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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
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BARRY'S JEWELERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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
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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. [ ]
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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
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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
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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.
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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.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
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)
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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
</TABLE>
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(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
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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.
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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.
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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:
<TABLE>
<CAPTION>
NUMBER OF
STATE STORES
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<S> <C>
California.................................................. 31
Texas....................................................... 31
Arizona..................................................... 7
Utah........................................................ 7
North Carolina.............................................. 6
Colorado.................................................... 5
Idaho....................................................... 5
Montana..................................................... 5
Others...................................................... 19
---------
TOTAL....................................................... 116
=========
</TABLE>
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.
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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.
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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.
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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,
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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.
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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
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<PAGE> 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
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<PAGE> 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.
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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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).*
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
</TABLE>
- ---------------
* 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
<PAGE> 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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/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
</TABLE>
<PAGE> 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
<PAGE> 26
BARRY'S JEWELERS, INC.
(DEBTOR-IN-POSSESSION)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS (Notes 1 and 6)
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1998 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 27
BARRY'S JEWELERS, INC.
(DEBTOR-IN-POSSESSION)
STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 28
BARRY'S JEWELERS, INC.
(DEBTOR-IN-POSSESSION)
STATEMENTS OF SHAREHOLDERS' (DEFICIENCY) EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
---------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ ------- --------- --------
<S> <C> <C> <C> <C>
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)
===== ======= ======== ========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 29
BARRY'S JEWELERS, INC.
(DEBTOR-IN-POSSESSION)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
USEFUL LIVES
IN YEARS
------------
<S> <C>
Leasehold improvements...................................... 10-15
Furniture and fixtures...................................... 5-10
Computers and equipment..................................... 5
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
MAY 31,
----------------
1998 1997
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
F-10
<PAGE> 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:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
MAY 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
F-11
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MAY 31,
-------------------
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Current:
Federal................................................... $ -- $204 $(630)
State..................................................... -- 30 40
---- ---- -----
-- 234 (590)
==== ==== =====
Deferred:
Federal................................................... -- 50 285
State..................................................... -- -- 593
---- ---- -----
-- 50 878
---- ---- -----
$ -- $284 $ 288
==== ==== =====
</TABLE>
F-13
<PAGE> 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MAY 31,
---------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
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%
===== ===== =====
</TABLE>
Significant components of the Company's deferred income taxes are as
follows:
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1998 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Minimum rentals......................................... $ 9,373 $11,616 $10,514
Contingent rentals...................................... 2,216 2,706 2,829
------- ------- -------
$11,589 $14,322 $13,343
======= ======= =======
</TABLE>
F-14
<PAGE> 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING
MAY 31,
- --------------------
<S> <C> <C>
1999.............................................................. $ 6,822
2000.............................................................. 6,099
2001.............................................................. 5,501
2002.............................................................. 5,126
2003.............................................................. 4,910
Thereafter........................................................ 10,746
-------
$39,204
=======
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MAY 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
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
======= ======
</TABLE>
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
<PAGE> 41
SCHEDULE II
BARRY'S JEWELERS, INC.
(DEBTOR-IN-POSSESSION)
VALUATION & QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS/ END OF
OF PERIOD EXPENSES OTHER PERIOD
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
F-17
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
</TABLE>
- ---------------
* 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.
<PAGE> 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.
<PAGE> 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,
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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
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<PAGE> 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-
<PAGE> 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.
<PAGE> 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 -
<PAGE> 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-
<PAGE> 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-
<PAGE> 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.
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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).
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
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<PAGE> 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)
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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:
<TABLE>
<CAPTION>
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS
--------------- -----------------------
<S> <C>
$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.
</TABLE>
- ----------------------
(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.
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<PAGE> 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.
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<PAGE> 17
APPENDIX B
CONFIRMATION BONUS - RANDY MCCULLOUGH
<TABLE>
<CAPTION>
If Satisfaction Date (as defined in
the Agreement) Occurs Amount of Confirmation Bonus
--------------------- ----------------------------
<S> <C>
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
</TABLE>
17
<PAGE> 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
<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS
--------------- -----------------------
<S> <C>
$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.
</TABLE>
- --------
(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
<PAGE> 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
<PAGE> 17
APPENDIX B
CONFIRMATION BONUS - E. PETER HEALEY
<TABLE>
<CAPTION>
If Satisfaction Date (as defined in
the Agreement) Occurs Amount of Confirmation Bonus
- --------------------- ----------------------------
<S> <C>
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
</TABLE>
17
<PAGE> 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
<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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,
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<PAGE> 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.
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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.
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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
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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:
<TABLE>
<CAPTION>
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS
--------------- -----------------------
<S> <C>
$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.
</TABLE>
- --------------------------------
(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.
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<PAGE> 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.
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APPENDIX B
CONFIRMATION BONUS - CHAD HAGGAR
<TABLE>
<CAPTION>
If Satisfaction Date (as defined in
the Agreement) Occurs Amount of Confirmation Bonus
- --------------------- ----------------------------
<S> <C>
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
</TABLE>
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<PAGE> 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
<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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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
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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.
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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
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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:
<TABLE>
<CAPTION>
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS
--------------- -----------------------
<S> <C>
$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.
</TABLE>
- ------------------
(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.
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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
<PAGE> 17
APPENDIX B
CONFIRMATION BONUS - BILL EDGEL
<TABLE>
<CAPTION>
If Satisfaction Date (as defined in
the Agreement) Occurs Amount of Confirmation Bonus
--------------------- ----------------------------
<S> <C>
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
</TABLE>
17
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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:
<TABLE>
<CAPTION>
AMOUNT OF BONUS ANNUAL BONUS PARAMETERS
--------------- -----------------------
<S> <C>
$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.
</TABLE>
- -------
(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
<PAGE> 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
<PAGE> 17
APPENDIX B
CONFIRMATION BONUS - PAUL HART
<TABLE>
<CAPTION>
If Satisfaction Date (as defined in
the Agreement Occurs) Amount of Confirmation Bonus
- --------------------- ----------------------------
<S> <C>
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
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-30-1998
<CASH> 19,301
<SECURITIES> 0
<RECEIVABLES> 55,175
<ALLOWANCES> 7,099
<INVENTORY> 26,993
<CURRENT-ASSETS> 95,939
<PP&E> 23,548
<DEPRECIATION> 10,250
<TOTAL-ASSETS> 110,732
<CURRENT-LIABILITIES> 18,784
<BONDS> 0
0
0
<COMMON> 33,247
<OTHER-SE> (68,111)
<TOTAL-LIABILITY-AND-EQUITY> 110,732
<SALES> 113,873
<TOTAL-REVENUES> 125,189
<CGS> 75,567
<TOTAL-COSTS> 129,198
<OTHER-EXPENSES> 11,134
<LOSS-PROVISION> 6,586
<INTEREST-EXPENSE> 7,025
<INCOME-PRETAX> (22,168)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,168)
<EPS-PRIMARY> (5.50)
<EPS-DILUTED> (5.50)
</TABLE>
