inventory valuation allowance.......................... (815) 3,033 -- Loss on sale or abandonment of property and equipment............................................ 2,132 311 274 Deferred income taxes.................................. -- 50 878 Changes in assets and liabilities: Customer receivables................................... (110) (4,598) (10,395) Merchandise inventories................................ 9,700 10,152 (724) Prepaid expenses and other current assets.............. 573 (111) (4) Other assets........................................... (141) (2,385) (1,336) Restructuring and reorganization costs................. 3,090 2,752 -- Accounts payable -- trade.............................. 8,865 6,728 (6,296) Other accrued liabilities.............................. 3,182 9,681 (1,995) -------- -------- -------- Net cash provided by (used in) operating activities...................................... 15,060 8,263 (5,996) -------- -------- -------- Cash Flows from Investing Activities: Purchase of property and equipment........................ (3,081) (7,158) (4,500) Proceeds from sale of assets.............................. -- 74 9 -------- -------- -------- Net cash used in investing activities............. (3,081) (7,084) (4,491) -------- -------- -------- Cash Flows from Financing Activities: Net borrowing (repayments) under revolving credit facility............................................... -- 49,666 (13,435) Net (repayments) borrowings under securitization facility............................................... -- (45,119) 45,119 Proceeds from employee stock purchase plan................ -- 14 87 Principal payments on long-term debt...................... -- (183) (473) Reduction of long-term debt from securitization transaction............................................ -- -- (20,000) -------- -------- -------- Net cash provided by financing activities......... -- 4,378 11,298 -------- -------- -------- Net increase in cash and cash equivalents................... 11,979 5,557 811 Cash and cash equivalents at beginning of year.............. 7,322 1,765 954 -------- -------- -------- Cash and cash equivalents at end of year.................... $ 19,301 $ 7,322 $ 1,765 ======== ======== ======== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest............................................... $ 5,760 $ 8,364 $ 11,338 Income taxes........................................... $ -- $ 30 $ 543 Noncash investing and financing activities: Merchandise inventory returned in exchange for pre-petition liabilities (Notes 1 and 5)............... $ 5,496 $ -- $ -- Capital lease obligations................................. $ -- $ -- $ 19 Utilization of pre-reorganization net operating loss carryovers (increase to common stock and reduction of current income taxes payable).......................... $ -- $ -- $ 173
See Notes to Financial Statements. F-5 30 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS) 1. REORGANIZATION, BASIS OF PRESENTATION AND MANAGEMENT'S PLAN Barry's Jewelers, Inc. (Debtor-in-Possession) (the "Company") operates a chain of retail stores that sell fine jewelry and watches, utilizing credit financing to enhance sales. Since May 11, 1997, the Company has operated as "Debtor-in-Possession" under the protection of Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). It operated 117 stores on May 31, 1998; 130 stores on May 31, 1997; and 161 stores on May 31, 1996. At the end of the third quarter of fiscal 1997, due to continued operating losses, the Company was not in compliance with certain financial covenants contained in the Second Amended Revolving Credit Agreement. As a result, the Company was unable to make interest payments to the holders of the Senior Secured Notes (Note 6). Additionally, most vendors were not extending terms, and substantially all new merchandise purchases were on a cash basis. Because of these restrictions on cash flow and an inability to renegotiate existing bank debt or raise additional capital through other sources, the Company decided to seek bankruptcy protection. On May 11, 1997, (the "Petition Date"), the Company filed a voluntary petition for reorganization under Chapter 11 in the United States Bankruptcy Court for the Central District of California, Los Angeles Division. Since the Petition Date, the Company has continued in possession of its properties and, as Debtor-in-Possession, is authorized to operate and manage its businesses and enter into all transactions (including obtaining services, inventories, and supplies) that it could have entered into in the ordinary course of business without approval of the Bankruptcy Court. A statutory Creditors' Committee and an official Bondholders' Committee have also been appointed. In a Chapter 11 filing, substantially all liabilities as of the Petition Date are subject to compromise or other treatment under a plan of reorganization. For financial reporting purposes, those liabilities and obligations whose disposition is dependent on the outcome of the Chapter 11 filing have been segregated and classified as liabilities subject to compromise under reorganization proceedings in the accompanying balance sheets (Note 5). Generally, actions to enforce or otherwise effect payment of all pre-Chapter 11 liabilities, as well as all pending litigation against the Company are stayed while the Company continues its business operations as Debtor-in-Possession. The Company has filed schedules with the Bankruptcy Court setting forth its assets and liabilities as of the Petition Date as reflected in the Company's accounting records. Differences between amounts reflected in such schedules and claims filed by creditors are being investigated and either amicably resolved or adjudicated before the Bankruptcy Court. The ultimate amount of and settlement terms for such liabilities are subject to a plan of reorganization (see discussion below regarding the Company's plan of reorganization). Also, under the Bankruptcy Code, the Company may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other pre-petition executory contracts, subject to Bankruptcy Court approval. The liabilities subject to compromise under reorganization proceedings (Note 5) include a provision for the estimated amount that may be claimed by lessors and allowed in connection with the unexpired real estate leases and executory contracts. Responding to the issues identified above, the new management team of the Company developed a business plan to (1) reposition the Company's merchandise selection, (2) establish vendor partnering programs to bring in new consignment inventory and return aged merchandise to vendors in exchange for new inventory, (3) establish a consistent store format and consolidate trade names, (4) adjust the Company's pricing and commission structure to improve sales and strengthen its competitive position, (5) pursue F-6 31 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) alternatives to an in-house credit and collection process, (6) install modern merchandising and point-of-sale systems and (7) reduce corporate overhead. As part of the business plan, in July 1997, the Company reached an agreement with its vendors and creditors, which was approved by the Bankruptcy Court, regarding the terms of a trade debtor-in-possession financing agreement. Pursuant to the agreement, the participating vendors allowed the Company to return merchandise with a value equal to up to 75% of the vendor's pre-petition claim up to an aggregate of approximately $8,000. Additionally, participating vendors also provided revolving credit for merchandise purchases in an amount equal to two and one-half times the value of the pre-petition merchandise returned until the earlier of the confirmation of a plan of reorganization or one year, on 90-day terms. Additionally, the Company also reached an agreement in July 1997 with its vendors and creditors, which was approved by the Bankruptcy Court, allowing the Company to increase the level of consigned merchandise. Pursuant to the terms of the agreement, certain Company vendors committed to maintaining a specified minimum amount of consigned merchandise with the Company for a specified period. The Company holds such merchandise for sale in the ordinary course of its business and is responsible for insuring the consignment merchandise for its full value and against all risks of loss. The Company also obtained authorization to pay for any pre-petition consigned goods sold, with the consent of the applicable consignors, after the petition date and the Company now has disposed of approximately half of its pre-petition consigned inventory in that manner. On April 30, 1998, the Company filed its Original Disclosure Statement and Plan of Reorganization (the "Plan"). Generally, the Plan provides for (a) the payment in full of allowed administrative claims, priority claims, and priority tax claims; (b) the payment in full of the approximately $57,880 in allowed secured claims owed to the bank under the Company's revolving credit agreement, including the payment of pre- and post-petition interest (see Note 6) and the payment of the professional fees and expenses incurred by the bank during the reorganization case; (c) the payment or other satisfaction of other allowed secured claims; (d) the distribution of 2,500,000 shares of new common stock to the holders of the senior secured notes in satisfaction of their secured and unsecured claims of $50,000; (e) the offer and sale of an additional 2,250,000 shares of new common stock for an aggregate price of $15,000 to holders of the senior secured notes; (f) either (1) if the amount of all other allowed unsecured claims is equal to or exceeds $17,000, the payment of $2,550 to holders of such claims to be distributed on a pro rata basis among such holders plus simple interest at the rate of five percent per annum from the effective date of the Plan until the date of the distribution to such holders, or (2) if the amount of all other allowed unsecured claims is less than $17,000, the payment of 15% of the amount of such allowed unsecured claims, plus simple interest at the rate of five percent per annum from the effective date of the Plan until the date of the distribution to such holders; and (g) in satisfaction of the existing common stockholders' interests, the provision of 263,158 warrants distributed on a pro rata basis to holders of existing common stock, which warrants will provide such holders with the right to purchase up to an aggregate of five percent of the new common stock, on a fully diluted basis. The sources of funds earmarked to pay creditors and shareholders under the Plan include: (a) cash on hand; (b) a $50,000 Plan financing agreement with Foothill Capital Corporation as a lender and as agent for an anticipated lender group (Note 6); and (c) $15,000 in proceeds from the sale of new common stock to participating holders of the senior secured notes. As indicated above, in lieu of cash payments or other distributions of property to the holders of the senior secured notes and holders of existing common stock, the reorganized Company will issue new common stock and warrants, respectively, to such claimants. On July 16, 1998, a hearing was held wherein the Bankruptcy Court approved the Plan as containing adequate information to enable creditors and equity security holders to make an informed judgement in determining whether to vote to accept or reject the Plan. The Company has distributed the Plan to its creditors and shareholders for the purpose of soliciting acceptances. The bankruptcy Court established August 10, 1998 as the deadline for creditors and shareholders to return their ballots, and the Company has received notice F-7 32 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) from the Bankruptcy Court indicating that the Plan was preliminarily accepted by the creditors and equity security holders. The Bankruptcy Court has scheduled a hearing to consider confirmation of the Plan on September 16, 1998. The accompanying financial statements have been prepared in conformity with principles of accounting applicable to a going concern, which contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has had recurring losses from operations and a shareholders' deficiency. As a result of the Chapter 11 filing and circumstances relating to this event, such realization of assets and satisfaction of liabilities is subject to uncertainty. The plan of reorganization could materially change the amounts reported in the accompanying financial statements, which do not give effect to adjustments to the carrying values of assets and liabilities, which may be necessary as a consequence of a plan of reorganization. The Company's ability to continue as a going concern is contingent upon, among other things, its ability to formulate a plan of reorganization that will ultimately be confirmed by the Company's creditors, shareholders and the Bankruptcy Court; to achieve satisfactory levels of profitability and cash flow from operations, to maintain compliance with the debtor-in-possession trade financing agreement and the cash stipulation agreement (Note 6); to obtain sufficient financing sources to meet future obligations; and comply with the terms and covenants of any financing eventually obtained. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year. The Company changed its fiscal year-end during 1998 from May 31 to the Saturday closest to May 31. For ease of presentation, the Company's 1998 fiscal year, which represents the period from June 1, 1997 through May 30, 1998, has been described in these financial statements as the year ended May 31, 1998. Prior Reorganization. On February 26, 1992, the Company voluntarily initiated a case under Chapter 11 of the United States Bankruptcy Code and filed a pre-negotiated plan of reorganization. On June 19, 1992, the United States Bankruptcy Court for the Central District of California entered an order confirming the Company's Amended Plan of Reorganization, as modified (the "Prior Reorganization Plan"). The effective date of the Prior Reorganization Plan was June 30, 1992. Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Customer Receivables. The Company offers its merchandise on credit terms to qualified customers. The Company's policy is to attempt to obtain a cash down payment on all credit sales, with remaining monthly payments established such that the payment of the credit balance will occur, generally, over a period ranging from 24 to 36 months. In accordance with industry practice, customer receivables are included in current assets in the Company's balance sheet. The Company routinely assesses the collectibility of its customer receivables. The Company does business in 18 states, primarily California, Texas, Arizona, Utah, North Carolina, Colorado, Idaho, Montana and Indiana. At May 31, 1998, approximately 39% and 33% of all customer accounts receivables are located in Texas and California, respectively. Merchandise Inventories. Merchandise inventories, substantially all of which represent finished goods, are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Property and Equipment. Property and equipment in existence at June 30, 1992 were stated at fair values as of that date pursuant to fresh start reporting adopted in connection with the Prior Reorganization Plan. Additions since June 30, 1992 are stated at cost. F-8 33 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Depreciation and amortization of leasehold improvements, furniture and fixtures, computers and equipment are computed by the straight-line method over the lesser of related lease terms or the estimated useful lives of such assets as set forth in the following table:
USEFUL LIVES IN YEARS ------------ Leasehold improvements...................................... 10-15 Furniture and fixtures...................................... 5-10 Computers and equipment..................................... 5
Impairment of Long-lived Assets. Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of," requires an entity to review long-lived assets for impairment and recognize a loss if expected future cash flows are less than the carrying amount of the assets; such losses are measured as the difference between the carrying value and the estimated fair value of the assets. The estimated fair value is determined based on expected future cash flows. The Company adopted this standard in fiscal 1997 and recognized an impairment loss of approximately $3,947. This impairment loss is comprised of leasehold improvements and fixtures at 37 closed stores, as well as computer equipment and software related to the Company's plan to replace its merchandise management and point-of-sale systems. Deferred Debt Issuance. Deferred debt issuance costs are reported on the Company's balance sheet as other assets and are being amortized on a straight-line basis over the terms of the related financing agreements. Revenue Recognition. The Company recognizes revenue upon delivery of merchandise to the customer and either the receipt of a cash payment or approval of a credit agreement. Reorganization Costs. Expenditures directly related to the Chapter 11 filing are classified as reorganization costs and are expensed as incurred (Note 10). Income Taxes. Income taxes are computed using the liability method. The provision for income taxes includes income taxes payable for the current period and the deferred income tax consequences of transactions that have been recognized in the Company's financial statements or income tax returns. The carrying value of deferred income tax assets is determined based on an evaluation of whether the realization of such assets is more likely than not. Temporary differences result primarily from accrued liabilities, valuation allowances, depreciation and amortization, and state franchise taxes. (Loss) per Share. The Company adopted SFAS No. 128, "Earnings Per Share", during the third quarter of fiscal 1998. SFAS No. 128 requires the Company to present basic and diluted earnings per share on the face of the income statement. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the sum of the weighted average number of common shares outstanding for the period plus the assumed exercise of all dilutive securities. However, in the case of a loss per share, dilutive securities outstanding would be antidilutive and would, therefore, be excluded from the computation of diluted earnings per share. The weighted-average number of shares used to calculate basic earnings per share was 4,029,000, 4,007,000, and 3,978,000 in 1998, 1997, and 1996, respectively. Diluted earnings per share were the same as basic earnings per share. Accounting for Stock-based Compensation. SFAS No. 123, "Accounting for Stock-based Compensation" requires compensation expense equal to the fair value of an option grant to be estimated using accepted option-pricing formulas when an option is granted. The compensation may either be charged to the statement of operations or set forth as pro forma information in the footnotes to the financial statements, depending on F-9 34 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the method elected by the Company upon adoption of the standard. During fiscal 1997, the Company adopted the disclosure requirements of SFAS No. 123 and elected to continue using the intrinsic value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," for stock option expense recognition. The Company has omitted the pro forma information required to be disclosed due to immateriality. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Fair Market Value of Financial Instruments. The carrying amounts of cash and cash equivalents, customer receivables, trade accounts payable and other accrued liabilities approximate fair value because of the short maturity of these financial instruments. As a result of the Company's Chapter 11 filing, a limited market has developed for the trading of financial instruments included as liabilities subject to compromise. Since the market for claims against the Company under Chapter 11 is not well developed, no reliable source of market price is available. Prospective Accounting Changes. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which will be effective for the Company beginning with fiscal 1999. SFAS No. 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about an enterprise's operating segments. The Company has not yet completed its analysis of which operating segments it will report, if any. 3. INVENTORY VALUATION In connection with the change in merchandising strategy developed by the Company's new management team, an inventory valuation reserve of $3,033 was established as of May 31, 1997. The inventory valuation reserve was $2,218 at May 31, 1998. The reduction of the inventory valuation reserve is the result of sales of merchandise below cost to reposition the Company's merchandise selection. This valuation reserve adjusts the carrying value of ending inventory to its estimated net realizable value. 4. OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following:
MAY 31, ---------------- 1998 1997 ------ ------ Accrued wages and benefits.................................. $3,450 $2,277 Accrued interest............................................ 790 617 Accrued professional fees................................... 1,766 254 Other accrued expenses...................................... 2,517 1,453 Sales tax................................................... 686 633 Layaway and customer refunds................................ 489 453 ------ ------ $9,698 $5,687 ====== ======
F-10 35 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS Liabilities subject to compromise under reorganization proceedings consist of the following as of May 31, 1998 and 1997:
1998 1997 -------- -------- Secured liabilities: Borrowings outstanding under Revolving Credit Agreement (Note 6)............................................... $ 57,855 $ 57,855 Senior Secured Notes (includes interest payable of $3,073 accrued through Petition Date) (Note 6)................ 53,073 53,073 Other notes payable and capital lease obligations......... 88 88 -------- -------- 111,016 111,016 -------- -------- Unsecured liabilities: Trade accounts payable.................................... 4,870 10,344 Other accrued expenses (includes restructuring and reorganization expenses)............................... 10,926 8,911 -------- -------- 15,796 19,255 -------- -------- $126,812 $130,271 ======== ========
In 1998, the Company returned approximately $5,496 of merchandise inventory in exchange for pre-petition vendor liabilities under the terms of the trade debtor-in-possession financing agreement (Note 1), incurred additional lease rejection claims of $1,127 and increased unsecured liabilities by $910 (net of certain payments of pre-petition liabilities with the approval of the Court) as a result of the reconciliation of pre-petition claims. Any plan of reorganization ultimately approved by the Company's impaired pre-petition creditors and shareholders and confirmed by the Bankruptcy Court may materially change the amounts and terms of these pre-petition liabilities. Such amounts are estimated as of May 31, 1998, and the Company anticipates that claims filed with the Bankruptcy Court by the Company's creditors will continue to be reconciled to the Company's financial records. Based on the successful, pending, and anticipated objections to claims, the Company estimates that the aggregate amount of allowed unsecured claims will be approximately $15,000 to $17,000. The termination of other contractual obligations and the settlement of disputed claims may create additional pre-petition liabilities. Such amounts, if any, will be recognized in the balance sheet as they are identified and become subject to reasonable estimation. 6. LONG-TERM DEBT Long-term debt consists of the following (amounts are included with Liabilities Subject to Compromise -- Note 5):
MAY 31, -------------------- 1998 1997 -------- -------- Revolving Credit Agreement.................................. $ 57,855 $ 57,855 Senior Secured Notes........................................ 50,000 50,000 Other notes payable and capital lease obligations........... 88 88 -------- -------- 107,943 107,943 ======== ========
F-11 36 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In 1995 the Company completed an accounts receivable securitization ("the Securitization Facility"). In connection with the securitization facility, the Company entered into an amended and restated revolving credit facility (the "Revolving Credit Agreement"). The Company granted the lender under the Revolving Credit Agreement a lien on substantially all of its assets and properties. Both the Securitization Facility and the Revolving Credit Agreement were three-year facilities. The Senior Secured Notes bear interest at 11% per annum, payable semiannually on April 30 and October 31, are due December 22, 2000, and are secured by an interest in the Company's assets that is second in priority to the obligations pursuant to the Revolving Credit Agreement. As indicated in the Plan, the Senior Secured Notes will be exchanged for common stock in the new reorganized company. Accordingly, interest expense of $5,989 on these notes was not recorded because management believes that it is unlikely that such interest will be paid and because the accrued interest on the Senior Secured Notes will not become an allowed claim. During the first quarter of fiscal 1997, the Company was notified that the Agent of the Securitization Facility desired to extinguish the commitment under the facility. On August 30, 1996, in conjunction with the termination of the Securitization Facility, the Company entered into an amended revolving credit agreement (the "Amended Revolving Credit Agreement") and paid fees of approximately $2,305, which it deferred and is amortizing over the term of the agreement. On August 30, 1996, the indenture governing the Senior Secured Notes was also amended to the extent required to permit the consummation of the Amended Revolving Credit Agreement and the termination of the Securitization Facility. The Company recorded an extraordinary charge in 1997 of $876 in connection with the early extinguishment of the Securitization Facility. On January 27, 1997, the Company's Amended Revolving Credit Agreement was amended again (the "Second Amended Revolving Credit Agreement"), and the bank waived the Company's non-compliance with certain financial covenants therein for the quarter ended November 30, 1996 and reduced its commitment to lend to the Company from $85,000 to $70,000 as of January 27, 1997 through May 31, 1997, at which time the commitment would be further reduced to $65,000 from June 1, 1997 through the final maturity date of August 31, 1999. Outstanding borrowings bear interest at the agent bank's reference rate plus 1.5% unless an Event of Default (as defined in the Second Amended Revolving Credit Agreement) has occurred and is continuing, or is not waived, in which case such outstanding borrowings bear interest at 3.0% above the rate otherwise payable. During fiscal 1998, the 3.0% default rate was waived by the lender. The Company again failed to meet certain financial covenants contained in the Second Amended Revolving Credit Agreement at February 28, 1997, which constituted an Event of Default, and the bank did not waive the Company's non-compliance with these financial covenants. Additionally, the Event of Default prohibited the Company from paying the interest on the Senior Secured Notes due on April 30, 1997. Loans outstanding of $57,855 under the Second Amended Revolving Credit Agreement at May 31, 1998 bear a weighted-average interest rate of 10.0%. All debt has been classified as liabilities subject to compromise in the accompanying balance sheet as a result of the Chapter 11 filing (Note 1). On May 14, 1997, the Company received interim approval of the Bankruptcy Court of an Agreement to Use Cash Collateral. The Company operated under this agreement until July 22, 1997, at which time it received final court approval of an Amended and Restated Stipulation Pursuant to Sections 361 and 363 of the Bankruptcy Code Authorizing Debtor's Use of Cash Collateral and Granting Adequate Protection to Collateral Agent, Lenders and Bondholders (the "Cash Stipulation"), which expired February 28, 1998. The Cash Stipulation was subsequently amended on several occasions to continue the Company's use of cash collateral through and including August 31, 1998. The Company is currently awaiting Bankruptcy Court approval to further extend the Company's use of cash collateral through and including October 14, 1998. At F-12 37 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) May 31, 1998, approximately $6,974 of the Company's cash balance was restricted from use in accordance with the terms of the Cash Stipulation. 7. INCOME TAXES At May 31, 1998, the Company had a net operating loss carryforward for federal income tax purposes of $96,206, which is scheduled to expire in the years May 31, 2006 through May 31, 2012. Of this, approximately $19,965 is scheduled to expire in the years May 31, 2006 through May 31, 2008, and is subject to the limitations imposed under Internal Revenue Code ("IRC") Section 382. Section 382 of the IRC provides a limitation (Section 382 limitation) on the use of net operating loss carryovers, net operating losses, and certain built-in losses and deduction items of a loss corporation that has an ownership change. For financial statement purposes, utilization of a net operating loss, under Section 382 of the IRC, is recorded as a credit to common stock. In September of 1998, the Company expects to finalize its current plan of reorganization, which will create another ownership change. Such ownership change will subject the remaining $76,241 of net operating loss carryforwards to the limitations imposed under IRC Section 382. The extent of the impairment will be known after the Company performs a detailed Section 382 analysis after the date of the ownership change. At May 31, 1998 and 1997, the Company has recorded a noncurrent deferred tax asset of $72, representing alternative minimum tax (AMT) credit carryforwards. Unlike net operating loss carryforwards, the AMT credit has an indefinite carryforward period. The Company maintains a valuation allowance against the net deferred tax assets, which, in management's opinion, reflects the net deferred tax asset that is more likely than not to be realized. The provision for income taxes includes the following:
FOR THE YEARS ENDED MAY 31, ------------------- 1998 1997 1996 ---- ---- ----- Current: Federal................................................... $ -- $204 $(630) State..................................................... -- 30 40 ---- ---- ----- -- 234 (590) ==== ==== ===== Deferred: Federal................................................... -- 50 285 State..................................................... -- -- 593 ---- ---- ----- -- 50 878 ---- ---- ----- $ -- $284 $ 288 ==== ==== =====
F-13 38 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company's effective tax rate differs from the statutory federal income tax rate as follows:
FOR THE YEARS ENDED MAY 31, --------------------- 1998 1997 1996 ----- ----- ----- Statutory rate.............................................. (35.0)% (35.0)% (35.0)% Surtax benefit.............................................. 1.0 1.0 1.0 State taxes (net of federal benefit)........................ -- -- 1.1 Valuation allowance......................................... 34.0 35.4 41.7 Alternative minimum tax credits............................. -- -- -- Other....................................................... (0.8) 2.7 ----- ----- ----- 0.0% 0.6% 11.5% ===== ===== =====
Significant components of the Company's deferred income taxes are as follows:
MAY 31, MAY 31, 1998 1997 -------- -------- Current tax assets: Liabilities subject to compromise......................... $ 5,078 $ 5,078 Customer accounts receivable.............................. 3,084 4,455 Merchandise inventories................................... 1,312 1,313 Vacation accrual.......................................... 341 318 State franchise taxes..................................... (1,018) (741) -------- -------- 8,797 10,423 -------- -------- Noncurrent tax assets: State franchise taxes..................................... (1,390) (1,346) Net operating loss carryforwards.......................... 38,122 28,921 Other..................................................... 268 476 -------- -------- 37,000 28,051 -------- -------- Total deferred tax assets................................... 45,797 38,474 Valuation allowance......................................... (45,725) (38,402) -------- -------- Net deferred tax assets..................................... $ 72 $ 72 ======== ========
8. COMMITMENTS AND CONTINGENCIES The Company leases store and office facilities and certain equipment used in its regular operations under operating leases, which expire at various dates through 2007. The store leases provide for additional rentals based upon sales and for payment of taxes, insurance and certain other expenses. Rent expense charged to operations is as follows:
FOR THE YEARS ENDED MAY 31, --------------------------- 1998 1997 1996 ------- ------- ------- Minimum rentals......................................... $ 9,373 $11,616 $10,514 Contingent rentals...................................... 2,216 2,706 2,829 ------- ------- ------- $11,589 $14,322 $13,343 ======= ======= =======
F-14 39 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Included in the above table is rent expense paid to officers/shareholders related to certain stores and the office facility of $683, $649 and $684, respectively for the fiscal years ended May 31, 1998, 1997, and 1996. Subject to the approval of the Bankruptcy Court, the Company can reject executory contracts, including leases, under the relevant provisions of the Bankruptcy Code. Rejection of a lease gives the lessor the right to assert a pre-petition claim against the Company. However, the amount of the claim may be limited by the Bankruptcy Court. In connection with the closure of certain stores (Note 1), certain leases have been renegotiated, settled, or rejected. The expected cost of such lease terminations are included in reorganization expenses in the statement of operations (Note 10). Minimum rental commitments for all remaining noncancelable leases in effect as of May 31, 1998 are as follows:
FOR THE YEARS ENDING MAY 31, - -------------------- 1999.............................................................. $ 6,822 2000.............................................................. 6,099 2001.............................................................. 5,501 2002.............................................................. 5,126 2003.............................................................. 4,910 Thereafter........................................................ 10,746 ------- $39,204 =======
The Company enters into consignment inventory agreements with its key vendors in the ordinary course of business. During fiscal 1998, consignment inventory on hand ranged from $20,000 to $40,000. These amounts are excluded from the merchandise inventory balance on the accompanying balance sheet. The Company is from time to time involved in routine litigation incidental to the conduct of its business. Based upon discussions with legal counsel, management believes that its litigation currently pending, other than its Chapter 11 proceedings previously discussed, will not have a material adverse effect on the Company's financial position or results of operations. 9. SHAREHOLDERS' DEFICIENCY Stock Option Plans. At May 31, 1998, the Company had 159,093 options outstanding with exercise prices ranging from $1.69 to $4.13. Additionally, the Company had warrants outstanding to purchase an aggregate of 50,000 shares of the Company's common stock at a price of $16.75 per share. Because the exercise price of these options and warrants are substantially above the current market price of the Company's common stock, and because the Company expects all options and warrants to be cancelled upon confirmation of the Plan, certain option and warrant disclosures were omitted due to their insignificance. Employee Incentive Stock Plan. The Employee Incentive Stock Plan provides for the grant by the Company of shares of common stock for no consideration (other than past services). The Employee Incentive Stock Plan has a term of 10 years. A total of 100,000 shares of common stock have been reserved for issuance pursuant to the Employee Incentive Stock Plan. A total of 90,000 shares were issued under the plan during 1992 and 1993. Employee Stock Purchase Plan. On November 1, 1994, shareholders of the Company approved the Company's Employee Stock Purchase Plan, which enables substantially all employees of the Company with more than one year of service to purchase shares of the Company's common stock at not less than 85% of the fair market value at the date of purchase during one or more offering periods specified by the Company. A F-15 40 BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) total of 50,000 shares were authorized for issuance under this plan; 9,956 and 30,441 shares of common stock were purchased under this plan during fiscal 1997 and 1996, respectively. Additionally, on February 13, 1997, the Company issued 20,000 shares of common stock to two former executives in accordance with their employment agreements. The Company recognized compensation expense of approximately $37 in connection with this stock issuance. No shares of common stock were purchased under this plan during fiscal 1998. Nonqualified Deferred Compensation Plan. On June 1, 1994, a Nonqualified Deferred Compensation Plan was established for the benefit of a select group of management, highly compensated employees and/or Directors who contribute materially to continued growth, development and business success of the Company. The plan is unfunded for tax purposes and for the purposes of Title I of ERISA. 401(k) Retirement Plan. The Board of Directors adopted a qualified 401(k) retirement plan effective June 1, 1995. Substantially all employees of the Company are eligible to participate in the Company's 401(k) plan upon attaining age 21 and six consecutive months of service. Employees may elect to contribute 1% to 15% of their compensation, subject to certain IRS limitations. Employer matching contributions are determined annually by a Board of Directors resolution. No employer matching contributions were granted during fiscal 1998, 1997 or 1996. Participants are partially vested in employer matching contributions after two years and fully vested after five years of employment with the Company. 10. REORGANIZATION COSTS Reorganization costs for the years ended May 31, 1998 and 1997 consisted of the following:
FOR THE YEARS ENDED MAY 31, ------------------- 1998 1997 -------- ------- Professional fees........................................... $ 5,662 $ 462 Loss on disposal of property and equipment (related to 13 store closures and the Company's former headquarters)..... 2,448 Adjustments to pre-petition unsecured liabilities........... 1,440 Provision for lease rejection claims........................ 1,127 1,860 Employee costs related to the Chapter 11 filing............. 696 Other....................................................... 586 Interest earned on accumulated cash resulting from Chapter 11 filing................................................. (825) ------- ------ Total....................................................... $11,134 $2,322 ======= ======
Cash paid (net of interest income) for reorganization costs during the years ended May 31, 1998 and 1997 amounted to $3,579 and $1,205, respectively. Retainers paid to professionals are included in prepaid and other current assets in the accompanying 1997 balance sheet. F-16 41 SCHEDULE II BARRY'S JEWELERS, INC. (DEBTOR-IN-POSSESSION) VALUATION & QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGE TO BALANCE AT BEGINNING COSTS AND DEDUCTIONS/ END OF OF PERIOD EXPENSES OTHER PERIOD ---------- --------- ----------- ---------- YEAR END 1998: Allowance for doubtful accounts............... $10,300 $ 6,586 $ (9,787) $ 7,099 Inventory valuation allowance................. $ 3,033 $ $ 815 $ 2,218 YEAR END 1997: Allowance for doubtful accounts............... $10,930 $18,766 $(19,396) $10,300 Inventory valuation allowance................. $ -- $ 3,033 $ -- $ 3,033 YEAR END 1996: Allowance for doubtful accounts............... $11,662 $11,839 $(12,571) $10,930
F-17 42 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 -- Restated Articles of Incorporation filed November 16, 1994 in connection with the Reverse Stock Split(5). 3.2 -- Bylaws(10). 4.1(a) -- Indenture, dated as of December 22, 1993, between Barry's Jewelers, Inc. and First Trust National Association, as trustee (the "Trustee"), with respect to the 11% Senior Secured Notes due December 22, 2000, including the form of Note certificate(4). 4.1(b) -- Amendment No. 1 to Indenture, dated as of February 14, 1994, between Barry's Jewelers, Inc. and the Trustee(5). 4.1(c) -- Amendment No. 2 to Indenture, dated as of March 18, 1994, between Barry's Jewelers, Inc. and the Trustee(6). 4.1(d) -- Amendment No. 3 to Indenture, dated as of December 21, 1995, between Barry's Jewelers, Inc. and the Trustee(6). 4.1(e) -- Amendment No. 4 to Indenture, dated as of August 30, 1996, between Barry's Jewelers, Inc. and the Trustee(9). 4.2 -- Exchange Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto(1). 4.3 -- Senior Secured Notes Registration Rights Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto(1). 4.4 -- Common Stock Registration Rights Agreement, dated as of December 22, 1993, by and among the Company and the holders signatories thereto(1). 4.5 -- Second Amended and Restated Revolving Credit Agreement, dated as of August 30, 1996, by and among the Company, The First National Bank of Boston ("FNBB"), as lender and agent thereunder(9). 4.6(a) -- Collateral Agency and Intercreditor Agreement, dated as of December 22, 1993, among FNBB, as collateral agent for the secured parties and as agent for the lenders (under the New Revolving Credit Agreement), the Trustee, on behalf of the holders of the Notes and the Company(1). 4.6(b) -- Amendment Agreement No. 1, dated as of December 21, 1995, to Collateral Agency and Intercreditor Agreement, dated as of December 22, 1993, among FNBB, the Trustee, and the Company(6). 4.6(c) -- Amendment Agreement No. 2, dated as of August 30, 1996, to Collateral Agency and Intercreditor Agreement, dated as of December 22, 1993, among FNBB, the Trustee, and the Company(5). 4.7 -- Second Amended and Restated Security Agreement, dated as of August 30, 1996, between the Company and FNBB, as collateral agent for the secured parties(9). 4.8 -- Second Amended and Restated Trademark Collateral Security and Pledge Agreement, dated as of August 30, 1996, between the Company and FNBB(9). 10.1 -- Lease dated February 1, 1990 between the El Monte Partnership as Landlord and Barry's Jewelers, Inc. as Tenant(8). 10.2 -- Executive Incentive Bonus Plan for the year ended May 31, 1994(2).* 10.3 -- Executive Incentive Bonus Plan for the year ended May 31, 1995(5).* 10.4 -- Lease dated December 1, 1990, between Gerson I. Fox and David Blum, as Lessors, and BBF Jewelers Management, Inc., as Lessee(2).
43
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.5 -- Deferred Compensation Plan(4).* 10.6 -- Executive Deferral Plan(6).* 10.7 -- Executive Bonus Plan -- Master Plan Document(4).* 10.8 -- Executive Bonus Plan -- Trust Agreement(4).* 10.9 -- Employee Stock Purchase Plan(5).* 10.10(a) -- Form of Trade Financing Agreement Term Sheet(10). 10.10(b) -- Form of Trade Financing Agreement(10). 10.10(c) -- Exhibit B to Form of Trade Financing Agreement(10). 10.10(d) -- Form of Consignment Agreement(10). 10.11 -- Termination Agreement dated March 27, 1998 between the Company and Samuel J. Merksamer(11).* 10.12 -- Termination Agreement dated April 8, 1998 between the Company and Thomas S. Liston(11).* 10.13 -- Termination Agreement dated April 8, 1998 between the Company and Robert Bridel(11).* 10.14 -- Employment Agreement dated May 1, 1998, between the Company and Randy N. McCullough(11).* 10.15 -- Employment Agreement dated May 1, 1998, between the Company and E. Peter Healey(11).* 10.16 -- Employment Agreement dated May 1, 1998, between the Company and Chad C. Haggar(11).* 10.17 -- Employment Agreement dated May 1, 1998, between the Company and Bill R. Edgel(11).* 10.18 -- Employment Agreement dated May 1, 1998, between the Company and Paul W. Hart(11).* 23 -- Consent of Independent Auditors(10). 27 -- Financial Data Schedule(11).
- --------------- * Management contract or compensatory plan or arrangement. (1) Incorporated herein by reference to the Company's Current Report on Form 8-K filed December 22, 1993. (2) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1993. (3) Incorporated herein by reference to the indicated exhibits filed in response to Item 6, "Exhibits," of the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1993. (4) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1994. (5) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1995. (6) Incorporated herein by reference to the Company's Current Report on Form 8-K filed December 21, 1995. (7) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K/A for the year ended May 31, 1995. 44 (8) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1990. (9) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1996. (10) Incorporated herein by reference to the indicated exhibits filed in response to Item 14, "Exhibits," of the Company's Annual Report on Form 10-K for the year ended May 31, 1997. (11) Filed herewith. EX-10.11 2 TERMINATION AGREEMENT - SAMUEL J. MERKSAMER 1 EXHIBIT 10.11 EMPLOYMENT TERMINATION AGREEMENT This Employment Termination Agreement ("Agreement") is made effective the 27th day of March, 1998, between Barry's Jewelers, Inc. (referred to as "Employer") and Samuel J. Merksamer and Carol Merksamer (collectively, "Employees"), and is made with knowledge of the following facts: A. Samuel J. Merksamer asserts various claims pursuant to his employment agreement, dated as of May 1, 1997, with Employer ("the Samuel J. Merksamer Employment Agreement") and arising out of his employment with Employer. Carol Merksamer claims monies owed for unreimbursed expenses, in an amount not yet determined, and vacation pay of one week in the gross amount of $1,153.50. B. The purpose of this Agreement is to fully implement the desire and agreement of the parties to terminate Samuel J. Merksamer's employment and to resolve any and all claims of Employees against Employer, and of Employer against Employees, as later described in this Agreement. The parties agree as follows: 1. Samuel J. Merksamer's employment is deemed terminated by Employer effective March 27, 1998. Samuel J. Merksamer hereby resigns from the board of Employer effective March 27, 1998. 2. Settlement Amount. On or before the tenth day following execution of this Agreement by Employees, Employer shall pay or cause to be paid to Samuel J. Merksamer, in consideration for the releases and covenants contained herein, the sum of Four Hundred and One Thousand Dollars and No Cents ($401,000.00), subject to applicable withholding for taxes, 2 by wire transfer to Mellon Bank, Pittsburgh, Pennsylvania, ABA 043000261, Credit Merrill Lynch Account No. 1011730 for the account of Samuel J. and Carol Merksamer, Account No.234-78712. At the same time, Employer shall pay, by wire transfer to the same account set out above, to Samuel J. Merksamer the sum of $30,769.24 subject to applicable withholding for taxes, in full satisfaction of all claims for accrued vacation. Employer shall pay a bonus of $80,000.00 to Samuel J. Merksamer, subject to applicable withholding for taxes. Time of these payments is of the essence and a failure to make such payments on time will result in interest added at the annual rate of 10%. If payment in full is not received by April 13, 1998, that failure shall render this agreement invalid and unenforceable. The parties intend that these payments shall be for all of Samuel J. Merksamer's claims, excepting only claims for reimbursement of expenses and salary advances which shall be governed by the terms of paragraph 3, below. Samuel J. Merksamer agrees that he has been fully paid for any and all accrued and vested wages, bonuses and benefits, including vacation and sick pay, if any. Notwithstanding the forgoing, (1) if the audit of unreimbursed expenses set forth in paragraph 3 below is completed by the time for the transfer of the $401,000.00 to Samuel J. Merksamer, Employer may deduct from that sum, any amounts owed to it for overpayment to Samuel J. Merksamer of expenses, (2) if the audit of unreimbursed expenses set forth in paragraph 3 below is not completed by the time for the transfer of the $401,000.00 to Samuel J. Merksamer, Employer may holdback $10,000.00 of that sum, without any obligation to pay interest, and at the completion of the audit Employer shall forthwith transmit, to Employees, the balance of the $10,000.00 less any amounts owed to Employer for overpayment of expenses of Samuel J. Merksamer. The parties will use their best efforts to promptly complete the audit of unreimbursed expenses. - 2 - 3 3. Expenses and Salary Advance Dispute. Employees and Employer have outstanding disputes concerning reimbursement for business expenses, an expense reimbursement check which Employees believe may not have been negotiated, and salary advances to Samuel J. Merksamer. The parties agree that the accounting firm of Deloitte Touche, by Jacqueline M. Fernandez, shall be retained at the expense of Employer to review all such claims and to resolve them. The resolution shall be completed within thirty days of execution of this agreement. The parties agree to be bound by the determination of Deloitte Touche. 4. Vacation Pay. On or before the tenth day following execution of this Agreement by Employees, Employer shall pay to Carol Merksamer the gross sum of $1,153.50 for full payment of 1 week vacation pay. This amount shall be subject to applicable withholding, and shall be paid by wire transfer as set out above. 5. Employer Release. Employees, for themselves and for each of their respective heirs, executors, administrators, successors, and assigns, do hereby fully and forever release and discharge Employer, its affiliates and subsidiaries, and its shareholders, members, employees and former employees, agents, directors, officers, trustees, attorneys, predecessors, successors, assigns, heirs, executors, administrators, and all other persons, firms, corporations, associations, partnerships, or entities having any legal relationship to Employer (collectively the "Released Parties"), of and from any and all claims, demands, causes of action, charges and grievances, of whatever kind or nature, whether known or unknown, suspected or unsuspected, which Employees, and each of them, now own or hold or have at any time before this date owned or held against any of the Released Parties, including, but not limited to, any and all claims, - 3 - 4 charges, demands and causes of action: (1) which arise out of or are in any way connected with Employees' employment with Employer or the termination of Employees' employment with Employer; (2) which are related to or concern (i) alleged discrimination, if any, under local, state or federal law; (ii) alleged wrongful termination, breach of the covenant of good faith and fair dealing, intentional or negligent infliction of emotional distress, defamation, invasion of privacy, breach of employment contract, fraud or negligent misrepresentation; or (3) which arise out of or are in any way connected with any loss, damage or injury whatsoever resulting from any act committed or omission made prior to the date of this Agreement. This Release is specifically intended to release the Released Parties from any obligations they have or may in the future have pursuant to the Samuel J. Merksamer Employment Agreement. Notwithstanding any of the above, this Release does not release the obligations, covenants, representations and warranties of the parties to this Agreement. 6. Employees Release. Employer, on behalf of itself, its affiliates, subsidiaries, predecessors and successors and assigns do hereby fully and forever release and discharge Samuel J. Merksamer, his heirs, executors, administrators, successors, and assigns and Carol Merksamer and her heirs, executors, administrators, successors, and assigns of and from any and all claims, demands, causes of action, charges and grievances, of whatever kind or nature, whether known or unknown, suspected or unsuspected, which Employer now owns or holds or has at any time before the date of this Agreement owned or held against any of them, including, but not limited to, any and all claims, charges, demands and causes of action: (1) which arise out of or are in any way connected with Samuel J. Merksamer's employment with Employer or the termination of Samuel J. Merksamer's employment with Employer; (2) which - 4 - 5 arise out of or are in any way connected with Carol Merksamer's employment with Employer or the termination of Carol Merksamer's employment with Employer; or (3) which arise out of or are in any way connected with any loss, damage or injury whatsoever resulting from any act committed or omission made prior to the date of this Agreement. Notwithstanding any of the above, this Release does not release (1) the obligations, covenants, representations and warranties of the parties to this Agreement, and (2) the obligations of Samuel J. Merksamer under paragraph 8 of the Samuel J. Merksamer Employment Agreement. 7. Limitation on Waiver. Notwithstanding any other provision in this Agreement, Samuel J. Merksamer does not waive any rights, benefits or claims that he may be entitled to as a matter of law relating solely to any employee benefit plan governed by the Employee Retirement Income Security Act ("ERISA"), including but not limited to continued health plan coverage under COBRA, and any such rights, benefits or claims shall be subject to the terms of all applicable documents and agreements governing such plans and applicable law. The consideration set forth in paragraph 1 and 2 herein shall be deemed other compensation, excepting only amounts stated for vacation pay, and not included in the calculation of benefits under any such benefit plans. Nothing contained in this Agreement shall be construed to limit Samuel J. Merksamer's right to continue to pay for health insurance coverage under COBRA in accordance with applicable law and the terms of the documents governing such health insurance. 8. Unknown Claims and Section 1542 of the Civil Code. This Agreement shall be given full force and effect according to each and all of its express terms and provisions, including those terms and provisions relating to unknown and unsuspected claims, demands and - 5 - 6 causes of action, if any, as well as those relating to claims, demands and causes of action earlier specified in this Agreement. Except where otherwise provided, in furtherance of this intention, Samuel J. Merksamer, Carol Merksamer, and Employer expressly waive any and all rights and benefits conferred upon him, her and it by the provisions of Section 1542 of the California Civil Code (or any other similar statute), which states: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 9. Waiver of ADEA Rights. Without limiting the scope of this Agreement in any way, Samuel J. Merksamer and Carol Merksamer also certify that this Agreement constitutes a knowing and voluntary waiver of any and all rights or claims that exist or that Samuel J. Merksamer or Carol Merksamer have or may claim to have under the Federal Age Discrimination in Employment Act ("ADEA"), as amended by the Older Workers Benefit Protection Act of 1990, which is set forth at 29 U.S.C. Section 621, et seq. Samuel J. Merksamer and Carol Merksamer acknowledge that, for purposes of waiver of ADEA rights, they each (a) have read this Agreement, (b) have been provided a full, reasonable, and ample opportunity to review, study, and consider it, (c) have been advised in writing to consult with an attorney, and have consulted with an attorney, prior to signing it voluntarily with full knowledge that it is intended to the maximum extent permitted by law, as a complete release and waiver of any and all claims, and (d) they will receive compensation beyond that which they were already entitled to receive before entering into this Agreement. Samuel J. Merksamer and Carol Merksamer also acknowledge that they have knowingly, -6- 7 voluntarily and with the advice of counsel waived the 21 day review period, at their own request, specifically for the purposes of expediting the settlement. Samuel J. Merksamer and Carol Merksamer acknowledge that they are aware of the right to revoke this Agreement at any time within the seven-day period following the date Employees sign the Agreement and that the Agreement shall not become effective or enforceable until the seven day revocation period expires. Employees understand that they will relinquish any right they have to the consideration specified in this Agreement if they or either of them exercise the right to revoke it. Notice of revocation must be provided by facsimile transmission or personal delivery to Employer: "Randy N. McCullough, Barry's Jewelers, Inc. 111 West Lemon Avenue, Monrovia, CA 91016, fax: 626 357 7596" and to "Michael Tuchin, Esq., fax no. 213 251 5288". 10. Depositions. Samuel J. Merksamer shall make himself reasonably available, in Los Angeles County without necessity of subpoena, for depositions related to his employment with Employer (including any litigation arising in or related to Barry's Jewelers, Inc.'s bankruptcy proceedings). For any time after the fifth day of deposition, Employer shall compensate Samuel J. Merksamer for his attendance at or preparation for deposition at the rate of $2,000.00 per day. For all depositions, Employer shall pay reasonable out of pocket and travel expenses of Samuel J. Merksamer. 11. Non-Disparagement. The parties agree to refrain from disparaging one another. 12. Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the parties hereto, and each of them. In the -7- 8 case of corporate parties hereto, this Agreement is intended to release and inure to the benefit of the corporate party's affiliated corporations, subsidiaries (whether or not wholly-owned), divisions, officers, directors, agents, representatives, employees and any and all other related individuals and entities, if any, individually as well as in the capacity indicated. 13. Integration. This Agreement constitutes a single integrated written contract expressing the entire agreement of the parties hereto relative to the subject matter hereof. No covenants, agreements, representations, or warranties of any kind whatsoever, whether express or implied in law or fact, have been made by any party hereto, except as specifically set forth in this Agreement. All prior and contemporaneous discussions and negotiations have been and are merged and integrated into, and are superseded by, this Agreement. 14. Non-Assignment of Claims. The parties represent and each of them warrant that they have not assigned or transferred any portion of the claims released herein to any other individual, firm, corporation or other entity, and that no other individual, firm, corporation or other entity has any lien, claim or interest in any of such claims. The parties shall indemnify, defend, and hold harmless one another and their respective related individuals and entities, and each of them, from and against any claims arising out of, related to or connected with any such prior assignment or transfer, or any such purported assignment or transfer, or any claims or other matters released or assigned herein. The Employees, on the one hand, and the Employer, on the other hand, covenant and each of them agrees not to bring, induce, or assist any other action or proceeding of any kind or nature against one another or any of their respective related individuals or entities or any of them, directly or indirectly, regarding, connected with, arising out of, or related to in any manner the matters released hereby. The Employees, on the one hand, and the -8- 9 Employer, on the other hand, covenant and each of them agrees that this Agreement is a bar to any such claim, action, suit or proceeding and agree to indemnify the other and shield any of their respective related individuals or entities, above, and each of them, for any liability and any costs and expenses of any claims, suit, action or proceeding (including, without limitation, the costs of expert consultants and expert witnesses) and attorneys' fees incurred as a direct or indirect result of any claims released herein being asserted in a lawsuit or other action, suit, claim or proceeding by any individual firm, corporation or other entity as a direct or indirect result of any act or omission by the Employees, on the one hand, and the Employer, on the other hand, or any of their related individuals or entities. 15. Arbitration. In the event that any dispute arises between the parties or their related entities or individuals, with respect to the subject matter of this Agreement, the claims released herein, any action or omission either prior or subsequent to the parties' execution of this Agreement, or any claim arising subsequent to their execution of this Agreement, the parties agree that any such dispute and any and all claims arising therefrom shall be subject to final and binding arbitration. The arbitrator shall be selected and the arbitration conducted in accordance with the applicable rules of the American Arbitration Association ("AAA") regarding employment disputes in effect at the time the claim or dispute arises. The arbitrator selected shall be a retired judge with five or more years of experience in arbitrating employment related matters and shall be agreed upon by the parties. The arbitration shall proceed in Los Angeles County. Notwithstanding any AAA rule to the contrary, however, in the event that any claim or dispute is submitted for arbitration, the parties shall have a sufficient opportunity to conduct discovery, subject to the supervision of the arbitrator, prior to the commencement of the -9- 10 arbitration. Any party desiring to assert any such claim or dispute must give notice in writing to the other party within 180 days of the date such claim or dispute arises. In the event such notice is not provided within this 180 day period, such claim or dispute shall be forever waived. 16. Attorneys' Fees. In the event that any arbitration, action, suit, or other proceeding is instituted to remedy, prevent, or obtain relief from a breach of this Agreement, or arising out of a breach of this Agreement, the prevailing party shall recover all of such party's reasonable attorneys' fees incurred in each and every arbitration, action, suit, or other proceeding, including any and all appeals or petitions therefrom. 17. Miscellaneous Terms. Each of the parties hereto represents, warrants and agrees as follows: (a) Each of the parties has had an opportunity for prior independent legal advice from legal counsel of its choice with respect to the advisability of making the settlement provided for herein and with respect to the advisability of executing this Agreement. (b) Except for statements expressly set forth in this Agreement, no party (nor any representative or attorney of such party) has made any statement or representation to any other party regarding a fact relied upon by other party in entering into this Agreement and no party has relied upon any statement, representation, or promise of any other party, or of any representative or attorney for any other party, in executing this Agreement or in making the settlement provided for herein; (c) Each of the parties has read the Agreement carefully, knows and understands the contents thereof, and has made such investigation of the facts pertaining to the settlement and this Agreement and of all matters pertaining hereto as it or he deems necessary or desirable; -10- 11 (d) The terms of this Agreement are contractual, not a mere recital, and are the result of negotiations between the parties; (e) Whenever the context so requires, the masculine gender herein shall include the feminine or neuter gender, and singular number shall include the plural number, and vice versa. (f) This Agreement has been negotiated between the parties and the parties waive any claim that ambiguity of any portion of this agreement should be resolved against the drafter of any disputed language. (g) Randy McCullough warrants that he has been duly authorized by the board of directors of Barry's Jewelers, Inc. to execute this agreement on behalf of Barry's Jewelers, Inc. 18. Disputed Rights. The parties hereto explicitly acknowledge and covenant that this Agreement represents a settlement of disputed rights and claims and that by entering into this Agreement, no party hereto admits or acknowledges the existence of any liability or wrongdoing, all such liability being expressly denied. No provision hereof, or of any related document, shall be construed as any admission or concession of liability, of any wrongdoing or of any preexisting liability. 19. Modifications. No modification, amendment or waiver of any of the provisions contained in this Agreement, or any future representation, promise or condition in connection with the subject matter of this Agreement, shall be binding upon any party hereto unless made in writing and signed by such party or by a duly authorized officer or agent of such party. 20. Execution in Counterparts. This Agreement may be executed and -11- 12 20. Execution in Counterparts. This Agreement may be executed and delivered in any number of counterparts or copies ("counterpart") by the parties hereto. When each party has signed and delivered at least one counterpart to the other party hereto, each counterpart shall be deemed an original and, taken together, shall constitute one and the same Agreement, which shall be binding and effective as to the parties hereto. Delivery by facsimile transmission is acceptable. 21. This Agreement shall be construed in accordance with, and governed by, the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have approved and executed this Agreement and General Release on the dates specified below. AGREEING PARTIES: Date: - ----------------------------- ---------------- By: Samuel J. Merksamer Date: - ----------------------------- ---------------- By: Carol Merksamer Date: 3/27/98 - ----------------------------- ---------------- By: Randy McCullough (Barry's Jewelers, Inc.) -12- EX-10.12 3 TERMINATION AGREEMENT - THOMAS S. LISTON 1 EXHIBIT 10.12 AGREEMENT 1. This agreement ("Agreement") is entered into between Thomas S. Liston ("Liston") and Barry's Jewelers, Inc., a California corporation ("Barry's"), to set forth the severance arrangements Barry's has made for Liston and to resolve all other matters between Barry's and Liston. Specifically, the purpose of this Agreement is, among other things, to (i) set forth the parties' agreements concerning severance and other benefits to be provided to Liston pursuant to the Employment Agreement between the parties dated as of April 8, 1996 (the "Employment Agreement"), as well as other benefits described herein, and (ii) provide for mutual general releases. A copy of the Employment Agreement is attached hereto as Exhibit "A". 2. The parties agree and acknowledge that Liston resigned as an officer, director and employee of Barry's (and each of its subsidiary and affiliated entities, as applicable) effective as of February 13, 1997. 3A. Pursuant to the Employment Agreement (as modified herein), Barry's agrees to provide the following severance and other benefits to Liston: 3A.1 In accordance with Section 4.3(x) of the Employment Agreement, $342,692.33 (the "Severance Amount"), computed as the amount of salary at Liston's rate of salary in effect immediately prior to February 13, 1997, for the period from February 17, 1997 through April 8, 1998, payable in cash as follows (subject to the last paragraph of this Section 3A): Liston will receive monthly or biweekly payments from Barry's in the same amounts and with the same periodicity that salary was paid to Liston immediately prior to February 13, 1997, commencing with the next regular payroll after that date and through and including a final payment (on or about April 8, 1998) to fully satisfy the Severance Amount. The Severance Amount does not include Liston's salary for the period up through and including February 16, 1997, which he acknowledges has previously been paid in cash by Barry's. 3A.2 In accordance with Section 3.2 and Section 4.3 of the Employment Agreement, the 10,000 shares of restricted Common Stock of Barry's referred to therein is deemed immediately and fully vested as of February 13, 1997. Accordingly, Barry's has paid Liston $8,230.63 in cash, representing the special bonus in respect of certain tax obligations of Liston (fully "grossed up" for taxes) corresponding to one-half (1/2) of the restricted stock referred to in said Section 3.2. 3A.3 In accordance with Section 3.2 and Section 4.3 of the Employment Agreement, the stock options referred to therein are hereby deemed immediately and fully vested as of February 13, 1997. 3A.4 In accordance with Section 3.7 and Section 4.3 of the Employment Agreement and applicable law, Barry's will pay Liston $2,464.62 in cash promptly following the execution date hereof, representing Barry's obligation for accrued vacation benefits. 2 3A.5 In accordance with Section 3.5 and Section 4.3 of the Employment Agreement, for the period from February 13, 1997 through April 8, 1998, Liston shall continue to be included, at Barry's expense, in Barry's medical insurance plan. This benefit shall be effected by Liston's election of COBRA coverage; Barry's will then pay or reimburse Liston for the cost of the election of such coverage during the period specified in the preceding sentence. In addition to the foregoing items of severance and benefits, nothing in this Agreement shall be deemed to affect Liston's benefits and rights under Barry's 401(k) plan and deferred compensation plan for senior managers (the "Tophat Plan"); all rights and elections that may be available to Liston under the terms of those plans with respect to his account interests therein shall continue to be available to him. Among other things, in the event that Barry's elects to terminate the Tophat Plan, then Liston shall have all of the rights specified therein in connection with a termination. In addition, in the event of such a termination of the Tophat Plan, Barry's agrees that it will establish a separate "rabbi trust" for maintenance of funds previously elected to be deferred for tax purposes by Liston, to enable Liston to continue to achieve deferral to the maximum extent reasonably achievable under applicable tax law. All amounts payable to Liston and other benefits to be provided to Liston in accordance with this Section 3A and Section 3B below shall be subject to withholding in accordance with applicable law. 3B. In addition to the benefits provided for in the Employment Agreement, Barry's agrees to provide the following benefits to Liston: 3B.1 Barry's will pay the fees of an outplacement services firm for outplacement services to be provided to Liston, up to a maximum of $25,000, upon presentation of invoices and/or other appropriate supporting documentation evidencing such fees. 3B.2 For the period from February 13, 1997 through April 8, 1998, Liston shall continue to be included, at Barry's expense, in Barry's life insurance and disability insurance plans. 3B.3 For the period from February 13, 1997 through April 8, 1998, Barry's shall continue to provide the same automobile-related benefits to Liston as provided under the existing Employment Agreement (including lease payments and payment of maintenance, gas, oil, insurance and license as provided in the existing Employment Agreement). 3C. In the event of Liston's death prior to the full Severance Amount having been paid as provided in Section 3A above, Barry's shall be obligated to continue to provide such benefit to Liston's spouse, subject to the terms and elections available under the Tophat Plan, as applicable. 4. Liston agrees that he will comply with Section 9 of the Employment Agreement, notwithstanding the termination of his employment by Barry's. In this regard, Barry's acknowledges that Liston has made himself reasonably available to Barry's for the purpose of returning confidential information to Barry's as provided in said Section 9. -2 - 3 Liston acknowledges, however, that Barry's has no means of independently verifying full compliance by Liston with said Section 9, and as a result Liston agrees that he will in the future fully comply with the document return and other provisions of said Section. 5. Liston agrees that any and all claims or obligations, including any claim for violation of any state or federal statute (such as statutes concerning discrimination based on disability or perceived disability, race, sex, or national origin), which he may have against Barry's are fully and completely settled by this Agreement, and all liability or potential liability on any such claim is hereby released. This release of claims includes claims against Barry's directors, officers, employees and representatives (collectively, "Representatives"), and against any and all present and future affiliated companies of Barry's and their respective Representatives. This release also includes all claims arising out of Liston's employment with Barry's and the termination of that employment, including all rights and benefits under the Employment Agreement. Liston does not, by signing this Agreement, release claims with respect to fulfillment of the promises contained in this Agreement. Barry's (on behalf of itself and its present and future affiliated companies and their respective Representatives) similarly agrees that any and all claims or obligations which it may have against Liston relating to Liston's service as an officer, director and employee of Barry's are fully and completely settled by this Agreement, and all liability or potential liability on any such claim is hereby released. Barry's does not, by signing this Agreement, release claims with respect to fulfillment of the promises contained in this Agreement. 6. Except as specifically noted in Section 5 above, each of Barry's and Liston waives any and all rights it/he may have to invoke, or in any other way to seek the benefits of, Section 1542 of the California Civil Code (or any other similar statute). Section 1542 provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. 7. Liston understands and acknowledges that (a) this Agreement constitutes a voluntary waiver of any and all claims he has against Barry's as of the date of his execution of this Agreement, including claims under the Age Discrimination in Employment Act of 1967, 29 U.S.C. Sec. 621 et seq.; (b) he has waived any and all such claims pursuant to this Agreement and in exchange for consideration, the value of which is substantial; (c) he has been, and is now, advised to consult with an attorney concerning this Agreement before signing it; (d) he has been, and is now, informed that he has a period of at least 21 days to consider the terms of this Agreement (though he need not take the full 21 days if he, in his sole discretion, does not wish to do so); and (e) he may revoke this Agreement at any time during the 7 days following the date of his signing of the Agreement, and this Agreement shall not become effective or enforceable until the eighth day after Liston's signing of the Agreement. If Liston so revokes this Agreement, Liston agrees and acknowledges that Barry's will likewise not be bound by the agreements set forth herein and will reserve the right, among others, to assert that Liston's termination is for "cause" under the Employment Agreement, seek a return of the Severance Amount and other benefits described in Section 3 above and seek other remedies available at law or in equity. -3- 4 8. Each party agrees that this Agreement is confidential and neither will voluntarily disclose its terms, except that Liston and the management of Barry's may discuss the Agreement with their spouses, their attorneys, and their tax advisers (including, in the case of Barry's management, Barry's attorneys and tax advisers). 9. In connection with Liston's separation from Barry's, Barry's is providing a reference letter, addressed to Liston, in the form attached hereto as Exhibit "B". 10. Liston promises that he will not in the future file a claim against Barry's with respect to a matter released herein. Barry's promises that it will not in the future file a claim against Liston with respect to a matter released herein. 11. If either Barry's or Liston files a claim to enforce this Agreement or a claim otherwise arising in any way out of this Agreement, the claim will be decided by binding and final arbitration. The procedures for conducting that arbitration will be decided by the parties. 12. Each party acknowledges that he or it has had an opportunity to negotiate with regard to the terms of this Agreement, to receive advice with regard to it, and carefully to read and consider the terms of the Agreement before signing it. 13. This Agreement contains the entire agreement of Barry's and Liston concerning the subjects covered in the Agreement. This Agreement supersedes any previous discussions or agreements about those subjects. Date: -------------------- -------------------------------- Thomas S. Liston Date: -------------------- BARRY'S JEWELERS, INC. By: ----------------------------- Its: ---------------------------- -4- EX-10.13 4 TERMINATION AGREEMENT - ROBERT BRIDEL 1 EXHIBIT 10.13 AGREEMENT 1. This agreement ("Agreement") is entered into between Robert Bridel ("Bridel") and Barry's Jewelers, Inc., a California corporation ("Barry's"), to set forth the severance arrangements Barry's has made for Bridel and to resolve all other matters between Barry's and Bridel. Specifically, the purpose of this Agreement is, among other things, to (i) set forth the parties' agreements concerning severance and other benefits to be provided to Bridel pursuant to the Employment Agreement between the parties dated as of April 8, 1996 (the "Employment Agreement"), as well as other benefits described herein, and (ii) provide for mutual general releases. A copy of the Employment Agreement is attached hereto as Exhibit "A". 2. The parties agree and acknowledge that Bridel resigned as an officer, director and employee of Barry's (and each of its subsidiary and affiliated entities, as applicable) effective as of February 13, 1997. 3A. Pursuant to the Employment Agreement (as modified herein), Barry's agrees to provide the following severance and other benefits to Bridel: 3A.1 In accordance with Section 4.3(x) of the Employment Agreement, $371,250.00 (the "Severance Amount"), computed as the amount of salary at Bridel's rate of salary in effect immediately prior to February 13, 1997, for the period from February 17, 1997 through April 8, 1998, payable in cash as follows (subject to the last paragraph of this Section 3A): Bridel will receive monthly or biweekly payments from Barry's in the same amounts and with the same periodicity that salary was paid to Bridel immediately prior to February 13, 1997, commencing with the next regular payroll after that date and through and including a final payment (on or about April 8, 1998) to fully satisfy the Severance Amount. The Severance Amount does not include Bridel's salary for the period up through February 16, 1997, which he acknowledges has previously been paid in cash by Barry's. 3A.2 In accordance with Section 3.2 and Section 4.3 of the Employment Agreement, the 10,000 shares of restricted Common Stock of Barry's referred to therein is deemed immediately and fully vested as of February 13, 1997. Accordingly, Barry's has paid Bridel $8,230.63 in cash, representing the special bonus in respect of certain tax obligations of Bridel (fully "grossed up" for taxes) corresponding to one-half (1/2) of the restricted stock referred to in said Section 3.2. 3A.3 In accordance with Section 3.2 and Section 4.3 of the Employment Agreement, the stock options referred to therein are hereby deemed immediately and fully vested as of February 13, 1997. 3A.4 In accordance with Section 3.7 and Section 4.3 of the Employment Agreement and applicable law, Barry's will pay Bridel $3,082.50 in cash promptly following the execution date hereof, representing Barry's obligation for accrued vacation benefits. 2 3A.5 In accordance with Section 3.5 and Section 4.3 of the Employment Agreement, for the period from February 13, 1997 through April 8, 1998, Bridel shall continue to be included, at Barry's expense, in Barry's medical insurance plan. This benefit shall be effected by Bridel's election of COBRA coverage; Barry's will then pay or reimburse Bridel for the cost of the election of such coverage during the period specified in the preceding sentence. In addition to the foregoing items of severance and benefits, nothing in this Agreement shall be deemed to affect Bridel's benefits and rights under Barry's 401(k) plan and deferred compensation plan for senior managers (the "Tophat Plan"); all rights and elections that may be available to Bridel under the terms of those plans with respect to his account interests therein shall continue to be available to him. Among other things, in the event that Barry's elects to terminate the Tophat Plan, then Bridel shall have all of the rights specified therein in connection with a termination. All amounts payable to Bridel and other benefits to be provided to Bridel in accordance with this Section 3A and Section 3B below shall be subject to withholding in accordance with applicable law. 3B. In addition to the benefits provided for in the Employment Agreement, Barry's agrees to provide the following benefits to Bridel: 3B.1 Barry's will pay the fees of an outplacement services firm for outplacement services to be provided to Bridel, up to a maximum of $25,000, upon presentation of invoices and/or other appropriate supporting documentation evidencing such fees. 3B.2 For the period from February 13, 1997 through April 8, 1998, Bridel shall continue to be included, at Barry's expense, in Barry's life insurance and disability insurance plans. 3B.3 For the period from February 13, 1997 through April 8, 1998, Barry's shall continue to provide the same automobile-related benefits to Bridel as provided under the existing Employment Agreement (including lease payments and payment of maintenance, gas, oil, insurance and license as provided in the existing Employment Agreement). Further, at April 8, 1998, if Bridel so requests, Barry's will consider (but shall be under no obligation to) transfer the lease (including the purchase option contained therein, if any) relating to the automobile currently provided for Bridel's use to Bridel. 3C. In the event of Bridel's death prior to the full Severance Amount having been paid as provided in Section 3A above, Barry's shall be obligated to continue to provide such benefit to Bridel's spouse, subject to the terms and elections available under the Tophat Plan, as applicable. 4. Bridel agrees that he will comply with Section 9 of the Employment Agreement, notwithstanding the termination of his employment by Barry's. In this regard, Barry's acknowledges that Bridel has made himself reasonably available to Barry's for the purpose of returning confidential information to Barry's as provided in said Section 9. Bridel acknowledges, however, that Barry's has no means of independently verifying full -2- 3 compliance by Bridel with said Section 9, and as a result Bridel agrees that he will in the future fully comply with the document return and other provisions of said Section. 5. Bridel agrees that any and all claims or obligations, including any claim for violation of any state or federal statute (such as statutes concerning discrimination based on disability or perceived disability, race, sex, or national origin), which he may have against Barry's are fully and completely settled by this Agreement, and all liability or potential liability on any such claim is hereby released. This release of claims includes claims against Barry's directors, officers, employees and representatives (collectively, "Representatives"), and against any and all present and future affiliated companies of Barry's and their respective Representatives. This release also includes all claims arising out of Bridel's employment with Barry's and the termination of that employment, including all rights and benefits under the Employment Agreement. Bridel does not, by signing this Agreement, release claims with respect to fulfillment of the promises contained in this Agreement. Barry's (on behalf of itself and its present and future affiliated companies and their respective Representatives) similarly agrees that any and all claims or obligations which it may have against Bridel relating to Bridel's service as an officer, director and employee of Barry's are fully and completely settled by this Agreement, and all liability or potential liability on any such claim is hereby released. Barry's does not, by signing this Agreement, release claims with respect to fulfillment of the promises contained in this Agreement. 6. Except as specifically noted in Section 5 above, each of Barry's and Bridel waives any and all rights it/he may have to invoke, or in any other way to seek the benefits of, Section 1542 of the California Civil Code (or any other similar statute). Section 1542 provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. 7. Bridel understands and acknowledges that (a) this Agreement constitutes a voluntary waiver of any and all claims he has against Barry's as of the date of his execution of this Agreement, including claims under the Age Discrimination Act of 1967, 29 U.S.C. Sec. 621 et seq.; (b) he has waived any and all such claims pursuant to this Agreement and in exchange for consideration, the value of which is substantial; (c) he has been, and is now, advised to consult with an attorney concerning this Agreement before signing it; (d) he has been, and is now, informed that he has a period of at least 21 days to consider the terms of this Agreement (though he need not take the full 21 days if he, in his sole discretion, does not wish to do so); and (e) he may revoke this Agreement at any time during the 7 days following the date of his signing of the Agreement, and this Agreement shall not become effective or enforceable until the eighth day after Bridel's signing of the Agreement. If Bridel so revokes this Agreement, Bridel agrees and acknowledges that Barry's will likewise not be bound by the agreements set forth herein and will reserve the right, among others, to assert that Bridel's termination is for "cause" under the Employment Agreement, seek a return of the Severance Amount and other benefits described in Section 3 above and seek other remedies available at law or in equity. -3- 4 8. Each party agrees that this Agreement is confidential and neither will voluntarily disclose its terms, except that Bridel and the management of Barry's may discuss the Agreement with their spouses, their attorneys, and their tax advisers (including, in the case of Barry's management, Barry's attorneys and tax advisers). 9. In connection with Bridel's separation from Barry's, Barry's is providing a reference letter, addressed to Bridel, in the form attached hereto as Exhibit "B". 10. Bridel promises that he will not in the future file a claim against Barry's with respect to a matter released herein. Barry's promises that it will not in the future file a claim against Bridel with respect to a matter released herein. 11. If either Barry's or Bridel files a claim to enforce this Agreement or a claim otherwise arising in any way out of this Agreement, the claim will be decided by binding and final arbitration. The procedures for conducting that arbitration will be decided by the parties. 12. Each party acknowledges that he or it has had an opportunity to negotiate with regard to the terms of this Agreement, to receive advice with regard to it, and carefully to read and consider the terms of the Agreement before signing it. 13. This Agreement contains the entire agreement of Barry's and Bridel concerning the subjects covered in the Agreement. This Agreement supersedes any previous discussions or agreements about those subjects. Date: ------------------------------- --------------------------------- Robert Bridel Date: BARRY'S JEWELERS, INC. ------------------------------- By: ------------------------------ Its: ----------------------------- -4- EX-10.14 5 EMPLOYMENT AGREEMENT - RANDY N. MCCULLOUGH 1 Exhibit 10.14 EMPLOYMENT AGREEMENT (Randy McCullough) This Employment Agreement (this "Agreement") dated as of May 1, 1997 (the "Consummation Date") is made by and between Randy McCullough (the "Executive") and Barry's Jewelers, Inc., a California corporation (the "Company"). RECITALS WHEREAS, the Company and the Executive entered into an agreement as of May 1, 1997 (the Original Employment Agreement") and now wish to supersede the Original Employment Agreement pursuant to this agreement (which shall be deemed retroactive to May 1, 1997); and WHEREAS, the Executive is willing, upon the terms and conditions herein set forth, to provide services to the Company hereunder; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. Subject to Section 7, the Company hereby employs the Executive, and the Executive hereby accepts such employment, as Vice President - Merchandising from the Consummation Date through and including January 20, 1998, and as Executive Vice President and Chief Operating Officer from and including January 21, 1998, through the remaining Term of Employment to perform such duties and responsibilities, consistent with such positions, as may be reasonably assigned to the Executive from time to time by the Board of Directors of the Company (the "Board") or its designee. (The definitions of capitalized terms used in this Agreement are contained in Section 9 of this Agreement.) 2. Devotion of Time. During the Term of Employment, the Executive shall perform his duties hereunder faithfully and to the best of his ability, at the principal executive office of the Company, under the direction of the Board or its designee. Except for vacations and reasonable absences due to temporary illness and incapacity, the Executive shall devote his full business time and attention to the performance of his duties hereunder. Notwithstanding the foregoing, the Executive may (i) make and manage passive personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, without 2 seeking or obtaining approval by the Board, provided such activities and service do not materially interfere or conflict with the performance of his duties hereunder and (ii) may serve on the boards of directors of other corporations or any trade association. Nothing contained herein shall require Executive to follow any directive or to perform or fail to report any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agency or authority, any court or judicial authority, or any public, private, industry, professional, regulatory or licensing authority (collectively, the "Regulations"). Executive shall act in good faith in accordance with all Regulations. 3. Term of Employment. The term of the Executive's employment hereunder shall commence on the Consummation Date and shall end on the Effective Date (such term of employment shall hereinafter be referred to as Term of Employment). This agreement shall terminate on the Effective Date, subject to the payment obligations specified herein and Section 8 hereof. Notwithstanding the foregoing, the Term of Employment may be terminated prior to the expiration thereof, by the Company pursuant to Section 7.2 or by the Executive pursuant to Section 7.3, in which event the Term of Employment shall end on the Date of Termination. 4. Compensation. During the Term of Employment, the Executive shall be compensated as follows: 4.1 Base Salary. The Company shall pay the Executive a base salary at the rate of $225,000 per annum from the Consummation Date through and including January 20,1998 and at a rate of $275,000 per annum from and including January 21, 1998, payable in arrears not less frequently than monthly in accordance with the normal payroll practices of the Company. Such base salary shall be subject to review each year by the Board in its sole discretion, but shall in no event be decreased from its then-existing level. The Company shall give the Bank Group and the Committees notice of any increase in the base salary. The Bank Group and Committees shall have the right to object to the increase and to have the Bankruptcy Court determine the reasonableness thereof. 4.2 Annual Bonus. In addition, the Executive shall be eligible to receive a bonus ("Annual Bonus") with respect to each fiscal year of the Company, to the extent that the Company achieves the applicable performance targets for each such year (the "Annual Bonus Parameters"); provided, however, that the Executive's aggregate Annual Bonus shall not exceed an amount equal to his base salary for such year. The Annual Bonus Parameters with respect to the Company's fiscal year ending May 2 3 31, 1998 are set forth in Appendix A hereto. The performance targets with respect to the Annual Bonus for subsequent fiscal years shall be based upon Annual Bonus Parameters to be determined by the Board and the Executive prior to the commencement of each such year. The Bank Group and Committees shall be given notice of the Annual Bonus Parameters determined by the Board and the Executive. The Bank Group and Committees shall have the right to object to the Annual Bonus Parameters determined by the Board and the Executive with respect to any such subsequent fiscal year and to have the Bankruptcy Court determine the reasonableness thereof. Before the Company pays any portion of the Annual Bonus, the Executive shall provide a certification to the Bank Group and the Committees that the applicable Bonus Parameter has been satisfied, together with appropriate documentation, e.g., with respect to the fourth increment of the Annual Bonus Bonus for the fiscal year ending May 31, 1998, the Executive shall provide an accounts payable aging and a certification that the Company is maintaining its payables within agreed upon vendor terms. 4.3 Confirmation Bonus. In addition, the Executive shall be entitled to receive a one-time confirmation bonus (the "Confirmation Bonus"), upon (i) the entry of a confirmation order of a plan of reorganization, provided that the sole conditions to the Effective Date of the confirmed plan are tied to the performance of a person or entity other than the Company, the Executive, an employee or agent of the Company (the "Company Group"); (ii) the date such a plan of reorganization becomes effective, if the sole conditions to the Effective Date of the confirmed plan are tied to the performance by any member of the Company Group; or (iii) the date upon which the Company Group performs all the conditions to the Effective Date of the confirmed plan that are in its control, if the conditions to the Effective Date of the confirmed plan are tied both to the performance of the Company Group and to the performance of any person or entity who is not a member of the Company Group (each such date of payment under clause (i), (ii) and (iii) above shall hereinafter be referred to as a "Satisfaction Date"); provided, in each case, that the Bankruptcy Court determines that the Company has demonstrated the capacity to finance the Company's seasonal working capital requirements in the form of an asset based working capital facility that contains market advance rates and market collateral eligibility parameters; provided, further, that in order to demonstrate such capacity, the plan of reorganization need not provide for the obtaining of such facility. The amount payable as a Confirmation Bonus shall be based on when the Satisfaction Date occurs, as set forth in the Schedule attached hereto as Appendix B. The Confirmation Bonus shall be paid in a cash lump sum on the Effective Date. Notwithstanding the foregoing, no Confirmation Bonus shall be payable if the Satisfaction Date occurs after September 30, 1998. 3 4 5. Reimbursement of Expenses. During the Term of Employment, the Company shall reimburse the Executive for expenses in accordance with the Company's policies and the rules and regulations of the Internal Revenue Service. 6. Benefits. During the Term of Employment, the Executive shall be entitled to benefits, as follows: 6.1 Company Plans. The Executive shall be entitled to perquisites and benefits established by the Company, from time to time, for management of the Company (including, without limitation, health and dental insurance, disability insurance, participation in the Company's 401(k) and deferred compensation plans), subject to the policies and procedures of the Company of general applicability in effect, from time to time, regarding participation in such benefits. 6.2 Automobile. In addition, effective January 21, 1998, the Company, at its expense, shall provide the Executive with an automobile of a kind to be selected by the Executive for the business use of the Executive, provided that its payments for such automobile and related costs for maintenance and insurance shall not exceed, on average, $1,000 per month. At the Executive's option, the Company shall pay the Executive a monthly allowance of $750 in lieu of providing him with an automobile. 6.3 Insurance. In addition, effective January 21, 1998, the Company shall be obligated to pay the premiums on a life insurance policy for the benefit of the Executive with a face amount of $750,000 and long-term disability insurance with coverage equal to (i) one times the Executive's base salary, less (ii) the amount of long-term disability insurance coverage provided to the Executive under Company-sponsored long-term disability plans. 6.4 Relocation Allowance. In addition, the Company shall pay the Executive a relocation allowance equal to the lesser of (i) ten percent of his annual base salary and (ii) the actual cost of the Executive's relocation to Los Angeles, at such time as the Executive leases or purchases a permanent residence in the Los Angeles area. 6.5 Vacation. In addition, the Executive shall be entitled to four (4) weeks of paid vacation during each year. 7. Termination of Employment. 7.1 Termination Due to Death or Disability. Subject to the payments contemplated by Section 7.6, the Executive's employment by the Company shall terminate upon the death of the Executive or upon the Executive becoming Disabled. 4 5 7.2 Early Termination by the Company. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the Company (after adoption of a resolution by the Board to do so) as follows: 7.2.1 For Cause; or 7.2.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Company shall be effected by delivery by the Company to the Executive of a written notice of termination (which notice shall include a copy of the resolution adopted by the Board), specifying the Date of Termination and stating in the case of termination for Cause, the grounds which the Board has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. 7.3 Early Termination by the Executive. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the Executive, as follows: 7.3.1 For Good Reason; or 7.3.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Executive shall be effected by delivery by the Executive to the Company of a written notice of termination, specifying the Date of Termination and stating in the case of termination for Good Reason, the grounds which the Executive has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. The Company shall provide notice to the Bank Group and the Committees of such termination by the Executive. 7.4 Payments if Termination by the Company for Cause or by the Executive Without Good Reason. In the event that the Executive's employment by the Company is terminated by the Company for Cause or by the Executive without Good Reason, the Company shall be obligated to pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive). 5 6 7.5 Payments if Termination by the Company Without Cause or by the Executive For Good Reason. In the event that the Executive's employment by the Company is terminated by the Company without Cause or by the Executive for Good Reason, the Company shall be obligated to: 7.5.1 Pay to the Executive his Accrued Salary and Benefits in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.5.2 If the Company achieves the Annual Bonus Parameter that relates to the projected earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses ("EBITDABB") for the fiscal year during which the Executive's employment is terminated, pay to the Executive the full Annual Bonus with respect to the fiscal year in which such termination occurs (minus any portion of the Annual Bonus that has already been paid to the Executive with respect to the fiscal year during which the employment is terminated) in the same manner as if the Executive were still an employee of the Company; and 7.5.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. 7.6 Payment if Termination Due to Death or Disability. In the event that the Executive's employment by the Company is terminated due to the Executive's death or Disability, the Company shall be obligated to: 7.6.1 Pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.6.2 If all of the applicable Annual Bonus Parameters have been met prior to the Date of Termination, pay to the Executive the aggregate amount of any remaining Annual Bonus installments for the fiscal year, in a lump sum in cash within fourteen days after the Date of Termination; and 7.6.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. The amount of the Confirmation Bonus payable pursuant to this Section 7.6.3 shall be determined by multiplying the Confirmation Bonus 6 7 otherwise payable pursuant to Section 4.3 by a fraction, the numerator of which equals the total number of calendar months that the Executive was employed by the Company starting from the Consummation Date until the Date of Termination, and the denominator of which equals the total number of calendar months from the Consummation Date until the Satisfaction Date, e.g., if the Executive was employed for nine months from the Consummation Date and the Satisfaction Date occurred twelve months after the Consummation Date, then the Executive would receive a pro rated Confirmation Bonus equal to 3/4 (9/12) of the total amount that would have been payable to the Executive pursuant to Section 4.3 had he still been employed on the Effective Date. For purposes of the foregoing calculation, any fraction of a calendar month shall be deemed to be an entire calendar month. The payments described in this Section 7.6 shall be in addition to any life insurance and disability benefits payable to the Executive from the Company. 7.7 No Additional Severance Payments. Except for the payments provided in this Section 7, the Executive shall not be entitled to any payments by the Company in the event of the termination of his employment. In such event, the Executive shall have no obligation to seek other employment to mitigate damages and any income earned by the Executive from other employment or self-employment shall not be offset against any of the Company's payment obligations under this Section 7. 8. Confidential Information. 8.1 Nondisclosure of Confidential Information. During and after the Term of Employment, Executive will not disclose to any person, or use or otherwise exploit for the Executive's own benefit or for the benefit of anyone other than the Company, any Confidential Information of the Company, whether prepared by the Executive or not. At the request of the Company, the Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. The Executive agrees that all Confidential Information of the Company (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Company (and not to the Executive). The Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. 8.2 Exceptions to Nondisclosure Obligations. The information provisions of Section 8.1 shall not apply to (I) information disclosed in the performance of the Executive's duties to the Company based on his good faith belief that such disclosure is in the best interests of Company; (ii) information that is public knowledge; (iii) information disseminated by the Company to third parties in the ordinary course of business; (iv) information 7 8 lawfully received by the Executive from a third party who, based upon inquiry by the Executive, is not bound by a confidential relationship to the Company; (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over the Executive; or (vi) information necessary in order to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or any of its affiliated companies. 8.3 Survival of Nondisclosure Obligations. The terms of this Section 8 shall survive the termination of this Agreement regardless of who terminates this Agreement or the reasons therefor. 9. Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in this Section 9. "Accrued Salary and Benefits" means, as of the applicable date, the sum of (i) the Executive's base salary under Section 4.1 through such date to the extent not theretofore paid, (ii) any earned but unpaid Annual Bonus and Confirmation Bonus payments, and (iii) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of such date to the extent not theretofore paid. "Annual Bonus" is defined in Section 4.2. "Annual Bonus Parameters" is defined in section 4.2. "Bank Group" means those financial institutions comprised of Bank Boston, N.A., Jackson National Life Insurance Company, The Long Horizon Fund, L.P., and the CIT Group/Business Credit, Inc., or their respective successors and assigns. "Bankruptcy Court" means the United States Bankruptcy Court for the District in which the Company's bankruptcy case is pending or, if such court ceases to exercise jurisdiction over such case, such court or adjunct thereof that exercises jurisdiction over such case in lieu of the United States Bankruptcy Court for such District. "Board" is defined in Section 1. "Cause" shall mean any of the following: (i) The Executive's conviction for, or plea of nolo contendere to, any felony: (ii) The Executive's willful fraud or material dishonesty in connection with the Executive's performance of his duties hereunder; (iii) The Executive's failure, other than due to illness, disability or death or as a result of any event that constitutes 8 9 Good Reason hereunder, to substantially perform his duties hereunder that results in material harm to the Company; or (iv) The Executive's gross negligence in the performance of his duties hereunder (other than arising solely due to physical or mental disability) that results in material harm to the Company; in each case, for purposes of clauses (iii) and (iv), after the Board has provided the Executive with 30 days' written notice of such circumstances and the possibility of an event giving rise to termination for Cause, and the Executive fails to cure such circumstances within those 30 days. "Change of Control" shall mean the occurrence of (i) a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation or as a result of which it is the surviving corporation and its outstanding voting securities are converted to or reclassified as cash, securities of another corporation or other property (unless the principal purpose of such transaction is to change the state of the Company's incorporation), (ii) upon a sale of assets of the Company or its subsidiaries having a fair market value equal to more than 50% of the total fair market value of the Company's assets to an entity which is not controlling, controlled by or under common control with the Company (including, without limitation, such a sale pursuant to section 363 of the Bankruptcy Code), or (iii) the acquisition of a record or beneficial interest in more than 30% of the then outstanding voting securities of the Company, either in a single transaction or a series of transactions, by an entity or "group" within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder which is not an affiliate of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committees" shall mean any official committee appointed by the Office of the United States Trustee and continuing to exist in the Company's reorganization case and the committee of bondholders even if it ceases to be an official committee. "Company" is defined in the introduction. "Confidential Information" means any confidential information of the Company including, without limitation, any study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source or object codes), processes, 9 10 procedures, formulas, improvements of other proprietary or intellectual property of the Company or relating to its business, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof, whether existing now or hereafter discovered or developed. "Confirmation Bonus" is defined in Section 4.3. "Confirmation Date" shall mean the date on which the Bankruptcy Court's order approving a plan of reorganization with respect to the Company is entered on the docket. "Consummation Date" is defined in the introduction. "Date of Termination" means (i) in the event of a termination of the Executive's employment pursuant to Section 7.2, the date specified in the written notice of termination from the Company, (ii) in the event of a termination of the Executive's employment pursuant to Section 7.3, the date specified in the written notice of termination from the Executive, (iii) in the event of the Executive's death, the date of the Executive's death and (iv) in the event of the Executive's Disability, the date he is determined to be Disabled. "Disabled" or "Disability" means, with respect to the Executive, the occurrence of an event or events that renders the Executive with respect to his physical or mental condition unable to perform, in the view of the Board and as certified in writing by a competent medical physician, his duties hereunder and which results in his being entitled to benefits under the Company's disability insurance plan. "Effective Date" Shall mean the date on which the plan of reorganization with respect to the Company becomes effective. "Executive" means Randy McCullough or his estate, if deceased. "Good Reason" means any of the following: (i) Any termination by the Executive within twelve (12) months following the occurrence of a Change in Control; or (ii) A material breach by the Company of the penultimate sentence of Section 2 of this Agreement, provided that such breach was not caused by any action or inaction over which the Executive had ultimate control. 10. General. 10 11 10.1 Notice. Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner). If to Executive: Randy McCullough 24374 Sunnycrest Court Diamond Bar, CA 91765 If to Company: Barry's Jewelers, Inc. 111 West Lemon Avenue Monrovia, California 91016 Attn: Chairman of the Board Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 10.2 Executive's Representations. The Executive hereby warrants and represents to the Company that the Executive has carefully reviewed this Agreement, including his obligations hereunder, and has consulted with such attorneys and advisors as the Executive considers appropriate in connection with this Agreement, and is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of the Executive's prior employment which would be breached or violated by the Executive's execution of this Agreement or by the Executive's performance of his duties hereunder. 10.3 Validity. If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 10.4 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 10.5 Tax Withholding. The Company shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Company to or for the benefit of the Executive under this Agreement or otherwise. The Company may, at its option: (i) 11 12 withhold such taxes from any cash payments owing from the Company to the Executive, (ii) require the Executive to pay to the Company in cash such amount as may be required to satisfy such withholding obligations and/or (iii) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 10.6 Waiver of Breach: Attorneys' Fees. The waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties to this Agreement will be entitled to enforce its respective rights under this Agreement and to exercise all other rights existing in its favor. In the event either party takes legal action or commences an arbitration proceeding to enforce any of the terms or provisions of this Agreement, the nonprevailing party shall pay the successful party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action or proceeding. 10.7 Governing Law. This Agreement shall be governed by, construed, applied and enforced in accordance with the laws of the state of California, except that no doctrine of choice of law shall be used to apply any law other than that of California, and no defense, counterclaim or right of set-off given or allowed by the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, ordinance or decree of any foreign jurisdiction, shall be interposed in any action hereon. 10.8 Specific Performance. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Section 8 of this Agreement and that the Company may in its sole discretion apply for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of such provisions of this Agreement. 10.9 Forum. The Executive and the Company agree that the Bankruptcy Court shall have exclusive jurisdiction over any action or proceeding arising out of this Agreement and enter judgment thereon. The Executive and the Company consent to in personam jurisdiction with respect to the Bankruptcy Court, agree that venue will be proper in such courts and waive any objections based upon forum non conveniens. The choice of forum set forth in this Section 10.9 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce same in any other jurisdiction. 10.10 Assignment: Third Parties. The Executive may not assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his respective rights or 12 13 obligations hereunder, without the prior written consent of the Company. Except as expressly provided herein, the Company may not assign or transfer this Agreement or any of its rights or obligations hereunder, without the prior written consent of the Executive. The Company may assign its rights and obligations hereunder to its successor in connection with a merger, consolidation, sale of assets, acquisition, recapitalization or other similar transaction (and such successor shall thereafter be deemed the "Company" for purposes of this Agreement). The provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the respective heirs, legal representatives and successors of the parties hereto. 10.11 Prior Understandings. This Agreement, together with the exhibits and schedules attached hereto which are incorporated herein by this reference, embodies the entire understanding of the parties hereto and supersedes all other oral or written agreements or understandings between them regarding the subject matter hereof. No change, alteration or modification hereof may be made except in a writing specifically referring hereto and signed by the Executive and the Chairman of the Board of the Company or his designee. The headings in this Agreement are for convenience and reference only and shall not be construed as part of this Agreement or to limit or otherwise affect the meaning hereof. Section references refer to this Agreement unless otherwise specified. 10.12 Further Action. The Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.14 Indemnification. During the Term of Employment and thereafter, the Company shall indemnify the Executive to the fullest extent permitted by the bylaws of the Company, and the Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers, with respect to all expenses, judgments, fines, settlements and other amounts (including, without limitation, attorneys' fees) incurred or sustained by the Executive in connection with any action, suit or proceeding to which he may be made a party by reason of being or having been director, officer or employee of the Company or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. 13 14 IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: ------------------------- Randy McCullough COMPANY: BARRY'S JEWELERS, INC. By: --------------------- William D. Eberle Chairman of the Board 14 15 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - RANDY MCCULLOUGH For the fiscal year of the Company ending as of 5/31/98, the Executive shall be entitled to an aggregate Annual Bonus of $184,875.00 payable in installments upon the achievement of the applicable Annual Bonus Parameters, in accordance with the following schedule:
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS --------------- ----------------------- $13,500 Total owned plus consigned inventory on hand on 12/5/97 equals or exceeds $71,175,000. $13,500 Cash deposits as of 12/26/97 plus gross accounts receivable as of 12/26/97 plus total owned and consigned inventory on hand on 12/26/97 minus accounts payable as of 12/26/97 matches or exceeds$132,618.000. $13,500 G&A expenses(1) as of 12/26/97 match or lower than $44,258,000. $20,625 Total Availability(2) at end of February 1998 of $4.1 Million and payables are maintained within agreed upon vendor terms as of February 1998. $20,625 Receipt by November 1, 1997 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by November 1, 1997 and receipt by February 28, 1998 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by February 28, 1998. $103,125 Payable if Barry's achieves projected EBITDABB(3) of $1,553,000 for the FYE 5/31/98. Such portion shall not be payable until the year- end results have been audited and any audit adjustments recorded.
- ---------------------- (1) G&A expenses are the Category II and Category III expenses, as set forth in Schedule 4 of the Budget annexed to the Amended Cash Collateral Stipulation. (2) Total Availability is defined as excess (or deficit) availability under the borrowing base plus total cash balances, as set forth as "Adjusted Availability in Schedule 2 of the Budget annexed to the Amended Cash Collateral Stipulation. (3) EBITDABB is earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses as set forth in the income statements of the 1998 Financial Projections approved by the Board and submitted to the Committees and the Bank Group on or about November 4, 1997. 15 16 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - RANDY MCCULLOUGH The Executive shall receive each installment of his Annual Bonus that corresponds to a particular Annual Bonus Parameter within a reasonable time after such Annual Bonus Parameter has been met; provided that in no event shall the Executive receive the installment of the Annual Bonus that is based on the EBITDABB Requirement until after the Company receives final auditing statements for the fiscal year ending on May 31, 1998. If the Company satisfies an Annual Bonus Parameter and the Executive thereby becomes entitled to the corresponding installment of his Annual Bonus, such installment shall remain payable to the Executive even if the Company fails to satisfy subsequent Annual Bonus Parameters. 16 17 APPENDIX B CONFIRMATION BONUS - RANDY MCCULLOUGH
If Satisfaction Date (as defined in the Agreement) Occurs Amount of Confirmation Bonus --------------------- ---------------------------- Before 5/1/98 $343,750 Between 5/1/98 and 6/30/98 $275,000 Between 7/1/98 and 9/30/98 $206,250
17 EX-10.15 6 EMPLOYMENT AGREEMENT - E. PETER HEALEY 1 Exhibit 10.15 EMPLOYMENT AGREEMENT (E. Peter Healey) This Employment Agreement (this "Agreement") dated as of May 1, 1997 (the "Consummation Date") is made by and between E. Peter Healey (the "Executive") and Barry's Jewelers, Inc., a California corporation (the "Company"). RECITALS WHEREAS, the Company and the Executive entered into an agreement as of May 1, 1997 (the Original Employment Agreement") and now wish to supersede the Original Employment Agreement pursuant to this agreement (which shall be deemed retroactive to May 1, 1997); and WHEREAS, the Executive is willing, upon the terms and conditions herein set forth, to provide services to the Company hereunder; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. Subject to Section 7, the Company hereby employs the Executive, and the Executive hereby accepts such employment, during the Term of Employment, as Executive Vice President and Chief Financial Officer of the Company to perform such duties and responsibilities, consistent with such position, as may be reasonably assigned to the Executive from time to time by the Board of Directors of the Company (the "Board") or its designee. (The definitions of capitalized terms used in this Agreement are contained in Section 9 of this Agreement.) 2. Devotion of Time. During the Term of Employment, the Executive shall perform his duties hereunder faithfully and to the best of his ability, at the principal executive office of the Company, under the direction of the Board or its designee. Except for vacations and reasonable absences due to temporary illness and incapacity, the Executive shall devote his full business time and attention to the performance of his duties hereunder. Notwithstanding the foregoing, the Executive may (i) make and manage passive personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, without seeking or obtaining approval by the Board, provided such activities and service do not materially interfere or conflict with the performance of his duties hereunder and (ii) may serve 2 on the Board of Naniquah Corporation and, with the approval of the Board, on the boards of directors of other corporations or any trade association. Nothing contained herein shall require Executive to follow any directive or to perform or fail to report any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agency or authority, any court or judicial authority, or any public, private, industry, professional, regulatory or licensing authority (collectively, the "Regulations"). Executive shall act in good faith in accordance with all Regulations. 3. Term of Employment. The term of the Executive's employment hereunder shall commence on the Consummation Date and shall end on the Effective Date (such term of employment shall hereinafter be referred to as Term of Employment). This agreement shall terminate on the Effective Date, subject to the payment obligations specified herein and Section 8 hereof. Notwithstanding the foregoing, the Term of Employment may be terminated prior to the expiration thereof, by the Company pursuant to Section 7.2 or by the Executive pursuant to Section 7.3, in which event the Term of Employment shall end on the Date of Termination. 4. Compensation. During the Term of Employment, the Executive shall be compensated as follows: 4.1 Base Salary. The Company shall pay the Executive a base salary at the rate of $275,000 per annum, payable in arrears not less frequently than monthly in accordance with the normal payroll practices of the Company. Such base salary shall be subject to review each year by the Board in its sole discretion, but shall in no event be decreased from its then-existing level. The Company shall give the Bank Group and the Committees notice of any increase in the base salary. The Bank Group and Committees shall have the right to object to the increase and to have the Bankruptcy Court determine the reasonableness thereof. 4.2 Annual Bonus. In addition, the Executive shall be eligible to receive a bonus ("Annual Bonus") with respect to each fiscal year of the Company, to the extent that the Company achieves the applicable performance targets for each such year (the "Annual Bonus Parameters"); provided, however, that the Executive's aggregate Annual Bonus shall not exceed an amount equal to 75% of his base salary for such year. The Annual Bonus Parameters with respect to the Company's fiscal year ending May 31, 1998 are set forth in Appendix A hereto. The performance targets with respect to the Annual Bonus for subsequent fiscal years shall be based upon Annual Bonus Parameters to be determined by the Board and the Executive prior to the commencement of each such year. The Bank Group and Committees shall be given notice of the Annual Bonus Parameters determined 2 3 by the Board and the Executive. The Bank Group and Committees shall have the right to object to the Annual Bonus Parameters determined by the Board and the Executive with respect to any such subsequent fiscal year and to have the Bankruptcy Court determine the reasonableness thereof. Before the Company pays any portion of the Annual Bonus, the Executive shall provide a certification to the Bank Group and the Committees that the applicable Bonus Parameter has been satisfied, together with appropriate documentation, e.g., with respect to the fourth increment of the Annual Bonus Bonus for the fiscal year ending May 31, 1998, the Executive shall provide an accounts payable aging and a certification that the Company is maintaining its payables within agreed upon vendor terms. 4.3 Confirmation Bonus. In addition, the Executive shall be entitled to receive a one-time confirmation bonus (the "Confirmation Bonus"), upon (i) the entry of a confirmation order of a plan of reorganization, provided that the sole conditions to the Effective Date of the confirmed plan are tied to the performance of a person or entity other than the Company, the Executive, an employee or agent of the Company (the "Company Group"); (ii) the date such a plan of reorganization becomes effective, if the sole conditions to the Effective Date of the confirmed plan are tied to the performance by any member of the Company Group; or (iii) the date upon which the Company Group performs all the conditions to the Effective Date of the confirmed plan that are in its control, if the conditions to the Effective Date of the confirmed plan are tied both to the performance of the Company Group and to the performance of any person or entity who is not a member of the Company Group (each such date of payment under clause (i), (ii) and (iii) above shall hereinafter be referred to as a "Satisfaction Date"); provided, in each case, that the Bankruptcy Court determines that the Company has demonstrated the capacity to finance the Company's seasonal working capital requirements in the form of an asset based working capital facility that contains market advance rates and market collateral eligibility parameters; provided, further, that in order to demonstrate such capacity, the plan of reorganization need not provide for the obtaining of such facility. The amount payable as a Confirmation Bonus shall be based on when the Satisfaction Date occurs, as set forth in the Schedule attached hereto as Appendix B. The Confirmation Bonus shall be paid in a cash lump sum on the Effective Date. Notwithstanding the foregoing, no Confirmation Bonus shall be payable if the Satisfaction Date occurs after September 30, 1998. 5. Reimbursement of Expenses. During the Term of Employment, the Company shall reimburse the Executive for expenses in accordance with the Company's policies and the rules and regulations of the Internal Revenue Service. 3 4 6. Benefits. During the Term of Employment, the Executive shall be entitled to benefits, as follows: 6.1 Company Plans. The Executive shall be entitled to perquisites and benefits established by the Company, from time to time, for management of the Company (including, without limitation, health and dental insurance, disability insurance, participation in the Company's 401(k) and deferred compensation plans), subject to the policies and procedures of the Company of general applicability in effect, from time to time, regarding participation in such benefits. 6.2 Automobile. In addition, the Company, at its expense, shall provide the Executive with an automobile of a kind to be selected by the Executive for the business use of the Executive, provided that its payments for such automobile and related costs for maintenance and insurance shall not exceed, on average, $1,000 per month. At the Executive's option, the Company shall pay the Executive a monthly allowance of $750 in lieu of providing him with an automobile. 6.3 Insurance. In addition, the Company shall be obligated to pay the premiums on a life insurance policy for the benefit of the Executive with a face amount of $750,000 and long-term disability insurance with coverage equal to (i) one times the Executive's base salary, less (ii) the amount of long-term disability insurance coverage provided to the Executive under Company-sponsored long-term disability plans. 6.4 Relocation Allowance. In addition, the Company shall pay the Executive a relocation allowance equal to the lesser of (i) ten percent of his annual base salary and (ii) the actual cost of the Executive's relocation to Los Angeles, at such time as the Executive leases or purchases a permanent residence in the Los Angeles area. 6.5 Vacation. In addition, the Executive shall be entitled to four (4) weeks of paid vacation during each year. 7. Termination of Employment. 7.1 Termination Due to Death or Disability. Subject to the payments contemplated by Section 7.6, the Executive's employment by the Company shall terminate upon the death of the Executive or upon the Executive becoming Disabled. 7.2 Early Termination by the Company. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the 4 5 Company (after adoption of a resolution by the Board to do so) as follows: 7.2.1 For Cause; or 7.2.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Company shall be effected by delivery by the Company to the Executive of a written notice of termination (which notice shall include a copy of the resolution adopted by the Board), specifying the Date of Termination and stating in the case of termination for Cause, the grounds which the Board has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. 7.3 Early Termination by the Executive. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the Executive, as follows: 7.3.1 For Good Reason; or 7.3.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Executive shall be effected by delivery by the Executive to the Company of a written notice of termination, specifying the Date of Termination and stating in the case of termination for Good Reason, the grounds which the Executive has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. The Company shall provide notice to the Bank Group and the Committees of such termination by the Executive. 7.4 Payments if Termination by the Company for Cause or by the Executive Without Good Reason. In the event that the Executive's employment by the Company is terminated by the Company for Cause or by the Executive without Good Reason, the Company shall be obligated to pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive). 7.5 Payments if Termination by the Company Without Cause or by the Executive For Good Reason. In the event that the Executive's employment by the Company is terminated by the Company without Cause or by the Executive for Good Reason, the Company shall be obligated to: 5 6 7.5.1 Pay to the Executive his Accrued Salary and Benefits in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.5.2 If the Company achieves the Annual Bonus Parameter that relates to the projected earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses ("EBITDABB") for the fiscal year during which the Executive's employment is terminated, pay to the Executive the full Annual Bonus with respect to the fiscal year in which such termination occurs (minus any portion of the Annual Bonus that has already been paid to the Executive with respect to the fiscal year during which the employment is terminated) in the same manner as if the Executive were still an employee of the Company; and 7.5.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. 7.6 Payment if Termination Due to Death or Disability. In the event that the Executive's employment by the Company is terminated due to the Executive's death or Disability, the Company shall be obligated to: 7.6.1 Pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.6.2 If all of the applicable Annual Bonus Parameters have been met prior to the Date of Termination, pay to the Executive the aggregate amount of any remaining Annual Bonus installments for the fiscal year, in a lump sum in cash within fourteen days after the Date of Termination; and 7.6.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. The amount of the Confirmation Bonus payable pursuant to this Section 7.6.3 shall be determined by multiplying the Confirmation Bonus otherwise payable pursuant to Section 4.3 by a fraction, the numerator of which equals the total number of calendar months that the Executive was employed by the Company starting from the Consummation Date until the Date of Termination, and the denominator of which equals the total number of calendar months 6 7 from the Consummation Date until the Satisfaction Date, e.g., if the Executive was employed for nine months from the Consummation Date and the Satisfaction Date occurred twelve months after the Consummation Date, then the Executive would receive a pro rated Confirmation Bonus equal to 3/4 (9/12) of the total amount that would have been payable to the Executive pursuant to Section 4.3 had he still been employed on the Effective Date. For purposes of the foregoing calculation, any fraction of a calendar month shall be deemed to be an entire calendar month. The payments described in this Section 7.6 shall be in addition to any life insurance and disability benefits payable to the Executive from the Company. 7.7 No Additional Severance Payments. Except for the payments provided in this Section 7, the Executive shall not be entitled to any payments by the Company in the event of the termination of his employment. In such event, the Executive shall have no obligation to seek other employment to mitigate damages and any income earned by the Executive from other employment or self-employment shall not be offset against any of the Company's payment obligations under this Section 7. 8. Confidential Information. 8.1 Nondisclosure of Confidential Information. During and after the Term of Employment, Executive will not disclose to any person, or use or otherwise exploit for the Executive's own benefit or for the benefit of anyone other than the Company, any Confidential Information of the Company, whether prepared by the Executive or not. At the request of the Company, the Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. The Executive agrees that all Confidential Information of the Company (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Company (and not to the Executive). The Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. 8.2 Exceptions to Nondisclosure Obligations. The information provisions of Section 8.1 shall not apply to (I) information disclosed in the performance of the Executive's duties to the Company based on his good faith belief that such disclosure is in the best interests of Company; (ii) information that is public knowledge; (iii) information disseminated by the Company to third parties in the ordinary course of business; (iv) information lawfully received by the Executive from a third party who, based upon inquiry by the Executive, is not bound by a confidential relationship to the Company; (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over the Executive; or (vi) information 7 8 necessary in order to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or any of its affiliated companies. 8.3 Survival of Nondisclosure Obligations. The terms of this Section 8 shall survive the termination of this Agreement regardless of who terminates this Agreement or the reasons therefor. 9. Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in this Section 9. "Accrued Salary and Benefits" means, as of the applicable date, the sum of (i) the Executive's base salary under Section 4.1 through such date to the extent not theretofore paid, (ii) any earned but unpaid Annual Bonus and Confirmation Bonus payments, and (iii) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of such date to the extent not theretofore paid. "Annual Bonus" is defined in Section 4.2. "Annual Bonus Parameters" is defined in section 4.2. "Bank Group" means those financial institutions comprised of Bank Boston, N.A., Jackson National Life Insurance Company, The Long Horizon Fund, L.P., and the CIT Group/Business Credit, Inc., or their respective successors and assigns. "Bankruptcy Court" means the United States Bankruptcy Court for the District in which the Company's bankruptcy case is pending or, if such court ceases to exercise jurisdiction over such case, such court or adjunct thereof that exercises jurisdiction over such case in lieu of the United States Bankruptcy Court for such District. "Board" is defined in Section 1. "Cause" shall mean any of the following: (i) The Executive's conviction for, or plea of nolo contendere to, any felony: (ii) The Executive's willful fraud or material dishonesty in connection with the Executive's performance of his duties hereunder; (iii) The Executive's failure, other than due to illness, disability or death or as a result of any event that constitutes Good Reason hereunder, to substantially perform his duties hereunder that results in material harm to the Company; or (iv) The Executive's gross negligence in the performance of his duties hereunder (other than arising solely due to physical 8 9 or mental disability) that results in material harm to the Company; in each case, for purposes of clauses (iii) and (iv), after the Board has provided the Executive with 30 days' written notice of such circumstances and the possibility of an event giving rise to termination for Cause, and the Executive fails to cure such circumstances within those 30 days. "Change of Control" shall mean the occurrence of (i) a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation or as a result of which it is the surviving corporation and its outstanding voting securities are converted to or reclassified as cash, securities of another corporation or other property (unless the principal purpose of such transaction is to change the state of the Company's incorporation), (ii) upon a sale of assets of the Company or its subsidiaries having a fair market value equal to more than 50% of the total fair market value of the Company's assets to an entity which is not controlling, controlled by or under common control with the Company (including, without limitation, such a sale pursuant to section 363 of the Bankruptcy Code), or (iii) the acquisition of a record or beneficial interest in more than 30% of the then outstanding voting securities of the Company, either in a single transaction or a series of transactions, by an entity or "group" within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder which is not an affiliate of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committees" shall mean any official committee appointed by the Office of the United States Trustee and continuing to exist in the Company's reorganization case and the committee of bondholders even if it ceases to be an official committee. "Company" is defined in the introduction. "Confidential Information" means any confidential information of the Company including, without limitation, any study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source or object codes), processes, procedures, formulas, improvements of other proprietary or intellectual property of the Company or relating to its business, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, 9 10 documents and other evidence thereof, whether existing now or hereafter discovered or developed. "Confirmation Bonus" is defined in Section 4.3. "Confirmation Date" shall mean the date on which the Bankruptcy Court's order approving a plan of reorganization with respect to the Company is entered on the docket. "Consummation Date" is defined in the introduction. "Date of Termination" means (i) in the event of a termination of the Executive's employment pursuant to Section 7.2, the date specified in the written notice of termination from the Company, (ii) in the event of a termination of the Executive's employment pursuant to Section 7.3, the date specified in the written notice of termination from the Executive, (iii) in the event of the Executive's death, the date of the Executive's death and (iv) in the event of the Executive's Disability, the date he is determined to be Disabled. "Disabled" or "Disability" means, with respect to the Executive, the occurrence of an event or events that renders the Executive with respect to his physical or mental condition unable to perform, in the view of the Board and as certified in writing by a competent medical physician, his duties hereunder and which results in his being entitled to benefits under the Company's disability insurance plan. "Effective Date" Shall mean the date on which the plan of reorganization with respect to the Company becomes effective. "Executive" means E. Peter Healey or his estate, if deceased. "Good Reason" means any of the following: (i) Any termination by the Executive within twelve (12) months following the occurrence of a Change in Control; or (ii) A material breach by the Company of the penultimate sentence of Section 2 of this Agreement, provided that such breach was not caused by any action or inaction over which the Executive had ultimate control. 10. General. 10.1 Notice. Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner). 10 11 If to Executive: E. Peter Healey Route 6 Box 368-A Tool, TX 75143 If to Company: Barry's Jewelers, Inc. 111 West Lemon Avenue Monrovia, California 91016 Attn: Chairman of the Board Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 10.2 Executive's Representations. The Executive hereby warrants and represents to the Company that the Executive has carefully reviewed this Agreement, including his obligations hereunder, and has consulted with such attorneys and advisors as the Executive considers appropriate in connection with this Agreement, and is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of the Executive's prior employment which would be breached or violated by the Executive's execution of this Agreement or by the Executive's performance of his duties hereunder. 10.3 Validity. If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 10.4 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 10.5 Tax Withholding. The Company shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Company to or for the benefit of the Executive under this Agreement or otherwise. The Company may, at its option: (i) withhold such taxes from any cash payments owing from the Company to the Executive, (ii) require the Executive to pay to the Company in cash such amount as may be required to satisfy such withholding obligations and/or (iii) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 11 12 10.6 Waiver of Breach: Attorneys' Fees. The waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties to this Agreement will be entitled to enforce its respective rights under this Agreement and to exercise all other rights existing in its favor. In the event either party takes legal action or commences an arbitration proceeding to enforce any of the terms or provisions of this Agreement, the nonprevailing party shall pay the successful party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action or proceeding. 10.7 Governing Law. This Agreement shall be governed by, construed, applied and enforced in accordance with the laws of the state of California, except that no doctrine of choice of law shall be used to apply any law other than that of California, and no defense, counterclaim or right of set-off given or allowed by the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, ordinance or decree of any foreign jurisdiction, shall be interposed in any action hereon. 10.8 Specific Performance. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Section 8 of this Agreement and that the Company may in its sole discretion apply for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of such provisions of this Agreement. 10.9 Forum. The Executive and the Company agree that the Bankruptcy Court shall have exclusive jurisdiction over any action or proceeding arising out of this Agreement and enter judgment thereon. The Executive and the Company consent to in personam jurisdiction with respect to the Bankruptcy Court, agree that venue will be proper in such courts and waive any objections based upon forum non conveniens. The choice of forum set forth in this Section 10.9 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce same in any other jurisdiction. 10.10 Assignment: Third Parties. The Executive may not assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his respective rights or obligations hereunder, without the prior written consent of the Company. Except as expressly provided herein, the Company may not assign or transfer this Agreement or any of its rights or obligations hereunder, without the prior written consent of the Executive. The Company may assign its rights and obligations hereunder to its successor in connection with a merger, consolidation, sale of assets, acquisition, recapitalization or 12 13 other similar transaction (and such successor shall thereafter be deemed the "Company" for purposes of this Agreement). The provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the respective heirs, legal representatives and successors of the parties hereto. 10.11 Prior Understandings. This Agreement, together with the exhibits and schedules attached hereto which are incorporated herein by this reference, embodies the entire understanding of the parties hereto and supersedes all other oral or written agreements or understandings between them regarding the subject matter hereof. No change, alteration or modification hereof may be made except in a writing specifically referring hereto and signed by the Executive and the Chairman of the Board of the Company or his designee. The headings in this Agreement are for convenience and reference only and shall not be construed as part of this Agreement or to limit or otherwise affect the meaning hereof. Section references refer to this Agreement unless otherwise specified. 10.12 Further Action. The Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.14 Indemnification. During the Term of Employment and thereafter, the Company shall indemnify the Executive to the fullest extent permitted by the bylaws of the Company, and the Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers, with respect to all expenses, judgments, fines, settlements and other amounts (including, without limitation, attorneys' fees) incurred or sustained by the Executive in connection with any action, suit or proceeding to which he may be made a party by reason of being or having been director, officer or employee of the Company or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. 13 14 IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: ------------------------------- E. Peter Healey COMPANY: BARRY'S JEWELERS, INC. By: ---------------------------- William D. Eberle Chairman of the Board 14 15 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - E. PETER HEALEY For the fiscal year of the Company ending as of 5/31/98, the Executive shall be entitled to an aggregate Annual Bonus of $206,250 payable in installments upon the achievement of the applicable Annual Bonus Parameters, in accordance with the following schedule:
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS --------------- ----------------------- $20,625 Total owned plus consigned inventory on hand on 12/5/97 equals or exceeds $71,175,000. $20,625 Cash deposits as of 12/26/97 plus gross accounts receivable as of 12/26/97 plus total owned and consigned inventory on hand on 12/26/97 minus accounts payable as of 12/26/97 matches or exceeds$132,618.000. $20,625 G&A expenses(1) as of 12/26/97 match or lower than $44,258,000. $20,625 Total Availability(2) at end of February 1998 of $4.1 Million and payables are maintained within agreed upon vendor terms as of February 1998. $20,625 Receipt by November 1, 1997 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by November 1, 1997 and receipt by February 28, 1998 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by February 28, 1998. $103,125 Payable if Barry's achieves projected EBITDABB(3) of $1,553,000 for the FYE 5/31/98. Such portion shall not be payable until the year-end results have been audited and any audit adjustments recorded.
- -------- (1) G&A expenses are the Category II and Category III expenses, as set forth in Schedule 4 of the Budget annexed to the Amended Cash Collateral Stipulation. (2) Total Availability is defined as excess (or deficit) availability under the borrowing base plus total cash balances, as set forth as "Adjusted Availability in Schedule 2 of the Budget annexed to the Amended Cash Collateral Stipulation. (3) EBITDABB is earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses as set forth in the income statements of the 1998 Financial Projections approved by the Board and submitted to the Committees and the Bank Group on or about November 4, 1997. 15 16 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - E. PETER HEALEY The Executive shall receive each installment of his Annual Bonus that corresponds to a particular Annual Bonus Parameter within a reasonable time after such Annual Bonus Parameter has been met; provided that in no event shall the Executive receive the installment of the Annual Bonus that is based on the EBITDABB Requirement until after the Company receives final auditing statements for the fiscal year ending on May 31, 1998. If the Company satisfies an Annual Bonus Parameter and the Executive thereby becomes entitled to the corresponding installment of his Annual Bonus, such installment shall remain payable to the Executive even if the Company fails to satisfy subsequent Annual Bonus Parameters. 16 17 APPENDIX B CONFIRMATION BONUS - E. PETER HEALEY
If Satisfaction Date (as defined in the Agreement) Occurs Amount of Confirmation Bonus - --------------------- ---------------------------- Before 5/1/98 $343,750 Between 5/1/98 and 6/30/98 $275,000 Between 7/1/98 and 9/30/98 $206,250
17 EX-10.16 7 EMPLOYMENT AGREEMENT - CHAD C. HAGGAR 1 Exhibit 10.16 EMPLOYMENT AGREEMENT (Chad Haggar) This Employment Agreement (this "Agreement") dated as of May 1, 1997 (the "Consummation Date") is made by and between Chad Haggar (the "Executive") and Barry's Jewelers, Inc., a California corporation (the "Company"). RECITALS WHEREAS, the Company and the Executive entered into an agreement as of May 1, 1997 (the Original Employment Agreement") and now wish to supersede the Original Employment Agreement pursuant to this agreement (which shall be deemed retroactive to May 1, 1997); and WHEREAS, the Executive is willing, upon the terms and conditions herein set forth, to provide services to the Company hereunder; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. Subject to Section 7, the Company hereby employs the Executive, and the Executive hereby accepts such employment, during the Term of Employment, as Vice President - Operations of the Company to perform such duties and responsibilities, consistent with such position, as may be reasonably assigned to the Executive from time to time by the Company. (The definitions of capitalized terms used in this Agreement are contained in Section 9 of this Agreement.) 2. Devotion of Time. During the Term of Employment, the Executive shall perform his duties hereunder faithfully and to the best of his ability, at the principal executive office of the Company, under the direction of the Board or its designee. Except for vacations and reasonable absences due to temporary illness and incapacity, the Executive shall devote his full business time and attention to the performance of his duties hereunder. Notwithstanding the foregoing, the Executive may (i) make and manage passive personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, without seeking or obtaining approval by the Board, provided such activities and service do not materially interfere or conflict with the performance of his duties hereunder and (ii) may serve on the boards of directors of other corporations or any trade 2 association. Nothing contained herein shall require Executive to follow any directive or to perform or fail to report any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agency or authority, any court or judicial authority, or any public, private, industry, professional, regulatory or licensing authority (collectively, the "Regulations"). Executive shall act in good faith in accordance with all Regulations. 3. Term of Employment. The term of the Executive's employment hereunder shall commence on the Consummation Date and shall end on the Effective Date (such term of employment shall hereinafter be referred to as Term of Employment). This agreement shall terminate on the Effective Date, subject to the payment obligations specified herein and Section 8 hereof. Notwithstanding the foregoing, the Term of Employment may be terminated prior to the expiration thereof, by the Company pursuant to Section 7.2 or by the Executive pursuant to Section 7.3, in which event the Term of Employment shall end on the Date of Termination. 4. Compensation. During the Term of Employment, the Executive shall be compensated as follows: 4.1 Base Salary. The Company shall pay the Executive a base salary at the rate of $165,000 per annum, payable in arrears not less frequently than monthly in accordance with the normal payroll practices of the Company. Such base salary shall be subject to review each year by the Board in its sole discretion, but shall in no event be decreased from its then-existing level. The Company shall give the Bank Group and the Committees notice of any increase in the base salary. The Bank Group and Committees shall have the right to object to the increase and to have the Bankruptcy Court determine the reasonableness thereof. 4.2 Annual Bonus. In addition, the Executive shall be eligible to receive a bonus ("Annual Bonus") with respect to each fiscal year of the Company, to the extent that the Company achieves the applicable performance targets for each such year (the "Annual Bonus Parameters"); provided, however, that the Executive's aggregate Annual Bonus shall not exceed an amount equal to 50% of his base salary for such year. The Annual Bonus Parameters with respect to the Company's fiscal year ending May 31, 1998 are set forth in Appendix A hereto. The performance targets with respect to the Annual Bonus for subsequent fiscal years shall be based upon Annual Bonus Parameters to be determined by the Board and the Executive prior to the commencement of each such year. The Bank Group and Committees shall be given notice of the Annual Bonus Parameters determined by the Board and the Executive. The Bank Group and Committees shall have the right to object to the Annual Bonus Parameters 2 3 determined by the Board and the Executive with respect to any such subsequent fiscal year and to have the Bankruptcy Court determine the reasonableness thereof. Before the Company pays any portion of the Annual Bonus, the Executive shall provide a certification to the Bank Group and the Committees that the applicable Bonus Parameter has been satisfied, together with appropriate documentation, e.g., with respect to the fourth increment of the Annual Bonus Bonus for the fiscal year ending May 31, 1998, the Executive shall provide an accounts payable aging and a certification that the Company is maintaining its payables within agreed upon vendor terms. 4.3 Confirmation Bonus. In addition, the Executive shall be entitled to receive a one-time confirmation bonus (the "Confirmation Bonus"), upon (i) the entry of a confirmation order of a plan of reorganization, provided that the sole conditions to the Effective Date of the confirmed plan are tied to the performance of a person or entity other than the Company, the Executive, an employee or agent of the Company (the "Company Group"); (ii) the date such a plan of reorganization becomes effective, if the sole conditions to the Effective Date of the confirmed plan are tied to the performance by any member of the Company Group; or (iii) the date upon which the Company Group performs all the conditions to the Effective Date of the confirmed plan that are in its control, if the conditions to the Effective Date of the confirmed plan are tied both to the performance of the Company Group and to the performance of any person or entity who is not a member of the Company Group (each such date of payment under clause (i), (ii) and (iii) above shall hereinafter be referred to as a "Satisfaction Date"); provided, in each case, that the Bankruptcy Court determines that the Company has demonstrated the capacity to finance the Company's seasonal working capital requirements in the form of an asset based working capital facility that contains market advance rates and market collateral eligibility parameters; provided, further, that in order to demonstrate such capacity, the plan of reorganization need not provide for the obtaining of such facility. The amount payable as a Confirmation Bonus shall be based on when the Satisfaction Date occurs, as set forth in the Schedule attached hereto as Appendix B. The Confirmation Bonus shall be paid in a cash lump sum on the Effective Date. Notwithstanding the foregoing, no Confirmation Bonus shall be payable if the Satisfaction Date occurs after September 30, 1998. 5. Reimbursement of Expenses. During the Term of Employment, the Company shall reimburse the Executive for expenses in accordance with the Company's policies and the rules and regulations of the Internal Revenue Service. 3 4 6. Benefits. During the Term of Employment, the Executive shall be entitled to benefits, as follows: 6.1 Company Plans. The Executive shall be entitled to perquisites and benefits established by the Company, from time to time, for management of the Company (including, without limitation, health and dental insurance, disability insurance, participation in the Company's 401(k) and deferred compensation plans), subject to the policies and procedures of the Company of general applicability in effect, from time to time, regarding participation in such benefits. 6.2 Vacation. In addition, the Executive shall be entitled to three (3) weeks of paid vacation during each year. 7. Termination of Employment. 7.1 Termination Due to Death or Disability. Subject to the payments contemplated by Section 7.6, the Executive's employment by the Company shall terminate upon the death of the Executive or upon the Executive becoming Disabled. 7.2 Early Termination by the Company. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the Company (after adoption of a resolution by the Board to do so) as follows: 7.2.1 For Cause; or 7.2.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Company shall be effected by delivery by the Company to the Executive of a written notice of termination (which notice shall include a copy of the resolution adopted by the Board), specifying the Date of Termination and stating in the case of termination for Cause, the grounds which the Board has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. 7.3 Early Termination by the Executive. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the Executive, as follows: 7.3.1 For Good Reason; or 4 5 7.3.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Executive shall be effected by delivery by the Executive to the Company of a written notice of termination, specifying the Date of Termination and stating in the case of termination for Good Reason, the grounds which the Executive has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. The Company shall provide notice to the Bank Group and the Committees of such termination by the Executive. 7.4 Payments if Termination by the Company for Cause or by the Executive Without Good Reason. In the event that the Executive's employment by the Company is terminated by the Company for Cause or by the Executive without Good Reason, the Company shall be obligated to pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive). 7.5 Payments if Termination by the Company Without Cause or by the Executive For Good Reason. In the event that the Executive's employment by the Company is terminated by the Company without Cause or by the Executive for Good Reason, the Company shall be obligated to: 7.5.1 Pay to the Executive his Accrued Salary and Benefits in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.5.2 If the Company achieves the Annual Bonus Parameter that relates to the projected earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses ("EBITDABB") for the fiscal year during which the Executive's employment is terminated, pay to the Executive the full Annual Bonus with respect to the fiscal year in which such termination occurs (minus any portion of the Annual Bonus that has already been paid to the Executive with respect to the fiscal year during which the employment is terminated) in the same manner as if the Executive were still an employee of the Company; and 7.5.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. 5 6 7.6 Payment if Termination Due to Death or Disability. In the event that the Executive's employment by the Company is terminated due to the Executive's death or Disability, the Company shall be obligated to: 7.6.1 Pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.6.2 If all of the applicable Annual Bonus Parameters have been met prior to the Date of Termination, pay to the Executive the aggregate amount of any remaining Annual Bonus installments for the fiscal year, in a lump sum in cash within fourteen days after the Date of Termination; and 7.6.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. The amount of the Confirmation Bonus payable pursuant to this Section 7.6.3 shall be determined by multiplying the Confirmation Bonus otherwise payable pursuant to Section 4.3 by a fraction, the numerator of which equals the total number of calendar months that the Executive was employed by the Company starting from the Consummation Date until the Date of Termination, and the denominator of which equals the total number of calendar months from the Consummation Date until the Satisfaction Date, e.g., if the Executive was employed for nine months from the Consummation Date and the Satisfaction Date occurred twelve months after the Consummation Date, then the Executive would receive a pro rated Confirmation Bonus equal to 3/4 (9/12) of the total amount that would have been payable to the Executive pursuant to Section 4.3 had he still been employed on the Effective Date. For purposes of the foregoing calculation, any fraction of a calendar month shall be deemed to be an entire calendar month. The payments described in this Section 7.6 shall be in addition to any life insurance and disability benefits payable to the Executive from the Company. 7.7 No Additional Severance Payments. Except for the payments provided in this Section 7, the Executive shall not be entitled to any payments by the Company in the event of the termination of his employment. In such event, the Executive shall have no obligation to seek other employment to mitigate damages and any income earned by the Executive from other employment or 6 7 self-employment shall not be offset against any of the Company's payment obligations under this Section 7. 8. Confidential Information. 8.1 Nondisclosure of Confidential Information. During and after the Term of Employment, Executive will not disclose to any person, or use or otherwise exploit for the Executive's own benefit or for the benefit of anyone other than the Company, any Confidential Information of the Company, whether prepared by the Executive or not. At the request of the Company, the Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. The Executive agrees that all Confidential Information of the Company (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Company (and not to the Executive). The Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. 8.2 Exceptions to Nondisclosure Obligations. The information provisions of Section 8.1 shall not apply to (I) information disclosed in the performance of the Executive's duties to the Company based on his good faith belief that such disclosure is in the best interests of Company; (ii) information that is public knowledge; (iii) information disseminated by the Company to third parties in the ordinary course of business; (iv) information lawfully received by the Executive from a third party who, based upon inquiry by the Executive, is not bound by a confidential relationship to the Company; (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over the Executive; or (vi) information necessary in order to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or any of its affiliated companies. 8.3 Survival of Nondisclosure Obligations. The terms of this Section 8 shall survive the termination of this Agreement regardless of who terminates this Agreement or the reasons therefor. 9. Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in this Section 9. "Accrued Salary and Benefits" means, as of the applicable date, the sum of (i) the Executive's base salary under Section 4.1 through such date to the extent not theretofore paid, (ii) any earned but unpaid Annual Bonus and Confirmation Bonus payments, and (iii) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of such date to the extent not theretofore paid. 7 8 "Annual Bonus" is defined in Section 4.2. "Annual Bonus Parameters" is defined in section 4.2. "Bank Group" means those financial institutions comprised of Bank Boston, N.A., Jackson National Life Insurance Company, The Long Horizon Fund, L.P., and the CIT Group/Business Credit, Inc., or their respective successors and assigns. "Bankruptcy Court" means the United States Bankruptcy Court for the District in which the Company's bankruptcy case is pending or, if such court ceases to exercise jurisdiction over such case, such court or adjunct thereof that exercises jurisdiction over such case in lieu of the United States Bankruptcy Court for such District. "Board" is defined in Section 1. "Cause" shall mean any of the following: (i) The Executive's conviction for, or plea of nolo contendere to, any felony: (ii) The Executive's willful fraud or material dishonesty in connection with the Executive's performance of his duties hereunder; (iii) The Executive's failure, other than due to illness, disability or death or as a result of any event that constitutes Good Reason hereunder, to substantially perform his duties hereunder that results in material harm to the Company; or (iv) The Executive's gross negligence in the performance of his duties hereunder (other than arising solely due to physical or mental disability) that results in material harm to the Company; in each case, for purposes of clauses (iii) and (iv), after the Board has provided the Executive with 30 days' written notice of such circumstances and the possibility of an event giving rise to termination for Cause, and the Executive fails to cure such circumstances within those 30 days. "Change of Control" shall mean the occurrence of (i) a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation or as a result of which it is the surviving corporation and its outstanding voting securities are converted to or reclassified as cash, securities of another corporation or other property (unless the principal purpose of such transaction is to change the state of the Company's incorporation), (ii) upon a sale of assets of the Company or its subsidiaries having a fair market value equal to more than 50% of the total fair market value of the Company's assets to an entity which is not controlling, controlled by or under common control with the Company (including, without limitation, such a sale pursuant to 8 9 section 363 of the Bankruptcy Code), or (iii) the acquisition of a record or beneficial interest in more than 30% of the then outstanding voting securities of the Company, either in a single transaction or a series of transactions, by an entity or "group" within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder which is not an affiliate of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committees" shall mean any official committee appointed by the Office of the United States Trustee and continuing to exist in the Company's reorganization case and the committee of bondholders even if it ceases to be an official committee. "Company" is defined in the introduction. "Confidential Information" means any confidential information of the Company including, without limitation, any study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source or object codes), processes, procedures, formulas, improvements of other proprietary or intellectual property of the Company or relating to its business, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof, whether existing now or hereafter discovered or developed. "Confirmation Bonus" is defined in Section 4.3. "Confirmation Date" shall mean the date on which the Bankruptcy Court's order approving a plan of reorganization with respect to the Company is entered on the docket. "Consummation Date" is defined in the introduction. "Date of Termination" means (i) in the event of a termination of the Executive's employment pursuant to Section 7.2, the date specified in the written notice of termination from the Company, (ii) in the event of a termination of the Executive's employment pursuant to Section 7.3, the date specified in the written notice of termination from the Executive, (iii) in the event of the Executive's death, the date of the Executive's death and (iv) in the event of the Executive's Disability, the date he is determined to be Disabled. 9 10 "Disabled" or "Disability" means, with respect to the Executive, the occurrence of an event or events that renders the Executive with respect to his physical or mental condition unable to perform, in the view of the Board and as certified in writing by a competent medical physician, his duties hereunder and which results in his being entitled to benefits under the Company's disability insurance plan. "Effective Date" Shall mean the date on which the plan of reorganization with respect to the Company becomes effective. "Executive" means Chad Haggar or his estate, if deceased. "Good Reason" means any of the following: (i) Any termination by the Executive within twelve (12) months following the occurrence of a Change in Control; or (ii) A material breach by the Company of the penultimate sentence of Section 2 of this Agreement, provided that such breach was not caused by any action or inaction over which the Executive had ultimate control. 10. General. 10.1 Notice. Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner). If to Executive: Chad Haggar 8933 Gladbeck Avenue Northridge, CA 91324 If to Company: Barry's Jewelers, Inc. 111 West Lemon Avenue Monrovia, California 91016 Attn: CEO Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 10.2 Executive's Representations. The Executive hereby warrants and represents to the Company that the Executive has carefully reviewed this Agreement, including his obligations hereunder, and has consulted with such attorneys and advisors as the Executive considers appropriate in connection with this Agreement, and is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of the Executive's prior 10 11 employment which would be breached or violated by the Executive's execution of this Agreement or by the Executive's performance of his duties hereunder. 10.3 Validity. If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 10.4 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 10.5 Tax Withholding. The Company shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Company to or for the benefit of the Executive under this Agreement or otherwise. The Company may, at its option: (i) withhold such taxes from any cash payments owing from the Company to the Executive, (ii) require the Executive to pay to the Company in cash such amount as may be required to satisfy such withholding obligations and/or (iii) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 10.6 Waiver of Breach: Attorneys' Fees. The waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties to this Agreement will be entitled to enforce its respective rights under this Agreement and to exercise all other rights existing in its favor. In the event either party takes legal action or commences an arbitration proceeding to enforce any of the terms or provisions of this Agreement, the nonprevailing party shall pay the successful party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action or proceeding. 10.7 Governing Law. This Agreement shall be governed by, construed, applied and enforced in accordance with the laws of the state of California, except that no doctrine of choice of law shall be used to apply any law other than that of California, and no defense, counterclaim or right of set-off given or allowed by the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, 11 12 ordinance or decree of any foreign jurisdiction, shall be interposed in any action hereon. 10.8 Specific Performance. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Section 8 of this Agreement and that the Company may in its sole discretion apply for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of such provisions of this Agreement. 10.9 Forum. The Executive and the Company agree that the Bankruptcy Court shall have exclusive jurisdiction over any action or proceeding arising out of this Agreement and enter judgment thereon. The Executive and the Company consent to in personam jurisdiction with respect to the Bankruptcy Court, agree that venue will be proper in such courts and waive any objections based upon forum non conveniens. The choice of forum set forth in this Section 10.9 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce same in any other jurisdiction. 10.10 Assignment: Third Parties. The Executive may not assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his respective rights or obligations hereunder, without the prior written consent of the Company. Except as expressly provided herein, the Company may not assign or transfer this Agreement or any of its rights or obligations hereunder, without the prior written consent of the Executive. The Company may assign its rights and obligations hereunder to its successor in connection with a merger, consolidation, sale of assets, acquisition, recapitalization or other similar transaction (and such successor shall thereafter be deemed the "Company" for purposes of this Agreement). The provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the respective heirs, legal representatives and successors of the parties hereto. 10.11 Prior Understandings. This Agreement, together with the exhibits and schedules attached hereto which are incorporated herein by this reference, embodies the entire understanding of the parties hereto and supersedes all other oral or written agreements or understandings between them regarding the subject matter hereof. No change, alteration or modification hereof may be made except in a writing specifically referring hereto and signed by the Executive and the Chairman of the Board of the Company or his designee. The headings in this Agreement are for convenience and reference only and shall not be construed as part of this Agreement or to limit or otherwise affect the meaning hereof. Section references refer to this Agreement unless otherwise specified. 12 13 10.12 Further Action. The Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.14 Indemnification. During the Term of Employment and thereafter, the Company shall indemnify the Executive to the fullest extent permitted by the bylaws of the Company, and the Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers, with respect to all expenses, judgments, fines, settlements and other amounts (including, without limitation, attorneys' fees) incurred or sustained by the Executive in connection with any action, suit or proceeding to which he may be made a party by reason of being or having been director, officer or employee of the Company or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. 13 14 IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: ------------------------- Chad Haggar COMPANY: BARRY'S JEWELERS, INC. By: ____________________ Randy McCullough Chief Executive Officer 14 15 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - CHAD HAGGAR For the fiscal year of the Company ending as of 5/31/98, the Executive shall be entitled to an aggregate Annual Bonus of $8,250.00 payable in installments upon the achievement of the applicable Annual Bonus Parameters, in accordance with the following schedule:
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS --------------- ----------------------- $8,250 Total owned plus consigned inventory on hand on 12/5/97 equals or exceeds $71,175,000. $8,250 Cash deposits as of 12/26/97 plus gross accounts receivable as of 12/26/97 plus total owned and consigned inventory on hand on 12/26/97 minus accounts payable as of 12/26/97 matches or exceeds $132,618.000. $8,250 G&A expenses(1) as of 12/26/97 match or lower than $44,258,000. $8,250 Total Availability(2) at end of February 1998 of $4.1 Million and payables are maintained within agreed upon vendor terms as of February 1998. $20,625 Receipt by November 1, 1997 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by November 1, 1997 and receipt by February 28, 1998 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by February 28, 1998. $41,250 Payable if Barry's achieves projected EBITDABB(3) of $1,553,000 for the FYE 5/31/98. Such portion shall not be payable until the year-end results have been audited and any audit adjustments recorded.
- -------------------------------- (1) G&A expenses are the Category II and Category III expenses, as set forth in Schedule 4 of the Budget annexed to the Amended Cash Collateral Stipulation. (2) Total Availability is defined as excess (or deficit) availability under the borrowing base plus total cash balances, as set forth as "Adjusted Availability in Schedule 2 of the Budget annexed to the Amended Cash Collateral Stipulation. (3) EBITDABB is earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses as set forth in the income statements of the 1998 Financial Projections approved by the Board and submitted to the Committees and the Bank Group on or about November 4, 1997. 15 16 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - CHAD HAGGAR The Executive shall receive each installment of his Annual Bonus that corresponds to a particular Annual Bonus Parameter within a reasonable time after such Annual Bonus Parameter has been met; provided that in no event shall the Executive receive the installment of the Annual Bonus that is based on the EBITDABB Requirement until after the Company receives final auditing statements for the fiscal year ending on May 31, 1998. If the Company satisfies an Annual Bonus Parameter and the Executive thereby becomes entitled to the corresponding installment of his Annual Bonus, such installment shall remain payable to the Executive even if the Company fails to satisfy subsequent Annual Bonus Parameters. 16 17 APPENDIX B CONFIRMATION BONUS - CHAD HAGGAR
If Satisfaction Date (as defined in the Agreement) Occurs Amount of Confirmation Bonus - --------------------- ---------------------------- Before 5/1/98 $206,250 Between 5/1/98 and 6/30/98 $165,000 Between 7/1/98 and 9/30/98 $123,750
17 EX-10.17 8 EMPLOYMENT AGREEMENT - BILL R. EDGEL 1 Exhibit 10.17 EMPLOYMENT AGREEMENT (Bill Edgel) This Employment Agreement (this "Agreement") dated as of May 1, 1997 (the "Consummation Date") is made by and between Bill Edgel (the "Executive") and Barry's Jewelers, Inc., a California corporation (the "Company"). RECITALS WHEREAS, the Company and the Executive entered into an agreement as of May 1, 1997 (the Original Employment Agreement") and now wish to supersede the Original Employment Agreement pursuant to this agreement (which shall be deemed retroactive to May 1, 1997); and WHEREAS, the Executive is willing, upon the terms and conditions herein set forth, to provide services to the Company hereunder; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. Subject to Section 7, the Company hereby employs the Executive, and the Executive hereby accepts such employment, during the Term of Employment, as Vice President - Marketing of the Company to perform such duties and responsibilities, consistent with such position, as may be reasonably assigned to the Executive from time to time by the Company. (The definitions of capitalized terms used in this Agreement are contained in Section 9 of this Agreement.) 2. Devotion of Time. During the Term of Employment, the Executive shall perform his duties hereunder faithfully and to the best of his ability, at the principal executive office of the Company, under the direction of the Board or its designee. Except for vacations and reasonable absences due to temporary illness and incapacity, the Executive shall devote his full business time and attention to the performance of his duties hereunder. Notwithstanding the foregoing, the Executive may (i) make and manage passive personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, without seeking or obtaining approval by the Board, provided such activities and service do not materially interfere or conflict with the performance of his duties hereunder and (ii) may serve on the boards of directors of other corporations or any trade association. Nothing contained herein shall require Executive to follow any directive or to perform or fail to report any act which would violate any laws, ordinances, regulations or rules of 2 any governmental, regulatory or administrative body, agency or authority, any court or judicial authority, or any public, private, industry, professional, regulatory or licensing authority (collectively, the "Regulations"). Executive shall act in good faith in accordance with all Regulations. 3. Term of Employment. The term of the Executive's employment hereunder shall commence on the Consummation Date and shall end on the Effective Date (such term of employment shall hereinafter be referred to as Term of Employment). This agreement shall terminate on the Effective Date, subject to the payment obligations specified herein and Section 8 hereof. Notwithstanding the foregoing, the Term of Employment may be terminated prior to the expiration thereof, by the Company pursuant to Section 7.2 or by the Executive pursuant to Section 7.3, in which event the Term of Employment shall end on the Date of Termination. 4. Compensation. During the Term of Employment, the Executive shall be compensated as follows: 4.1 Base Salary. The Company shall pay the Executive a base salary at the rate of $120,000 per annum, payable in arrears not less frequently than monthly in accordance with the normal payroll practices of the Company. Such base salary shall be subject to review each year by the Board in its sole discretion, but shall in no event be decreased from its then-existing level. The Company shall give the Bank Group and the Committees notice of any increase in the base salary. The Bank Group and Committees shall have the right to object to the increase and to have the Bankruptcy Court determine the reasonableness thereof. 4.2 Annual Bonus. In addition, the Executive shall be eligible to receive a bonus ("Annual Bonus") with respect to each fiscal year of the Company, to the extent that the Company achieves the applicable performance targets for each such year (the "Annual Bonus Parameters"); provided, however, that the Executive's aggregate Annual Bonus shall not exceed an amount equal to 33% of his base salary for such year. The Annual Bonus Parameters with respect to the Company's fiscal year ending May 31, 1998 are set forth in Appendix A hereto. The performance targets with respect to the Annual Bonus for subsequent fiscal years shall be based upon Annual Bonus Parameters to be determined by the Board and the Executive prior to the commencement of each such year. The Bank Group and Committees shall be given notice of the Annual Bonus Parameters determined by the Board and the Executive. The Bank Group and Committees shall have the right to object to the Annual Bonus Parameters determined by the Board and the Executive with respect to any such subsequent fiscal year and to have the Bankruptcy Court determine the reasonableness thereof. Before the Company pays 2 3 any portion of the Annual Bonus, the Executive shall provide a certification to the Bank Group and the Committees that the applicable Bonus Parameter has been satisfied, together with appropriate documentation, e.g., with respect to the fourth increment of the Annual Bonus Bonus for the fiscal year ending May 31, 1998, the Executive shall provide an accounts payable aging and a certification that the Company is maintaining its payables within agreed upon vendor terms. 4.3 Confirmation Bonus. In addition, the Executive shall be entitled to receive a one-time confirmation bonus (the "Confirmation Bonus"), upon (i) the entry of a confirmation order of a plan of reorganization, provided that the sole conditions to the Effective Date of the confirmed plan are tied to the performance of a person or entity other than the Company, the Executive, an employee or agent of the Company (the "Company Group"); (ii) the date such a plan of reorganization becomes effective, if the sole conditions to the Effective Date of the confirmed plan are tied to the performance by any member of the Company Group; or (iii) the date upon which the Company Group performs all the conditions to the Effective Date of the confirmed plan that are in its control, if the conditions to the Effective Date of the confirmed plan are tied both to the performance of the Company Group and to the performance of any person or entity who is not a member of the Company Group (each such date of payment under clause (i), (ii) and (iii) above shall hereinafter be referred to as a "Satisfaction Date"); provided, in each case, that the Bankruptcy Court determines that the Company has demonstrated the capacity to finance the Company's seasonal working capital requirements in the form of an asset based working capital facility that contains market advance rates and market collateral eligibility parameters; provided, further, that in order to demonstrate such capacity, the plan of reorganization need not provide for the obtaining of such facility. The amount payable as a Confirmation Bonus shall be based on when the Satisfaction Date occurs, as set forth in the Schedule attached hereto as Appendix B. The Confirmation Bonus shall be paid in a cash lump sum on the Effective Date. Notwithstanding the foregoing, no Confirmation Bonus shall be payable if the Satisfaction Date occurs after September 30, 1998. 5. Reimbursement of Expenses. During the Term of Employment, the Company shall reimburse the Executive for expenses in accordance with the Company's policies and the rules and regulations of the Internal Revenue Service. 3 4 6. Benefits. During the Term of Employment, the Executive shall be entitled to benefits, as follows: 6.1 Company Plans. The Executive shall be entitled to perquisites and benefits established by the Company, from time to time, for management of the Company (including, without limitation, health and dental insurance, disability insurance, participation in the Company's 401(k) and deferred compensation plans), subject to the policies and procedures of the Company of general applicability in effect, from time to time, regarding participation in such benefits. 6.2 Vacation. In addition, the Executive shall be entitled to three (3) weeks of paid vacation during each year. 6.3 Relocation Allowance. In addition, the Company shall pay the Executive a relocation allowance equal to the lesser of (i) ten percent of his annual base salary and (ii) the actual cost of the Executive's relocation to Los Angeles, at such time as the Executive leases or purchases a residence in the Los Angeles area. 7. Termination of Employment. 7.1 Termination Due to Death or Disability. Subject to the payments contemplated by Section 7.6, the Executive's employment by the Company shall terminate upon the death of the Executive or upon the Executive becoming Disabled. 7.2 Early Termination by the Company. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the Company (after adoption of a resolution by the Board to do so) as follows: 7.2.1 For Cause; or 7.2.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Company shall be effected by delivery by the Company to the Executive of a written notice of termination (which notice shall include a copy of the resolution adopted by the Board), specifying the Date of Termination and stating in the case of termination for Cause, the grounds which the Board has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. 7.3 Early Termination by the Executive. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's 4 5 employment by the Company may be terminated at any time by the Executive, as follows: 7.3.1 For Good Reason; or 7.3.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Executive shall be effected by delivery by the Executive to the Company of a written notice of termination, specifying the Date of Termination and stating in the case of termination for Good Reason, the grounds which the Executive has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. The Company shall provide notice to the Bank Group and the Committees of such termination by the Executive. 7.4 Payments if Termination by the Company for Cause or by the Executive Without Good Reason. In the event that the Executive's employment by the Company is terminated by the Company for Cause or by the Executive without Good Reason, the Company shall be obligated to pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive). 7.5 Payments if Termination by the Company Without Cause or by the Executive For Good Reason. In the event that the Executive's employment by the Company is terminated by the Company without Cause or by the Executive for Good Reason, the Company shall be obligated to: 7.5.1 Pay to the Executive his Accrued Salary and Benefits in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.5.2 If the Company achieves the Annual Bonus Parameter that relates to the projected earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses ("EBITDABB") for the fiscal year during which the Executive's employment is terminated, pay to the Executive the full Annual Bonus with respect to the fiscal year in which such termination occurs (minus any portion of the Annual Bonus that has already been paid to the Executive with respect to the fiscal year during which the employment is terminated) in the same manner as if the Executive were still an employee of the Company; and 5 6 7.5.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. 7.6 Payment if Termination Due to Death or Disability. In the event that the Executive's employment by the Company is terminated due to the Executive's death or Disability, the Company shall be obligated to: 7.6.1 Pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.6.2 If all of the applicable Annual Bonus Parameters have been met prior to the Date of Termination, pay to the Executive the aggregate amount of any remaining Annual Bonus installments for the fiscal year, in a lump sum in cash within fourteen days after the Date of Termination; and 7.6.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. The amount of the Confirmation Bonus payable pursuant to this Section 7.6.3 shall be determined by multiplying the Confirmation Bonus otherwise payable pursuant to Section 4.3 by a fraction, the numerator of which equals the total number of calendar months that the Executive was employed by the Company starting from the Consummation Date until the Date of Termination, and the denominator of which equals the total number of calendar months from the Consummation Date until the Satisfaction Date, e.g., if the Executive was employed for nine months from the Consummation Date and the Satisfaction Date occurred twelve months after the Consummation Date, then the Executive would receive a pro rated Confirmation Bonus equal to 3/4 (9/12) of the total amount that would have been payable to the Executive pursuant to Section 4.3 had he still been employed on the Effective Date. For purposes of the foregoing calculation, any fraction of a calendar month shall be deemed to be an entire calendar month. The payments described in this Section 7.6 shall be in addition to any life insurance and disability benefits payable to the Executive from the Company. 7.7 No Additional Severance Payments. Except for the payments provided in this Section 7, the Executive shall not be entitled to any payments by the Company in the event of the termination of his employment. In such event, the Executive shall 6 7 have no obligation to seek other employment to mitigate damages and any income earned by the Executive from other employment or self-employment shall not be offset against any of the Company's payment obligations under this Section 7. 8. Confidential Information. 8.1 Nondisclosure of Confidential Information. During and after the Term of Employment, Executive will not disclose to any person, or use or otherwise exploit for the Executive's own benefit or for the benefit of anyone other than the Company, any Confidential Information of the Company, whether prepared by the Executive or not. At the request of the Company, the Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. The Executive agrees that all Confidential Information of the Company (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Company (and not to the Executive). The Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. 8.2 Exceptions to Nondisclosure Obligations. The information provisions of Section 8.1 shall not apply to (I) information disclosed in the performance of the Executive's duties to the Company based on his good faith belief that such disclosure is in the best interests of Company; (ii) information that is public knowledge; (iii) information disseminated by the Company to third parties in the ordinary course of business; (iv) information lawfully received by the Executive from a third party who, based upon inquiry by the Executive, is not bound by a confidential relationship to the Company; (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over the Executive; or (vi) information necessary in order to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or any of its affiliated companies. 8.3 Survival of Nondisclosure Obligations. The terms of this Section 8 shall survive the termination of this Agreement regardless of who terminates this Agreement or the reasons therefor. 9. Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in this Section 9. "Accrued Salary and Benefits" means, as of the applicable date, the sum of (i) the Executive's base salary under Section 4.1 through such date to the extent not theretofore paid, (ii) any earned but unpaid Annual Bonus and Confirmation Bonus payments, and (iii) any vacation pay, expense reimbursements and 7 8 other cash entitlements accrued by the Executive as of such date to the extent not theretofore paid. "Annual Bonus" is defined in Section 4.2. "Annual Bonus Parameters" is defined in section 4.2. "Bank Group" means those financial institutions comprised of Bank Boston, N.A., Jackson National Life Insurance Company, The Long Horizon Fund, L.P., and the CIT Group/Business Credit, Inc., or their respective successors and assigns. "Bankruptcy Court" means the United States Bankruptcy Court for the District in which the Company's bankruptcy case is pending or, if such court ceases to exercise jurisdiction over such case, such court or adjunct thereof that exercises jurisdiction over such case in lieu of the United States Bankruptcy Court for such District. "Board" is defined in Section 1. "Cause" shall mean any of the following: (i) The Executive's conviction for, or plea of nolo contendere to, any felony: (ii) The Executive's willful fraud or material dishonesty in connection with the Executive's performance of his duties hereunder; (iii) The Executive's failure, other than due to illness, disability or death or as a result of any event that constitutes Good Reason hereunder, to substantially perform his duties hereunder that results in material harm to the Company; or (iv) The Executive's gross negligence in the performance of his duties hereunder (other than arising solely due to physical or mental disability) that results in material harm to the Company; in each case, for purposes of clauses (iii) and (iv), after the Board has provided the Executive with 30 days' written notice of such circumstances and the possibility of an event giving rise to termination for Cause, and the Executive fails to cure such circumstances within those 30 days. "Change of Control" shall mean the occurrence of (i) a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation or as a result of which it is the surviving corporation and its outstanding voting securities are converted to or reclassified as cash, securities of another corporation or other property (unless the principal purpose of such transaction is to change the state of the Company's incorporation), (ii) upon a sale of assets of the Company or its subsidiaries having a fair market value equal to more than 50% of the total fair market 8 9 value of the Company's assets to an entity which is not controlling, controlled by or under common control with the Company (including, without limitation, such a sale pursuant to section 363 of the Bankruptcy Code), or (iii) the acquisition of a record or beneficial interest in more than 30% of the then outstanding voting securities of the Company, either in a single transaction or a series of transactions, by an entity or "group" within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder which is not an affiliate of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committees" shall mean any official committee appointed by the Office of the United States Trustee and continuing to exist in the Company's reorganization case and the committee of bondholders even if it ceases to be an official committee. "Company" is defined in the introduction. "Confidential Information" means any confidential information of the Company including, without limitation, any study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source or object codes), processes, procedures, formulas, improvements of other proprietary or intellectual property of the Company or relating to its business, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof, whether existing now or hereafter discovered or developed. "Confirmation Bonus" is defined in Section 4.3. "Confirmation Date" shall mean the date on which the Bankruptcy Court's order approving a plan of reorganization with respect to the Company is entered on the docket. "Consummation Date" is defined in the introduction. "Date of Termination" means (i) in the event of a termination of the Executive's employment pursuant to Section 7.2, the date specified in the written notice of termination from the Company, (ii) in the event of a termination of the Executive's employment pursuant to Section 7.3, the date specified in the written notice of termination from the 9 10 Executive, (iii) in the event of the Executive's death, the date of the Executive's death and (iv) in the event of the Executive's Disability, the date he is determined to be Disabled. "Disabled" or "Disability" means, with respect to the Executive, the occurrence of an event or events that renders the Executive with respect to his physical or mental condition unable to perform, in the view of the Board and as certified in writing by a competent medical physician, his duties hereunder and which results in his being entitled to benefits under the Company's disability insurance plan. "Effective Date" Shall mean the date on which the plan of reorganization with respect to the Company becomes effective. "Executive" means Bill Edgel or his estate, if deceased. "Good Reason" means any of the following: (i) Any termination by the Executive within twelve (12) months following the occurrence of a Change in Control; or (ii) A material breach by the Company of the penultimate sentence of Section 2 of this Agreement, provided that such breach was not caused by any action or inaction over which the Executive had ultimate control. 10. General. 10.1 Notice. Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner). If to Executive: Bill Edgel 2044 Rapallo Way Bay Point, CA 94565 If to Company: Barry's Jewelers, Inc. 111 West Lemon Avenue Monrovia, California 91016 Attn: CEO Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 10.2 Executive's Representations. The Executive hereby warrants and represents to the Company that the Executive has carefully reviewed this Agreement, including his obligations hereunder, and has consulted with such attorneys and advisors as the Executive considers appropriate in connection with this 10 11 Agreement, and is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of the Executive's prior employment which would be breached or violated by the Executive's execution of this Agreement or by the Executive's performance of his duties hereunder. 10.3 Validity. If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 10.4 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 10.5 Tax Withholding. The Company shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Company to or for the benefit of the Executive under this Agreement or otherwise. The Company may, at its option: (i) withhold such taxes from any cash payments owing from the Company to the Executive, (ii) require the Executive to pay to the Company in cash such amount as may be required to satisfy such withholding obligations and/or (iii) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 10.6 Waiver of Breach: Attorneys' Fees. The waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties to this Agreement will be entitled to enforce its respective rights under this Agreement and to exercise all other rights existing in its favor. In the event either party takes legal action or commences an arbitration proceeding to enforce any of the terms or provisions of this Agreement, the nonprevailing party shall pay the successful party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action or proceeding. 10.7 Governing Law. This Agreement shall be governed by, construed, applied and enforced in accordance with the laws of the state of California, except that no doctrine of choice of law shall be used to apply any law other than that of California, and no defense, counterclaim or right of set-off given or allowed by 11 12 the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, ordinance or decree of any foreign jurisdiction, shall be interposed in any action hereon. 10.8 Specific Performance. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Section 8 of this Agreement and that the Company may in its sole discretion apply for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of such provisions of this Agreement. 10.9 Forum. The Executive and the Company agree that the Bankruptcy Court shall have exclusive jurisdiction over any action or proceeding arising out of this Agreement and enter judgment thereon. The Executive and the Company consent to in personam jurisdiction with respect to the Bankruptcy Court, agree that venue will be proper in such courts and waive any objections based upon forum non conveniens. The choice of forum set forth in this Section 10.9 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce same in any other jurisdiction. 10.10 Assignment: Third Parties. The Executive may not assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his respective rights or obligations hereunder, without the prior written consent of the Company. Except as expressly provided herein, the Company may not assign or transfer this Agreement or any of its rights or obligations hereunder, without the prior written consent of the Executive. The Company may assign its rights and obligations hereunder to its successor in connection with a merger, consolidation, sale of assets, acquisition, recapitalization or other similar transaction (and such successor shall thereafter be deemed the "Company" for purposes of this Agreement). The provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the respective heirs, legal representatives and successors of the parties hereto. 10.11 Prior Understandings. This Agreement, together with the exhibits and schedules attached hereto which are incorporated herein by this reference, embodies the entire understanding of the parties hereto and supersedes all other oral or written agreements or understandings between them regarding the subject matter hereof. No change, alteration or modification hereof may be made except in a writing specifically referring hereto and signed by the Executive and the Chairman of the Board of the Company or his designee. The headings in this Agreement are for convenience and reference only and shall not be construed as part of this Agreement or to limit or otherwise affect the meaning 12 13 hereof. Section references refer to this Agreement unless otherwise specified. 10.12 Further Action. The Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.14 Indemnification. During the Term of Employment and thereafter, the Company shall indemnify the Executive to the fullest extent permitted by the bylaws of the Company, and the Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers, with respect to all expenses, judgments, fines, settlements and other amounts (including, without limitation, attorneys' fees) incurred or sustained by the Executive in connection with any action, suit or proceeding to which he may be made a party by reason of being or having been director, officer or employee of the Company or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. 13 14 IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: ---------------------------- Bill Edgel COMPANY: BARRY'S JEWELERS, INC. By: ------------------------ Randy McCullough Chief Executive Officer 14 15 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - BILL EDGEL For the fiscal year of the Company ending as of 5/31/98, the Executive shall be entitled to an aggregate Annual Bonus of $4,000.00 payable in installments upon the achievement of the applicable Annual Bonus Parameters, in accordance with the following schedule:
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS --------------- ----------------------- $4,000 Total owned plus consigned inventory on hand on 12/5/97 equals or exceeds $71,175,000. $4,000 Cash deposits as of 12/26/97 plus gross accounts receivable as of 12/26/97 plus total owned and consigned inventory on hand on 12/26/97 minus accounts payable as of 12/26/97 matches or exceeds$132,618.000. $4,000 G&A expenses(1) as of 12/26/97 match or lower than $44,258,000. $4,000 Total Availability(2) at end of February 1998 of $4.1 Million and payables are maintained within agreed upon vendor terms as of February 1998. $20,000 Receipt by November 1, 1997 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by November 1, 1997 and receipt by February 28, 1998 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by February 28, 1998. $41,250 Payable if Barry's achieves projected EBITDABB(3) of $1,553,000 for the FYE 5/31/98. Such portion shall not be payable until the year- end results have been audited and any audit adjustments recorded.
- ------------------ (1) G&A expenses are the Category II and Category III expenses, as set forth in Schedule 4 of the Budget annexed to the Amended Cash Collateral Stipulation. (2) Total Availability is defined as excess (or deficit) availability under the borrowing base plus total cash balances, as set forth as "Adjusted Availability in Schedule 2 of the Budget annexed to the Amended Cash Collateral Stipulation. (3) EBITDABB is earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses as set forth in the income statements of the 1998 Financial Projections approved by the Board and submitted to the Committees and the Bank Group on or about November 4, 1997. 15 16 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - BILL EDGEL The Executive shall receive each installment of his Annual Bonus that corresponds to a particular Annual Bonus Parameter within a reasonable time after such Annual Bonus Parameter has been met; provided that in no event shall the Executive receive the installment of the Annual Bonus that is based on the EBITDABB Requirement until after the Company receives final auditing statements for the fiscal year ending on May 31, 1998. If the Company satisfies an Annual Bonus Parameter and the Executive thereby becomes entitled to the corresponding installment of his Annual Bonus, such installment shall remain payable to the Executive even if the Company fails to satisfy subsequent Annual Bonus Parameters. 16 17 APPENDIX B CONFIRMATION BONUS - BILL EDGEL
If Satisfaction Date (as defined in the Agreement) Occurs Amount of Confirmation Bonus --------------------- ---------------------------- Before 5/1/98 $150,000 Between 5/1/98 and 6/30/98 $120,000 Between 7/1/98 and 9/30/98 $90,000
17 EX-10.18 9 EMPLOYMENT AGREEMENT - PAUL W. HART 1 Exhibit 10.18 EMPLOYMENT AGREEMENT (Paul Hart) This Employment Agreement (this "Agreement") dated as of May 1, 1997 (the "Consummation Date") is made by and between Paul Hart (the "Executive") and Barry's Jewelers, Inc., a California corporation (the "Company"). RECITALS WHEREAS, the Company and the Executive entered into an agreement as of May 1, 1997 (the Original Employment Agreement") and now wish to supersede the Original Employment Agreement pursuant to this agreement (which shall be deemed retroactive to May 1, 1997); and WHEREAS, the Executive is willing, upon the terms and conditions herein set forth, to provide services to the Company hereunder; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. Subject to Section 7, the Company hereby employs the Executive, and the Executive hereby accepts such employment, during the Term of Employment, as Vice President - M.I.S. of the Company to perform such duties and responsibilities, consistent with such position, as may be reasonably assigned to the Executive from time to time by the Company. (The definitions of capitalized terms used in this Agreement are contained in Section 9 of this Agreement.) 2. Devotion of Time. During the Term of Employment, the Executive shall perform his duties hereunder faithfully and to the best of his ability, at the principal executive office of the Company, under the direction of the Board or its designee. Except for vacations and reasonable absences due to temporary illness and incapacity, the Executive shall devote his full business time and attention to the performance of his duties hereunder. Notwithstanding the foregoing, the Executive may (i) make and manage passive personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, without seeking or obtaining approval by the Board, provided such activities and service do not materially interfere or conflict with the performance of his duties hereunder and (ii) may serve on the boards of directors of other corporations or any trade 2 association. Nothing contained herein shall require Executive to follow any directive or to perform or fail to report any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agency or authority, any court or judicial authority, or any public, private, industry, professional, regulatory or licensing authority (collectively, the "Regulations"). Executive shall act in good faith in accordance with all Regulations. 3. Term of Employment. The term of the Executive's employment hereunder shall commence on the Consummation Date and shall end on the Effective Date (such term of employment shall hereinafter be referred to as Term of Employment). This agreement shall terminate on the Effective Date, subject to the payment obligations specified herein and Section 8 hereof. Notwithstanding the foregoing, the Term of Employment may be terminated prior to the expiration thereof, by the Company pursuant to Section 7.2 or by the Executive pursuant to Section 7.3, in which event the Term of Employment shall end on the Date of Termination. 4. Compensation. During the Term of Employment, the Executive shall be compensated as follows: 4.1 Base Salary. The Company shall pay the Executive a base salary at the rate of $120,000 per annum, payable in arrears not less frequently than monthly in accordance with the normal payroll practices of the Company. Such base salary shall be subject to review each year by the Board in its sole discretion, but shall in no event be decreased from its then-existing level. The Company shall give the Bank Group and the Committees notice of any increase in the base salary. The Bank Group and Committees shall have the right to object to the increase and to have the Bankruptcy Court determine the reasonableness thereof. 4.2 Annual Bonus. In addition, the Executive shall be eligible to receive a bonus ("Annual Bonus") with respect to each fiscal year of the Company, to the extent that the Company achieves the applicable performance targets for each such year (the "Annual Bonus Parameters"); provided, however, that the Executive's aggregate Annual Bonus shall not exceed an amount equal to 33% of his base salary for such year. The Annual Bonus Parameters with respect to the Company's fiscal year ending May 31, 1998 are set forth in Appendix A hereto. The performance targets with respect to the Annual Bonus for subsequent fiscal years shall be based upon Annual Bonus Parameters to be determined by the Board and the Executive prior to the commencement of each such year. The Bank Group and Committees shall be given notice of the Annual Bonus Parameters determined by the Board and the Executive. The Bank Group and Committees shall have the right to object to the Annual Bonus Parameters 2 3 determined by the Board and the Executive with respect to any such subsequent fiscal year and to have the Bankruptcy Court determine the reasonableness thereof. Before the Company pays any portion of the Annual Bonus, the Executive shall provide a certification to the Bank Group and the Committees that the applicable Bonus Parameter has been satisfied, together with appropriate documentation, e.g., with respect to the fourth increment of the Annual Bonus Bonus for the fiscal year ending May 31, 1998, the Executive shall provide an accounts payable aging and a certification that the Company is maintaining its payables within agreed upon vendor terms. 4.3 Confirmation Bonus. In addition, the Executive shall be entitled to receive a one-time confirmation bonus (the "Confirmation Bonus"), upon (i) the entry of a confirmation order of a plan of reorganization, provided that the sole conditions to the Effective Date of the confirmed plan are tied to the performance of a person or entity other than the Company, the Executive, an employee or agent of the Company (the "Company Group"); (ii) the date such a plan of reorganization becomes effective, if the sole conditions to the Effective Date of the confirmed plan are tied to the performance by any member of the Company Group; or (iii) the date upon which the Company Group performs all the conditions to the Effective Date of the confirmed plan that are in its control, if the conditions to the Effective Date of the confirmed plan are tied both to the performance of the Company Group and to the performance of any person or entity who is not a member of the Company Group (each such date of payment under clause (i), (ii) and (iii) above shall hereinafter be referred to as a "Satisfaction Date"); provided, in each case, that the Bankruptcy Court determines that the Company has demonstrated the capacity to finance the Company's seasonal working capital requirements in the form of an asset based working capital facility that contains market advance rates and market collateral eligibility parameters; provided, further, that in order to demonstrate such capacity, the plan of reorganization need not provide for the obtaining of such facility. The amount payable as a Confirmation Bonus shall be based on when the Satisfaction Date occurs, as set forth in the Schedule attached hereto as Appendix B. The Confirmation Bonus shall be paid in a cash lump sum on the Effective Date. Notwithstanding the foregoing, no Confirmation Bonus shall be payable if the Satisfaction Date occurs after September 30, 1998. 5. Reimbursement of Expenses. During the Term of Employment, the Company shall reimburse the Executive for expenses in accordance with the Company's policies and the rules and regulations of the Internal Revenue Service. 3 4 6. Benefits. During the Term of Employment, the Executive shall be entitled to benefits, as follows: 6.1 Company Plans. The Executive shall be entitled to perquisites and benefits established by the Company, from time to time, for management of the Company (including, without limitation, health and dental insurance, disability insurance, participation in the Company's 401(k) and deferred compensation plans), subject to the policies and procedures of the Company of general applicability in effect, from time to time, regarding participation in such benefits. 6.2 Vacation. In addition, the Executive shall be entitled to three (3) weeks of paid vacation during each year. 6.3 Relocation Allowance. In addition, the Company shall pay the Executive a relocation allowance equal to the lesser of (i) ten percent of his annual base salary and (ii) the actual cost of the Executive's relocation to Los Angeles, at such time as the Executive leases or purchases a residence in the Los Angeles area. 7. Termination of Employment. 7.1 Termination Due to Death or Disability. Subject to the payments contemplated by Section 7.6, the Executive's employment by the Company shall terminate upon the death of the Executive or upon the Executive becoming Disabled. 7.2 Early Termination by the Company. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the Company (after adoption of a resolution by the Board to do so) as follows: 7.2.1 For Cause; or 7.2.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Company shall be effected by delivery by the Company to the Executive of a written notice of termination (which notice shall include a copy of the resolution adopted by the Board), specifying the Date of Termination and stating in the case of termination for Cause, the grounds which the Board has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. 4 5 7.3 Early Termination by the Executive. Subject to the payments contemplated by Sections 7.4 and 7.5, the Executive's employment by the Company may be terminated at any time by the Executive, as follows: 7.3.1 For Good Reason; or 7.3.2 For any other reason or no reason, it being understood that no reason is required. Such termination by the Executive shall be effected by delivery by the Executive to the Company of a written notice of termination, specifying the Date of Termination and stating in the case of termination for Good Reason, the grounds which the Executive has determined exist for such termination, and shall be subject to the requirements for advance notice and opportunity to cure provided in this Agreement, if and to the extent applicable. The Company shall provide notice to the Bank Group and the Committees of such termination by the Executive. 7.4 Payments if Termination by the Company for Cause or by the Executive Without Good Reason. In the event that the Executive's employment by the Company is terminated by the Company for Cause or by the Executive without Good Reason, the Company shall be obligated to pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive). 7.5 Payments if Termination by the Company Without Cause or by the Executive For Good Reason. In the event that the Executive's employment by the Company is terminated by the Company without Cause or by the Executive for Good Reason, the Company shall be obligated to: 7.5.1 Pay to the Executive his Accrued Salary and Benefits in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.5.2 If the Company achieves the Annual Bonus Parameter that relates to the projected earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses ("EBITDABB") for the fiscal year during which the Executive's employment is terminated, pay to the Executive the full Annual Bonus with respect to the fiscal year in which such termination occurs (minus any portion of the Annual Bonus that has already been paid to the Executive with respect to the fiscal year during 5 6 which the employment is terminated) in the same manner as if the Executive were still an employee of the Company; and 7.5.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. 7.6 Payment if Termination Due to Death or Disability. In the event that the Executive's employment by the Company is terminated due to the Executive's death or Disability, the Company shall be obligated to: 7.6.1 Pay to the Executive his Accrued Salary and Benefits, in a lump sum in cash, within five (5) business days after the Date of Termination (provided, however, that any portion of the Accrued Salary and Benefits which consists of deferred compensation or post-termination benefits shall be determined and paid in accordance with the terms of the relevant plan as applicable to the Executive); 7.6.2 If all of the applicable Annual Bonus Parameters have been met prior to the Date of Termination, pay to the Executive the aggregate amount of any remaining Annual Bonus installments for the fiscal year, in a lump sum in cash within fourteen days after the Date of Termination; and 7.6.3 Pay to the Executive a Confirmation Bonus pursuant to section 4.3 if and only if, were the Executive still an employee of the Company on the Effective Date, such Confirmation Bonus would have been payable as provided under section 4.3. The amount of the Confirmation Bonus payable pursuant to this Section 7.6.3 shall be determined by multiplying the Confirmation Bonus otherwise payable pursuant to Section 4.3 by a fraction, the numerator of which equals the total number of calendar months that the Executive was employed by the Company starting from the Consummation Date until the Date of Termination, and the denominator of which equals the total number of calendar months from the Consummation Date until the Satisfaction Date, e.g., if the Executive was employed for nine months from the Consummation Date and the Satisfaction Date occurred twelve months after the Consummation Date, then the Executive would receive a pro rated Confirmation Bonus equal to 3/4 (9/12) of the total amount that would have been payable to the Executive pursuant to Section 4.3 had he still been employed on the Effective Date. For purposes of the foregoing calculation, any fraction of a calendar month shall be deemed to be an entire calendar month. The payments described in this Section 7.6 shall be in addition to any life insurance and disability benefits payable to the Executive from the Company. 7.7 No Additional Severance Payments. Except for the payments provided in this Section 7, the Executive shall not be 6 7 entitled to any payments by the Company in the event of the termination of his employment. In such event, the Executive shall have no obligation to seek other employment to mitigate damages and any income earned by the Executive from other employment or self-employment shall not be offset against any of the Company's payment obligations under this Section 7. 8. Confidential Information. 8.1 Nondisclosure of Confidential Information. During and after the Term of Employment, Executive will not disclose to any person, or use or otherwise exploit for the Executive's own benefit or for the benefit of anyone other than the Company, any Confidential Information of the Company, whether prepared by the Executive or not. At the request of the Company, the Executive agrees to deliver to the Company, at any time during the Term of Employment, or thereafter, all Confidential Information which he may possess or control. The Executive agrees that all Confidential Information of the Company (whether now or hereafter existing) conceived, discovered or made by him during the Term of Employment exclusively belongs to the Company (and not to the Executive). The Executive will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership. 8.2 Exceptions to Nondisclosure Obligations. The information provisions of Section 8.1 shall not apply to (I) information disclosed in the performance of the Executive's duties to the Company based on his good faith belief that such disclosure is in the best interests of Company; (ii) information that is public knowledge; (iii) information disseminated by the Company to third parties in the ordinary course of business; (iv) information lawfully received by the Executive from a third party who, based upon inquiry by the Executive, is not bound by a confidential relationship to the Company; (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over the Executive; or (vi) information necessary in order to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or any of its affiliated companies. 8.3 Survival of Nondisclosure Obligations. The terms of this Section 8 shall survive the termination of this Agreement regardless of who terminates this Agreement or the reasons therefor. 9. Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in this Section 9. "Accrued Salary and Benefits" means, as of the applicable date, the sum of (i) the Executive's base salary under Section 4.1 through such date to the extent not theretofore paid, (ii) any earned but unpaid Annual Bonus and Confirmation Bonus 7 8 payments, and (iii) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of such date to the extent not theretofore paid. "Annual Bonus" is defined in Section 4.2. "Annual Bonus Parameters" is defined in section 4.2. "Bank Group" means those financial institutions comprised of Bank Boston, N.A., Jackson National Life Insurance Company, The Long Horizon Fund, L.P., and the CIT Group/Business Credit, Inc., or their respective successors and assigns. "Bankruptcy Court" means the United States Bankruptcy Court for the District in which the Company's bankruptcy case is pending or, if such court ceases to exercise jurisdiction over such case, such court or adjunct thereof that exercises jurisdiction over such case in lieu of the United States Bankruptcy Court for such District. "Board" is defined in Section 1. "Cause" shall mean any of the following: (i) The Executive's conviction for, or plea of nolo contendere to, any felony: (ii) The Executive's willful fraud or material dishonesty in connection with the Executive's performance of his duties hereunder; (iii) The Executive's failure, other than due to illness, disability or death or as a result of any event that constitutes Good Reason hereunder, to substantially perform his duties hereunder that results in material harm to the Company; or (iv) The Executive's gross negligence in the performance of his duties hereunder (other than arising solely due to physical or mental disability) that results in material harm to the Company; in each case, for purposes of clauses (iii) and (iv), after the Board has provided the Executive with 30 days' written notice of such circumstances and the possibility of an event giving rise to termination for Cause, and the Executive fails to cure such circumstances within those 30 days. "Change of Control" shall mean the occurrence of (i) a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation or as a result of which it is the surviving corporation and its outstanding voting securities are converted to or reclassified as cash, securities of another corporation or other property (unless the principal purpose of such transaction is to change the state of the Company's incorporation), (ii) upon a sale of assets of the Company or its subsidiaries having a fair market value equal to more than 50% of the total fair 8 9 market value of the Company's assets to an entity which is not controlling, controlled by or under common control with the Company (including, without limitation, such a sale pursuant to section 363 of the Bankruptcy Code), or (iii) the acquisition of a record or beneficial interest in more than 30% of the then outstanding voting securities of the Company, either in a single transaction or a series of transactions, by an entity or "group" within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder which is not an affiliate of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committees" shall mean any official committee appointed by the Office of the United States Trustee and continuing to exist in the Company's reorganization case and the committee of bondholders even if it ceases to be an official committee. "Company" is defined in the introduction. "Confidential Information" means any confidential information of the Company including, without limitation, any study, data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including source or object codes), processes, procedures, formulas, improvements of other proprietary or intellectual property of the Company or relating to its business, whether or not in written or tangible form, and whether or not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof, whether existing now or hereafter discovered or developed. "Confirmation Bonus" is defined in Section 4.3. "Confirmation Date" shall mean the date on which the Bankruptcy Court's order approving a plan of reorganization with respect to the Company is entered on the docket. "Consummation Date" is defined in the introduction. "Date of Termination" means (i) in the event of a termination of the Executive's employment pursuant to Section 7.2, the date specified in the written notice of termination from the Company, (ii) in the event of a termination of the Executive's employment pursuant to Section 7.3, the date 9 10 specified in the written notice of termination from the Executive, (iii) in the event of the Executive's death, the date of the Executive's death and (iv) in the event of the Executive's Disability, the date he is determined to be Disabled. "Disabled" or "Disability" means, with respect to the Executive, the occurrence of an event or events that renders the Executive with respect to his physical or mental condition unable to perform, in the view of the Board and as certified in writing by a competent medical physician, his duties hereunder and which results in his being entitled to benefits under the Company's disability insurance plan. "Effective Date" Shall mean the date on which the plan of reorganization with respect to the Company becomes effective. "Executive" means Paul Hart or his estate, if deceased. "Good Reason" means any of the following: (i) Any termination by the Executive within twelve (12) months following the occurrence of a Change in Control; or (ii) A material breach by the Company of the penultimate sentence of Section 2 of this Agreement, provided that such breach was not caused by any action or inaction over which the Executive had ultimate control. 10. General. 10.1 Notice. Any notice, request, demand or other communication required or permitted to be given under this Agreement shall be given in writing and delivered personally, or sent by certified or registered mail, return receipt requested, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner). If to Executive: Paul Hart 100 Coachman's Road Madison, Mississippi 39110 If to Company: Barry's Jewelers, Inc. 111 West Lemon Avenue Monrovia, California 91016 Attn: CEO Any such notices shall be deemed to be given on the date personally delivered or such return receipt is issued. 10.2 Executive's Representations. The Executive hereby warrants and represents to the Company that the Executive has carefully reviewed this Agreement, including his obligations hereunder, and has consulted with such attorneys and advisors as the Executive considers appropriate in connection with this 10 11 Agreement, and is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of the Executive's prior employment which would be breached or violated by the Executive's execution of this Agreement or by the Executive's performance of his duties hereunder. 10.3 Validity. If, for any reason, any provision hereof shall be determined to be invalid or unenforceable, the validity and effect of the other provisions hereof shall not be affected thereby. 10.4 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 10.5 Tax Withholding. The Company shall provide for the withholding of any taxes required to be withheld by federal, state, or local law with respect to any payment in cash, shares of stock and/or other property made by or on behalf of the Company to or for the benefit of the Executive under this Agreement or otherwise. The Company may, at its option: (i) withhold such taxes from any cash payments owing from the Company to the Executive, (ii) require the Executive to pay to the Company in cash such amount as may be required to satisfy such withholding obligations and/or (iii) make other satisfactory arrangements with the Executive to satisfy such withholding obligations. 10.6 Waiver of Breach: Attorneys' Fees. The waiver by the Company or the Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties to this Agreement will be entitled to enforce its respective rights under this Agreement and to exercise all other rights existing in its favor. In the event either party takes legal action or commences an arbitration proceeding to enforce any of the terms or provisions of this Agreement, the nonprevailing party shall pay the successful party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action or proceeding. 10.7 Governing Law. This Agreement shall be governed by, construed, applied and enforced in accordance with the laws of the state of California, except that no doctrine of choice of law shall be used to apply any law other than that of California, and no defense, counterclaim or right of set-off given or allowed by 11 12 the laws of any other state or jurisdiction, or arising out of the enactment, modification or repeal of any law, regulation, ordinance or decree of any foreign jurisdiction, shall be interposed in any action hereon. 10.8 Specific Performance. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of Section 8 of this Agreement and that the Company may in its sole discretion apply for specific performance and/or injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions in order to enforce or prevent any violations of such provisions of this Agreement. 10.9 Forum. The Executive and the Company agree that the Bankruptcy Court shall have exclusive jurisdiction over any action or proceeding arising out of this Agreement and enter judgment thereon. The Executive and the Company consent to in personam jurisdiction with respect to the Bankruptcy Court, agree that venue will be proper in such courts and waive any objections based upon forum non conveniens. The choice of forum set forth in this Section 10.9 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce same in any other jurisdiction. 10.10 Assignment: Third Parties. The Executive may not assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of his respective rights or obligations hereunder, without the prior written consent of the Company. Except as expressly provided herein, the Company may not assign or transfer this Agreement or any of its rights or obligations hereunder, without the prior written consent of the Executive. The Company may assign its rights and obligations hereunder to its successor in connection with a merger, consolidation, sale of assets, acquisition, recapitalization or other similar transaction (and such successor shall thereafter be deemed the "Company" for purposes of this Agreement). The provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the respective heirs, legal representatives and successors of the parties hereto. 10.11 Prior Understandings. This Agreement, together with the exhibits and schedules attached hereto which are incorporated herein by this reference, embodies the entire understanding of the parties hereto and supersedes all other oral or written agreements or understandings between them regarding the subject matter hereof. No change, alteration or modification hereof may be made except in a writing specifically referring hereto and signed by the Executive and the Chairman of the Board of the Company or his designee. The headings in this Agreement are for convenience and reference only and shall not be construed as part of this Agreement or to limit or otherwise affect the meaning 12 13 hereof. Section references refer to this Agreement unless otherwise specified. 10.12 Further Action. The Executive and the Company agree to perform any further acts and to execute and deliver any documents which may be reasonable to carry out the provisions hereof. 10.13 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.14 Indemnification. During the Term of Employment and thereafter, the Company shall indemnify the Executive to the fullest extent permitted by the bylaws of the Company, and the Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers, with respect to all expenses, judgments, fines, settlements and other amounts (including, without limitation, attorneys' fees) incurred or sustained by the Executive in connection with any action, suit or proceeding to which he may be made a party by reason of being or having been director, officer or employee of the Company or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. 13 14 IN WITNESS WHEREOF, the parties hereto have set their hands as of the day and year first written above. EXECUTIVE: --------------------------------- Paul Hart COMPANY: BARRY'S JEWELERS, INC. By: ------------------------------ Randy McCullough Chief Executive Officer 14 15 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - PAUL HART For the fiscal year of the Company ending as of 5/31/98, the Executive shall be entitled to an aggregate Annual Bonus of $4,000.00 payable in installments upon the achievement of the applicable Annual Bonus Parameters, in accordance with the following schedule:
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS --------------- ----------------------- $4,000 Total owned plus consigned inventory on hand on 12/5/97 equals or exceeds $71,175,000. $4,000 Cash deposits as of 12/26/97 plus gross accounts receivable as of 12/26/97 plus total owned and consigned inventory on hand on 12/26/97 minus accounts payable as of 12/26/97 matches or exceeds$132,618.000. $4,000 G&A expenses(1) as of 12/26/97 match or lower than $44,258,000. $4,000 Total Availability(2) at end of February 1998 of $4.1 Million and payables are maintained within agreed upon vendor terms as of February 1998. $20,000 Receipt by November 1, 1997 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by November 1, 1997 and receipt by February 28, 1998 of 1.4 times the amount of inventory returned to vendors pursuant to the Trade Financing Agreements by February 28, 1998. $41,250 Payable if Barry's achieves projected EBITDABB(3) of $1,553,000 for the FYE 5/31/98. Such portion shall not be payable until the year-end results have been audited and any audit adjustments recorded.
- ------- (1) G&A expenses are the Category II and Category III expenses, as set forth in Schedule 4 of the Budget annexed to the Amended Cash Collateral Stipulation. (2) Total Availability is defined as excess (or deficit) availability under the borrowing base plus total cash balances, as set forth as "Adjusted Availability in Schedule 2 of the Budget annexed to the Amended Cash Collateral Stipulation. (3) EBITDABB is earnings before interest, taxes, depreciation, amortization, bonuses and bankruptcy expenses as set forth in the income statements of the 1998 Financial Projections approved by the Board and submitted to the Committees and the Bank Group on or about November 4, 1997. 15 16 APPENDIX A ANNUAL BONUS FOR FISCAL YEAR ENDING MAY 31, 1998 - PAUL HART The Executive shall receive each installment of his Annual Bonus that corresponds to a particular Annual Bonus Parameter within a reasonable time after such Annual Bonus Parameter has been met; provided that in no event shall the Executive receive the installment of the Annual Bonus that is based on the EBITDABB Requirement until after the Company receives final auditing statements for the fiscal year ending on May 31, 1998. If the Company satisfies an Annual Bonus Parameter and the Executive thereby becomes entitled to the corresponding installment of his Annual Bonus, such installment shall remain payable to the Executive even if the Company fails to satisfy subsequent Annual Bonus Parameters. 16 17 APPENDIX B CONFIRMATION BONUS - PAUL HART
If Satisfaction Date (as defined in the Agreement Occurs) Amount of Confirmation Bonus - --------------------- ---------------------------- Before 5/1/98 $150,000 Between 5/1/98 and 6/30/98 $120,000 Between 7/1/98 and 9/30/98 $90,000
17 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAY-30-1998 JUN-01-1997 MAY-30-1998 19,301 0 55,175 7,099 26,993 95,939 23,548 10,250 110,732 18,784 0 0 0 33,247 (68,111) 110,732 113,873 125,189 75,567 129,198 11,134 6,586 7,025 (22,168) 0 (22,168) 0 0 0 (22,168) (5.50) (5.50)
-----END PRIVACY-ENHANCED MESSAGE-----